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Yuan hits new high but pace may slow
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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)


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