China said yesterday it will stick to its policy of maintaining a stable exchange rate, after the US Treasury Department said the yuan is undervalued.

Workers at a sock-making factory monitor manufacturing processes with a computer in Yiwu, Zhejiang province. An appreciating yuan has hit a number of Chinese exporters. [File photo]

"We will continue to promote the reform of the renminbi exchange rate mechanism, aiming to keep the renminbi basically stable at a reasonable and balanced level," Foreign Ministry spokeswoman Jiang Yu told a press conference. "It is in the interests of not only China but also the world."

Her comments came in response to a US Treasury report on Wednesday that said China didn't manipulate the exchange rate for export advantage, but it still claimed the yuan remains undervalued.

The report said China has taken steps to enhance exchange rate flexibility and reaffirmed the need to allow the exchange rate to adapt to an equilibrium level.

The renminbi has appreciated by 20 percent between June 2005 and February 2009. And the currency even appreciated slightly against the dollar when most other emerging markets and other currencies fell sharply against the dollar.

Dong Xian'an, chief economist with China Southwest Securities, said the US Treasury's remarks helped avoid a possible clash at a time when international cooperation is critical for pulling the world economy out of recession.

"Both nations will opt for cooperation, which is critical for global economic recovery," Dong said.

As the biggest foreign creditor of the US government, China further increased its purchases of American securities in February. Its holdings of Treasuries rose 0.6 percent to $744.2 billion, according to the latest International Capital Report by the US Treasury Department.

"China's investment and management of foreign reserves will follow the principles of safety, liquidity, value-increment and diversity," Jiang said.

It is estimated that 70 percent of China's $1.95 trillion in foreign exchange reserves is invested in US dollar-denominated assets.

"Currently, US Treasury bills, notes and bonds are considered comparatively safe and the most liquid," said Zhao Xijun, a finance professor from Renmin University of China.

(China Daily March April 17, 2009)