The yuan jumped to a new post-revaluation high against the US
dollar yesterday, but economists said the pace could slow as the
nation's economic circumstances change.
The yuan's central parity rate set by the central bank was
7.1667 to the dollar, up from Friday's 7.1763. Market trading also
reflected the upward trend.
The yuan has appreciated about 1.8 percent this year after a
nearly 7 percent revaluation last year.
The weakening US dollar is a large factor behind the rising
yuan, but faster appreciation is also being used to ease pressure
from increasing liquidity, said Sun Lijian, a finance professor at
Fudan University in Shanghai.
Last year, China raised the interest rate six times and
increased the proportion of money commercial banks must keep in
reserve 10 times, as it tried to mop up liquidity and fight
inflation.
"But it wasn't enough," Sun said.
Faster appreciation of the yuan has seen the nation's exports
slow, Sun said. Meanwhile the trade surplus fell to $19.49 billion
last month, according to Customs figures. That compares with $22.7
billion in December and the record high of $27.1 billion in
October.
Sun warned that many exporters are feeling the pinch as the
trade surplus starts to drop. "They need more time to adapt to the
currency changes."
Moreover, China's domestic demand has not been sustainable and
strong enough to support the economy, he said. "The government
should rethink its yuan policy to stabilize the pace of
appreciation."
Sun Mingchun, an economist with Lehman Brothers in Hong Kong,
agreed the yuan might not continue its current strong momentum in
the coming quarters.
The recent snowstorms that swept across central and southern
China - the worst in 50 years - are set to drag down growth to 9.2
percent year-on-year in the first quarter, Sun said.
Although growth may climb back to 10.5 percent in the second
quarter, Sun Mingchun forecast that as the global economic slowdown
starts to bite in the second half of this year, China's economy
could slide again.
And inflation could fall sharply after strong growth in the
first quarter.
The yuan's appreciation could slow "in response to easing
inflationary pressure and weaker exports", he said.
(China Daily February 19, 2008)
