China's Wen says yuan should appreciate

March 14, 2011 at 7:59 PM

BEIJING, March 14 (UPI) -- Chinese Prime Minister Wen Jiabao said Monday the renminbi, China's currency, should be allowed to appreciate slowly.

Many finance ministers in the international community have been pressing China in recent years to allow China's currency to appreciate, given that the undervalued renminbi contributes to the trade imbalance. China allowed its currency to appreciate last year, but not nearly as far as many had hoped.

At a press conference in Beijing, the prime minister said the change should happen "step by step," and under the dictates of the Communist Party, The New York Times reported Monday.

Wen said China must "mop up excess liquidity" in the economy, which helped the country's gross domestic product to expand 10.3 percent in 2010 -- but also allowed inflation to soar. Consumer prices in China rose 4.9 percent in February, higher than the 4 percent target set for 2011.

Wen blamed inflation on higher fuel costs and on the U.S. Federal Reserve's $600 billion quantitative easing program, designed to pump liquidity in the U.S. market, but prompts an increase in overseas investments, as well.

"Inflation is like a tiger. Once set free, it will be very difficult to put the tiger back in its cage. We must not take this issue lightly," Wen said.

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