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By Iris Ouyang
     BEIJING (MNI) - The yuan should remain relatively stable against the dollar
this year, in line with U.S. demands in trade talks, and China will seek to
adjust its subsidies for state-owned enterprises in line with World Trade
Organisation rules, a researcher at a government think tank told MNI in an
interview.
     "The yuan should stay at around 6.7000 against the dollar this year,
without big fluctuations," said Zhang Huanbo, deputy director of the U.S.-Europe
Research Institute and a macro-economy researcher at the China Center for
International Economic Exchanges, a think tank managed by the economic planning
body National Development and Reform Commission. "Because both the Chinese and
U.S. economies should be relatively stable."
     "Our balance of payments surplus is relatively big, which increases demand
for the yuan, so there'll be some upward pressure," Zhang noted. "But from the
perspective of economic growth, a slight depreciation would benefit exports.
Balancing these two elements, the yuan should be relatively stable."
     China doesn't want to intervene in foreign exchange markets other than to
curb speculation, he said, noting that no countries want big currency
fluctuations which impact on trade.
     "We are willing to reduce intervention in the market, as we have been
reforming our exchange rate system," he said, adding that China will need
tighter regulation on capital flows to guard against speculation as its economy
opens up more.
     "We need more opening up to allow more capital to enter China," he said.
"When the capital pool is enlarged, our capability to counter risks should be
stronger."
     --SUBSIDIES
     Progress towards internationalisation of the yuan, which slowed last year
amid a sluggish global economy, also needs to be sped up, Zhang said.
     "We need to build offshore yuan trading centres, and to innovate with
yuan-denominated investment products such as bonds. Through these products we
can stabilize the value of the yuan."
     China is also examining its subsidy policies to steer them into line with
World Trade Organization rules, another key U.S. demand, Zhang said.
     "We've subsidised industries strictly within the scope of WTO rules since
joining the organization," he said. "Some subsidy policies may to some extent
distort market competition, so we need to gradually correct them, so they follow
WTO rules."
     Zhang said China would refer to WTO rules and not accept U.S. demands on
standards for subsidies, which he said were needed for development.
     He predicted fewer requirements for joint ventures in China, which
Washington says has been one of the major channels for Chinese companies to
transfer technology from American companies.
     "We have never forced tech transfer," Zhang said. "Companies sharing
technologies is market behaviour. Previously China has required foreign
companies to participate in joint ventures in order to invest in some
industries, but we are gradually reducing such requirements."
     Zhang saw further opening of the financial sector, and fewer restrictions
on foreign car makers' investments in China. Authorities also need to work to
disseminate a culture of respect for intellectual property, and not just punish
offenders, he said.
     Private and foreign companies would also be allowed to increase their
investment in state-owned companies, Zhang said.
     "The next step of SOE reform is towards a direction of mixed-ownership,
that is to allow private companies to participate," he said.
--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com
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