Aug. 28 (Bloomberg) -- A Chinese central bank official said a stronger currency, growing trade surplus and accelerating inflation are potentially ``destabilizing'' to the world's fastest-growing major economy.
Zhang Tao, deputy international department director of the People's Bank of China, said today in Beijing at the Third Beijing-Tokyo Forum that failure to deal with them may lead to an economic ``turning point.''
China's economy expanded 11.9 percent in the second quarter, the fastest in more than 12 years. Central Bank Governor Zhou Xiaochuan has raised interest rates four times this year, trying to curb price growth, ballooning asset values and overcapacity in manufacturing.
U.S. lawmakers have pushed China to allow faster gains in its currency, which they say is undervalued to give Chinese exporters an unfair advantage. The renminbi, as the currency is also known, has gained 9.5 percent since the end of the fixed exchange rate in July 2005.
``We want the renminbi's exchange-rate system to be more flexible and more responsive to market demand and supply,'' Zhang said today. ``But the exchange rate doesn't determine everything.''
China's trade surplus surged 67 percent in July from a year earlier to $24 billion, helping send the country's foreign- exchange reserves to $1.3 trillion. Consumer prices rose by 5.6 percent, the highest rate in more than 10 years as money supply climbed 18.5 percent, the most in more than a year.
The government is setting up a new investment company that will buy $200 billion of reserves from the central bank to seek higher returns. China wants to ``explore a road different from the traditional way'' in managing the reserves, Zhang said without elaborating.
