Yuan continues crawling appreciation, revaluation pressures continue

Exactly a year after China's yuan was removed from its peg to the U.S. dollar, it maintained its snail's pace rise to hit a new high of 7.9897 to the dollar on Friday.

However, a government spokesman denied the possibility of a sharp rise in value, despite continued complaints from some U.S. companies that the yuan is undervalued by up to 40 percent, giving China's exporters an unfair price advantage and hurting foreign rivals in the Chinese market.

A year ago on Friday, China revalued its currency by two percent and scrapped its peg to the dollar, linking it to a basket of currencies.

The yuan has since gained roughly 3.5 percent, less than some daily movements of the dollar or Euro.

The United States says the yuan's rise is too small, while many Chinese officials and economists argue China's currency reform reflects a major concession as a new floating mechanism has been imposed on the exchange rate.

"The yuan's market character is more exposed. The currency is seeing gradually stronger flexibility, moving up steadily, but with stability," Tan Yaling, a financial analyst at Bank of China, said.

She said China should raise the flexibility of its currency "cautiously in light of opportunities and conditions". At present, the yuan was only allowed to fluctuate 0.3 percent per day against the U.S. dollar.

On Tuesday, the National Bureau of Statistics spokesman Zheng Jingping said, "Though there is still room for improvement of the determination mechanism for the yuan's exchange rate, it is clear that another one-off, government-ordered revaluation will not happen."

Zheng's remarks quashed speculation that China would revalue its currency by a big margin in a move to curb money supply as a way of cooling economic growth, which hit 11.3 percent in the second quarter.

Under China's currency control policies, the central bank buys a large proportion of domestic firms' foreign currency earnings, a policy that has catapulted the country's foreign currency reserves to the world's largest -- standing at 941.1 billion U.S. dollars by the end of June -- and expanding money supply.

Zheng said the government could resort to other measures to ease the ongoing investment binge, which is fueling economic expansion.

The central bank also said in its latest quarterly report that the yuan's rate would remain stable at a "rational equilibrium".

Source: Xinhua