* Official commentary defends caution in yuan liberalisation
* Says critics do not understand intricacy, risk
* Financial reform insufficient without changes to land, state industry, tax
SHANGHAI, July 21 (Reuters) - China’s moves to liberalise its currency have been courageous given the economic risks, and next areas for reform include land policy, state-owned industries and taxation, the official Xinhua news service said in a commentary published on Sunday.
The news agency criticised Western politicians who have accused China of keeping its currency artificially low for ignoring the intricacy of the issue even while manipulating their own currencies.
“Tens of thousands of low-end manufacturers operating at a low profit margin have had to take a significant loss over a stronger RMB yuan,” Xinhua said in the commentary, using the initials for renminbi, the official name of the currency.
“The world is awash with easy money from the United States and Japan, which seeks higher returns from emerging economies, including China. Hot money flows in and out of China could paralyse the country’s macroeconomic policy tools.”
China has had to balance the benefits from a freer currency, including curbing inflation and speculative flows, against the risk of severe economic shock such reforms could bring, it said.
“To allow more flexibility for China’s yuan is easier said than done.”
The commentary highlighted the recent decision by the People’s Bank of China to scrap the floor on lending rates, announced on Friday, as one in a sequence of steps to continue to reform the way credit is allocated and risk priced in the world’s second-largest economy.
“China’s financial reform cannot be done overnight; yet it has no way back.”
While financial reform was critical, it must be accompanied by reforms in other areas of the economy, including “land, state monopoly, and fiscal policies”, Xinhua said.
Finance Minister Lou Jiwei was quoted in a Xinhua interview published late on Saturday saying that China is looking to business tax reform and the easing of paperwork requirements to help stimulate growth and sustain profitability.
Reporting by Pete Sweeney; Editing by Robert Birsel