By Kevin Hamlin - Bloomberg News

Chinese central bank governor Zhou Xiaochuan said the nation should be careful in exiting anti-crisis policies, suggesting that the government may not let the yuan appreciate soon against the dollar.

“We must be very cautious about the timing of normalizing the policies, and this includes the renminbi rate policy,” Zhou said at a press briefing in Beijing today, using another term for the Chinese currency. A global recovery “isn’t solid,” he said.

Premier Wen Jiabao yesterday pledged a moderately loose monetary stance and a ‘basically stable’’ yuan even after the world’s third-biggest economy expanded 10.7 percent in the fourth quarter. The government is already winding back credit growth as it balances the threat from inflation against the risk that weak recoveries in the U.S. and Europe will cap export demand.

“They’re afraid of applying the brakes too drastically,” said David Cohen, an economist with Action Economics in Singapore. “China needs higher growth than just about anywhere else to sustain employment and maintain social stability.”

The central bank has kept the yuan at about 6.8 per dollar since July 2008, aiding exporters and fueling tensions with trading partners. The nation’s package of measures to respond to the global financial crisis included a 4 trillion yuan ($586 billion) stimulus package and the scrapping of quotas limiting bank lending.

Zhou Versus Traders

Zhou’s comments contrast with some traders becoming more bullish on the yuan, as they bet that export gains and climbing prices will overcome vows to maintain a dollar peg.

The premium charged for the right to buy yuan in three months over contracts to sell has more than tripled this year to the most among 44 currency options tracked by Bloomberg. The 2 percentage point difference is the most since China last ended a fixed-exchange rate in July 2005, so-called risk-reversal rates show.

The government is targeting 8 percent economic growth and about 3 percent inflation this year, Wen said yesterday in a speech that’s the equivalent of a U.S. State of the Union address.

It’s too early to say that China’s exports have recovered, Commerce Minister Chen Deming said at today’s briefing after the nation reported increases in December and January shipments from a year earlier.

Trade Surplus

Su Ning, a deputy central bank governor, said separately today that gradual, long-term gains by the currency were in China’s interests and a one-off appreciation wouldn’t eliminate the nation’s trade surplus. Chen said the excess of exports over imports fell 50.2 percent in January and February from a year earlier.

Zhou said that China is reforming its currency in the long term and current policies are short-term adjustments because of the crisis. China will exit its crisis stance “sooner or later,” the central banker said.

Policies must stay flexible because it’s difficult to make accurate economic forecasts at the beginning of the year and balancing growth and inflation concerns is “complicated,” he said.

U.S. President Barack Obama said in a Feb. 9 interview with Bloomberg BusinessWeek that a stronger currency would help China to deal with “a bunch of bubbles” in its “potentially overheating” economy.

IMF’s Verdict

Zhou said today that the International Monetary Fund is the key judge of currency policies and China has taken its views into account. He also said that exchange-rate issues shouldn’t be politicized.

IMF Managing Director Dominique Strauss-Kahn has repeatedly called the yuan “undervalued.”

In a statement before the briefing, the central bank said that it will promote a more diversified international currency system. That’s after Zhou last year urged moves to explore a new global currency to reduce reliance on the dollar.

Chen said that the U.S. shouldn’t blame the Chinese currency for American trade deficits.

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