China Analysts: Yuan May Not Be On One-Way Appreciation Track

     BEIJING (MNI) - The recent appreciation of the yuan has prompted more

confidence over its future outlook, but its strengthening does not mean it is on

a one-way appreciation track, according to analysts who gathered in Beijing for

a recent forum. 

     "The yuan exchange rate has now entered a two-way fluctuation track, which

is healthier," Guan Tao, former head of the department of international payments

at the State Administration of Foreign Exchange and a senior researcher at the

China Finance 40 Forum, said Friday at the China-Singapore Executive Forum 2017,

co-sponsored by Caixin Media and the Singapore Chamber of Commerce and Industry

in China.

     "At the beginning of this month the yuan has strengthened back to a level

before its depreciation last year," Guan said. "We can't simplify that to mean

the yuan is already on a one-way appreciation track since there are still

uncertainties domestically and in the outside environment."

     Since the end of June, the yuan has strengthened significantly, ending

Monday at 6.5618 to the U.S. dollar, from 6.8387 on June 23, or an increase of

4%, according to data from Wind Information.

     Sheng Songcheng, a counselor to the People's Bank of China, said at the

forum that it was difficult to say whether the yuan had entered a period of

stability. "The yuan in the long term is in an appreciation process; the

depreciation of the past one to two years was only short term."

     Sheng said there were still many opportunities to reform the yuan exchange

rate formation system. He stressed that exchange-rate reform needs to be carried

out when the yuan exchange rate is stable to counter possible shocks to the

economy, and that the current focus should be on stabilizing the yuan.

     Sheng also noted that uncertainties in other economies, such as the U.S.,

could also affect China's economy, and thus the reform of the yuan exchange rate

formation system should be considered along with these factors.

     Now is a prime opportunity for yuan internationalization, Sheng said,

citing the yuan's relative stability, its status on an appreciation track and

China's abundant foreign reserve. 

     Wu Ge, chief economist at Huarong Securities, said at the forum that the

yuan's recent round of appreciation was not mainly due to the weakening of the

dollar index, but rather to market overshooting.

     He said concerns about China's high leverage and bad-loan ratios were the

factors driving down investors' confidence in the yuan, and that without those

factors, the yuan would have strengthened even more.

     Wu pointed out that China's national development strategies, such as the

"One Belt, One Road" initiative, are too policy-driven and lack support from the

private sector, and thus may not help with the yuan's internationalization. 

--MNI Beijing Bureau; +86 (10) 8532-5998; email: iris.ouyang@marketnews.com

--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com

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