China will be "more proactive and progressive" in letting the market set the currency's value, Finance Minister Jin Renqing said.

"We have given the market a more important role in deciding the exchange-rate level and the market is playing a more important role already," Jin said at the end of a two-day meeting of 21 Asia-Pacific finance ministers in the Vietnamese capital of Hanoi.

The yuan this week reached its highest against the dollar since China ended its peg to the US currency in July 2005, after the central bank on Aug. 9 said it would use exchange-rate policy to help cool export-led economic growth.

U.S. Treasury Secretary Henry Paulson, who attended the meeting, said a more flexible yuan would help cut global trade imbalances.

"We could actually see a faster appreciation of the yuan over the next few months'' as China seeks to slow the economy, said Hans Goetti, managing director in Singapore at Citigroup Private Bank, which oversees about $1.5 billion in Asia. "At the end of the day, China will decide, based on their domestic agenda, how fast they will move."

He said Jin's statement didn't suggest a change in policy because it emphasized a gradual strengthening.

China will "approach the reform in a more proactive and progressive way," Jin told reporters. Currency changes won't take place "with one push," he said.

Stronger Yuan

A stronger yuan will make Chinese goods more expensive abroad relative to its major trading partners and help narrow the U.S. trade deficit. U.S. lawmakers blame China for holding the value of the yuan artificially weak to keep Chinese products cheap on international markets.

Senators Charles Schumer and Lindsey Graham told Paulson in July they want to see the yuan rise by Sept. 30, or they will proceed with legislation to impose a 27.5 percent duty on Chinese goods.

Last year, the U.S. trade deficit reached a record $716.7 billion, or 5.8 percent of U.S. gross domestic product. China's 2005 trade surplus reached a record $102 billion, helping fuel an economy that grew 11.3 percent in the second quarter.

Paulson, under pressure to push China to let the yuan appreciate, was on his first visit to Asia since he took office two months ago.

The former Goldman Sachs Group Inc. chief executive officer has a reputation as a China specialist, based on his 70 or so visits there before President George W. Bush chose him to succeed John Snow.

'Currency Flexibility'

The world needs "currency flexibility in east Asia and China," Paulson told students today at a university in Hanoi.

The yuan has gained 2 percent against the dollar since the People's Bank of China ended the currency's peg to the dollar on July 21, 2005. The currency was little changed at 7.9485 against the dollar as of 5 p.m. in Shanghai, according to data Bloomberg compiled. It reached 7.9334 on Sept. 5.

Jean-Claude Juncker, the Prime Minister of Luxembourg and chairman of a committee of euro-region finance ministers, said in April that "more could be done" with Chinese "monetary decisions," though he said "we don't want to lecture publicly our Chinese and Asian friends." German Deputy Finance Minister Thomas Mirow told reporters yesterday the yuan will be discussed at next week's G-7 meeting.

China's surplus with the European Union, its largest trading partner, surged to 106 billion euros ($131 billion) last year, according to Eurostat. Chinese data puts the 2005 deficit lower, at $70 billion.

Stall Inflation

Officials including Tang Xu, a research director at the People's Bank of China, have said the country needs a stronger currency to stall inflation. The yuan is a denomination of the renminbi, China's currency.

"I welcome the move by the Chinese authorities to ensure further flexibility in the renminbi," Australian Treasurer Peter Costello told reporters in Hanoi. "As China further develops, there will be a capacity to sequence reforms and introduce further flexibility."

Restraints on the yuan are making it more difficult for China's central bank to control the money supply and the surge in bank lending, which is fuelling an investment boom the government is trying to cool.

A record trade surplus, rising foreign investment and inflows of capital betting on a yuan appreciation have flooded the Chinese financial system with cash. The World Bank says failure to cool expansion and lending might lead to a slump in the world's largest consumer of copper, cement and steel.

Reserves Double

China's foreign-exchange reserves doubled in the past two years, reaching $941 billion at the end of June, more than the value of Russia's economy in 2005.

China's holdings, which overtook Japan's as the world's largest in February, could top $1 trillion this year, according to economists at Standard Chartered Bank.

Jin reiterated the government's policy of "gradual" yuan reform, saying his country's economy is too small for any changes to the currency's value to balance global currency flows.

"China only occupies less than 5 percent of global GDP," he said. "I don't think the China exchange rate can play such a great role in the imbalances of the global economy."

China's government has said it must avoid rapid fluctuations in the yuan's value because domestic financial institutions don't have enough hedging experience and too many exporters, operating on thin profit margins, would be put out of business.

"China will do it at its own pace, the way it suits them, and nobody else's," said Citigroup's Goetti.