UPDATE 2-Yuan rise is long-term trend -China c.bank adviser

* Adviser says yuan rise of 3-5 pct per year is acceptable

* Says China can agree on current account surplus cap

* Latest rate rise not aimed at property- c.bank
researcher
(Updates with c.bank researcher comments)

BEIJING, Oct 29 (BestGrowthStock) – The yuan (CNY=CFXS: ) needs to be
more flexible and appreciation is the long-term trend for the
currency, an academic adviser to the People’s Bank of China
said on Friday.

Li Daokui, who sits on the central bank’s monetary policy
committee, also said that exchange rate adjustment should be
based on domestic factors and not just on external pressure.

“In the long run, the renminbi needs to appreciate if
market forces determine that,” Li, a professor at Tsinghua
University, told an academic forum. The renminbi is the
official name of the yuan.

Li said a 3-5 percent annual pace of appreciation, about
the same as before the global financial crisis, would be
regarded as “gradual” and would be acceptable to the
government.

China had let the yuan gain nearly 3 percent against the
dollar since it was depegged on June 19, but it has pushed the
exchange rate back down by about 0.6 percent over the past two
weeks. Analysts believe that the currency is still on course to
rise and that the central bank has been making good on its
pledge to introduce more two-way volatility in the exchange
rate.

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China’s FX stockpile graphic: http://r.reuters.com/wuf38p

Dollar/Asia FX graphic: http://r.reuters.com/vyg38p

BV: China lifts rates; what about the yuan? [ID:nLDE69I1YC]

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A stronger yuan is seen as a key component of China’s
reforms to cut its trade surplus and contribute to the
rebalancing of the global economy. Critics say that an
undervalued yuan gives Chinese exporters an unfair advantage.

Li said that China’s trade surplus would be greatly reduced
over the next three years as the government enacts reforms to
restructure the economy.

NOT TARGETING PROPERTY

At G20 finance minister meetings in South Korea earlier
this month, the United States proposed that countries set a
target of capping either their current account surplus or
deficit at 4 percent of gross domestic product.

Although rejection of the proposal was virtually unanimous,
it has found a slightly more receptive audience in China.

“We have the economic and political foundation to reach an
agreement,” Li said.

But he added that China would not want to accept any
imposed standards or external checks and would only set targets
of its own volition.

Yi Gang, a central bank vice governor, has said that China
is drafting a plan to limit is current account surplus to less
than 4 percent of GDP over the next three to five year.

China’s inflation is essentially driven by rising costs,
including higher wages and raw materials prices, Li said.

Zhang Jianhua, the head of the research bureau at the
People’s Bank of China, told the forum that the latest interest
rate rise was not aimed at taming property prices.

“China’s housing prices shot up more than 40 percent from
last year to this year, how could China match that with
interest rate rises?” Zhang said.

“The interest rate increase was a right decision. But if
you view it as an action to address rising housing prices, it
would be inappropriate,” he added.

The central bank, which unexpectedly raised interest rates
last week for the first time in nearly three years, said on
Wednesday that inflationary pressures should not be overlooked.
[ID:nTOE69Q060]

Consumer price inflation in September hit a 23-month high
of 3.6 percent from a year earlier and most analysts expect it
to rise a little further.

(Reporting by Langi Chiang, Zhou Xin and Simon Rabinovitch;
Editing by Jacqueline Wong and Daniel Magnowski)

UPDATE 2-Yuan rise is long-term trend -China c.bank adviser