A well-known Chinese economist said yesterday the country's currency, the yuan, was likely to stay on the slow-appreciating track despite a recent sharp fall.  

 

The yuan hit a new high last Thursday but on Monday there followed its sharpest fall -- 203 base points -- since a revaluation reform got underway in July of 2005. The official exchange rate yesterday was 7.9827 yuan to the US dollar.

 

Zhang Liqun, a research fellow at the Development and Research Center of the State Council said, "Even if the yuan slips back temporarily expectations about its overall rise will not be altered."

 

Appreciation pressures on the yuan stem from China's huge trade surplus -- which hit a record US$14.6 billion in July, a rise of 40.6 percent on the same month last year -- and skyrocketing foreign exchange reserves, he said in an interview with Xinhua News Agency.

 

His remarks were echoed by Ha Jiming, chief economist at the China International Finance Co Ltd, who predicted the yuan would appreciate by 4 percent by the end of the year compared to its level prior to the revaluation.

 

US manufacturers argue the yuan is undervalued by as much as 40 percent, making Chinese goods cheaper in the US and their products more expensive in China.

 

In July last year the government allowed the yuan to appreciate by 2 percent against the US dollar and abandoned its peg to the currency in favor of a restricted float against a group of foreign currencies. The yuan has since risen 3.6 percent against the dollar.

 

It is allowed to move only within a 0.3 percent band against the dollar per day and Ha said the government-set range was expected to widen to 1 percent by the end of the year.

 

The People's Bank of China, the country's central bank, said in a recent monetary report that "market forces would play a bigger role in determining the yuan's value and that the currency would gradually be made more flexible."

 

(Xinhua News Agency August 17, 2006)