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| Official Chinese newspaper urges 'appropriate' yuan depreciation |
| Shanghai, 10.08.2012 |
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| China's yuan should depreciate to an "appropriate" degree to bolster exports as the economy weakens, an influential state newspaper urged on Monday, in a rare official affirmation of China's newfound desire to let its currency depreciate in a measured way.
The official China Securities Journal said in a front-page commentary that yuan depreciation is now needed due to weakness in both the domestic and global economies.
The world's second-largest economy recorded its weakest growth in three years in the second quarter.
The commentary notes that expectations have now changed for the yuan to depreciate against the dollar after the currency had appreciated steadily until late last year since its landmark revaluation in 2005.
China says the yuan's exchange rate is essentially set by market forces, although the government plays a key role in guiding the rate through its daily fixing of a dollar-yuan midpoint, from which the market rate can move no more than 1 per cent.
Several of China's trading partners have long charged that the yuan was kept undervalued to favour Chinese exporters, although years of steady appreciation and recent economic weakness have boosted government confidence and market views that the yuan is fairly valued and may now be due for a period of depreciation.
"The opinion that the yuan has entered a period of depreciation has now gradually been accepted," the newspaper said.
"Although expectations of yuan deprecation could spark some short-term capital outflows, they will be beneficial by enhancing exports and helping to ease inflation worries," it said.
An increasing number of Chinese companies now expect that the yuan will depreciate in coming months.
The yuan has dropped 1.23 per cent against the dollar so far this year, and traders say they believe it may have room to fall nearly 1 per cent more over the remainder of the year
Reuters
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