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Firmer China yuan helps curb inflation: World Bank chief

Sep 5, 2011, 12:09 a.m.
World Bank Chief Robert Zoellick gestures while speaking at the Asia Society's annual dinner in Sydney August 14, 2011. REUTERS/Tim Wimborne

BEIJING (Reuters) - Recent gains in the Chinese yuan have helped curb price rises in the country, but it's too early to conclude that Beijing has won its battle on inflation, World Bank President Robert Zoellick said on Monday.

Over the longer term, China needs to rebalance its economy by boosting consumption because the country cannot rely on exports and investment alone to drive growth, Zoellick told reporters in Beijing where he is ending a five-day visit to China.

"In the near term, as Premier Wen Jiabao mentioned, inflation is the most important issue for China. And this is driven in part by food prices," he said.

"And I think the Chinese authorities are sensitive to it because if you look back at greater Chinese history, inflation can be...very destabilizing."

Premier Wen Jiabao said last week that controlling inflation will remain a top priority in coming months even as the world economy wobbles.

Worried that rising prices could stir social unrest, the central bank has raised interest rates five times and bank reserve requirements nine times since October.

In addition, the central bank has allowed the yuan to appreciate at a faster pace to help tackle imported inflation.

The yuan has now risen 3.17 percent against the dollar so far this year and 6.87 percent since the 2010 depegging.

Although Beijing does not see inflation getting out of hand, it remains elevated, hitting a three-year high of 6.5 percent in July.

Chinese leaders don't believe tinkering with the yuan's regime alone will be enough to achieve economic rebalancing, Zoellick said.

Chinese officials have long argued that a firmer yuan will only be part of a policy initiative to help rebalance the world's second-largest economy toward relying more on domestic demand.

Europe and Japan face structural growth problems, and any failure by European governments to ward off a debt crisis could put pressures on European banks, Zoellick said.

Zoellick is in the Chinese capital to lead a study on how China can keep increasing its productivity and per capita national income in coming years.

(Reporting by Koh Gui Qing, Writing by Kevin Yao; Editing by Ken Wills)

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