The yuan rose and ended the year with a seven-percent advance,
as strategists raised their forecasts after China's central bank
signaled faster gains are needed to cool the economy.
The currency advanced twice as fast as in 2006 as policy makers
sought to curb inflation and cut a record trade surplus that has
strained ties with the United States and Europe. It gained 0.9
percent this week, prompting ING Bank NV, Deutsche Bank AG and
Lehman Brothers Holdings Inc to adopt more aggressive yuan
predictions, Bloomberg News surveys show.
"The government will choose to use appreciation of the yuan to
solve the inflation problem," said Shen Minggao, Citigroup's
Beijing-based economist. "The appreciation pace may even quicken
next year."
The yuan rose 0.18 percent to 7.3041 per US dollar as of the
5:30pm close in Shanghai, according to the China Foreign Exchange
Trade System. The currency's gain this week was the biggest since
the end of a dollar peg in July 2005. The yuan touched 7.3015 per
US dollar, the strongest since the end of the link. Citigroup
forecasts the yuan will rise 7.6 percent next year to 6.79.
The median estimate of 28 analysts surveyed by Bloomberg is for
a rate of 6.88 by the end of 2008. Forward contracts show traders
are betting on an 8.5-percent advance in the yuan to 6.7315 in the
next 12 months.
China's trade surplus, which surged 52 percent in the 11 months
through November to US$238.1 billion, has driven foreign-exchange
reserves to a record US$1.46 trillion, making it difficult for the
government to slow growth and tame asset-price inflation.
Gains in the yuan will help "lower import costs and curb low-end
exports," Yao Jingyuan, chief economist of the National Bureau of
Statistics, told a seminar in Beijing on Thursday. The central bank
said in a December 21 statement it plans "forceful measures" to
limit money supply, including a more flexible exchange rate. China
allows the yuan to fluctuate 0.5 percent on either side of a daily
rate set by the central bank.
The US trade deficit with China is still set to exceed last
year's record of US$232.5 billion.
(Shanghai Daily December 29, 2007)
