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Yuan appreciation nears limit: experts

By Fang Yunyu (Global Times)

08:45, May 13, 2013

The Chinese yuan has limited room to appreciate further and may be depreciated to foster the country's struggling exports and the broader economy, according to experts and insiders Sunday.

On Friday, the central parity rate of the yuan hit 6.2016 against the US dollar after advancing to a record high of 6.1925 in the previous day.

So far, the yuan's central parity has strengthened 881 basis points this year, while last year it gained 146 points.

"The current rising yuan has put many export-oriented Chinese companies under escalating pressure," Tan Yaling, head of the China Forex Investment Research Institute, told the Global Times Sunday, noting that as far as she is concerned, a 6.5 yuan rate against the US dollar is the upper limit for exporters' survival.

A glass exporter, based in East China's Zhejiang Province, told the Global Times on condition of anonymity that the recent continuous appreciation of the yuan has shrunk the value of her orders.

"My overseas consumers pay me in US dollars, and they will only pay the full bill when I finish and ship the products. My profit margin is already below 2 percent, and is declining due to the rising yuan and domestic inflation," the exporter said, adding that she is afraid she may have to close her factory soon as putting her savings in the bank can generate more money.

China's current one-year deposit rate is 3.25 percent.

However, the country's export data tells a different story.

According to customs data released last week, China's exports expanded 14.7 percent year-on-year in April, accelerating from the 10 percent pace in March, while imports rose to 16.8 percent, up from March's 14.1 percent growth. That led to an $18.2 billion trade surplus in April, rebounding from a deficit of $884 million in March.

Tan said the figures don't describe the real export situation because some companies are conducting arbitrage - capitalizing on the price difference between two markets - to make money, which pushes up export data.

Li Jie, director of the Foreign Reserves Research Center at the Central University of Finance and Economics, told the Global Times Sunday recent appreciation of the yuan has jeopardized the broader economy.

"If the current situation continues, China is facing the possibility of depreciation or even currency crisis in the coming years," said Li, noting that the currency rate is closely linked to the status of the whole economy, and the Chinese economy is slowing down, which makes depreciation a suitable solution.

"Monetary easing in other countries, like the US and Japan, has caused capital inflows into China and therefore pushed up the yuan rate," said Li.

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