A spokeswoman for China's Ministry of Foreign Affairs said Wednesday that the country will continue pushing forward with reform of its exchange rate formation mechanism, in response to the US Treasury's expression of "serious concerns" over the weakness of the yuan.
In a semiannual report to Congress Tuesday, the US Treasury expressed doubts over China's resolve to move toward a market-determined exchange rate.
"Recent developments in the ... exchange rate raise particularly serious concerns if they presage a retreat from China's announced policy of allowing the exchange rate to reflect market forces," it said.
At a regular briefing in Beijing, ministry spokeswoman Hua Chunying said that China will continue to develop its managed floating exchange rate regime, and that it expects the US to deal properly with economic and trade issues between the two countries, including the exchange rate.
Zhou Xiaochuan, governor of the People's Bank of China (PBC), the central bank, said on April 10 during the Boao Forum for Asia that the PBC will gradually pull back from regular intervention in the yuan's foreign exchange rate and pursue a more market-determined exchange rate regime.
Although it no longer lists China as a currency manipulator, the US Treasury singled out the country among major US trading partners for its currency measures, warning that China's currency was still too devalued.
The yuan appreciated by 2.9 percent against the US dollar in 2013, but this year the exchange rate has depreciated by "a marked 2.68 percent year-to-date [Tuesday]," said the report.
Analysts said this two-way fluctuation in the exchange rate is not unusual, and that the yuan is still likely to appreciate against the US dollar in 2014.
The weakening of the yuan this year is mainly the result of China's slowing economic growth and narrowing trade surplus, which decrease demand for the currency, Lian Ping, chief economist at Bank of Communications, told the Global Times Wednesday.
Data from the General Administration of Customs showed that in the first quarter of 2014, China's trade surplus narrowed 60.9 percent from a year earlier to 102.83 billion yuan ($16.52 billion).
The State Administration of Foreign Exchange (SAFE) and the PBC could not be reached for comment by press time.
SAFE explained in a statement on its website in late February that the yuan's recent fluctuation had been a result of fine-tuning of market trading strategies, but it was still within the normal range, unlike currency swings in developed markets and some other emerging markets.
Zhang Lei, a macroeconomic analyst with Minsheng Securities, told the Global Times that the US pullback from its quantitative easing (QE) program had pushed up demand for the US dollar and thus the price of it, contributing to the yuan's slide as well.
However, the decline is unlikely to last for long, as China's trade surplus and capital inflows will be maintained in 2014, said Lian, adding "there will be ups and downs this year."
The yuan's exchange rate has been stable in April, and the currency is expected to appreciate in the third or fourth quarter, Xu Gao, chief economist with China Everbright Securities Co, told the Global Times Wednesday.
Both Xu and Lian predicted that the yuan will appreciate by some 3 percent against the US dollar in 2014.
The PBC widened the floating range for the yuan against the US dollar from 1 percent to 2 percent in March, which is a step toward China's intention of letting market forces determine the exchange rate, said Xu.
Lian noted that the policy will be more open in the future, which will better reflect market flexibility.