Yuan gains 3.4% with more growth forecast
(Shanghai Daily)Updated: 2007-01-02 09:05 The yuan gained 3.4 percent in the past year, and economists widely expect the Chinese currency will maintain growth of three to 5.7 percent this year.
The yuan ended at 7.8051 against the United States dollar in Shanghai on Friday, the last trading day of 2006. It has appreciated 5.7 percent since the fixed exchange rate of 8.28 to the greenback was abandoned on July 21, 2005.
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"China will continue to strengthen and adjust financial control mechanisms, execute a stable currency policy, improve foreign exchange management, and push for financial reforms and innovation," Zhou Xiaochuan, governor of the People's Bank of China, said yesterday.
China's central bank on Friday relaxed currency controls to make it easier for individuals to buy stocks and bonds abroad, in the hope that easier overseas investment will reduce demand for the yuan and in turn reduce its value.
China's swelling trade surplus is the reason for the yuan's strength. It's estimated to grow to a record US$168 billion in 2006 as exports stay high, despite government measures to rein in overseas sales, the China Customs Bureau said in early December. It marks a 64 percent year-on-year growth when compared with 2005.
"The bigger the surplus, the more reason the government will push for faster yuan appreciation," said Stephen Green, a Standard Chartered Bank analyst.
Any efforts to address the external imbalance, such as currency revaluation to increase the cost of exports, could lead to growth moderation, said a Citigroup report.
The large trade surplus pushes China to buy more foreign exchange. China's forex reserves have already surpassed US$1 trillion - the world's biggest.
The forex flush has forced the Chinese government to offer more liquidity, which triggers worries of credit-driven overheating in the market.
Several senior government officials, including Vice Premier Wu Yi and Deputy Governor of the central bank Wu Xiaoling, have said China will further push its reforms, including the foreign exchange sector.
China has ruled out a one-off appreciation and the markets expect a strengthening yuan in the long haul.
Standard Chartered expected a three percent growth this year. Goldman Sachs predicted yuan will gain another 5.7 percent against the US dollar this year and maintain a 5.3 percent appreciation in 2008.
The central bank made the central parity on average weighted quotes from 10-plus market makers.
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