Yuan may appreciate further on stabilizing economy

The yuan is expected to appreciate further in the short-term due to China's stabilizing economy and quantitative easing in the United States, experts have said.

The yuan's central parity rate against the U.S. dollar, which is based on a weighted average of prices given by market makers, strengthened for three consecutive trading days to reach 6.29 on Monday, a record high since May 11.

In the spot market, the yuan's rate against the U.S. dollar hit a historical high of 6.21 in early trading on Monday.

The yuan is allowed to rise or fall by 1 percent from the central parity rate each trading day in the spot market.

Chen Daofu, a researcher with the Development Research Center of the State Council, said the yuan's recent appreciation is due to China's stabilizing economy and its prudent monetary policy, as well as the third round of quantitative easing (QE3) announced in September by the U.S. Federal Reserve.

Data released earlier this month by the National Statistics Bureau (NBS) showed that the country's economy is gradually stabilizing.

NBS data released Thursday showed that China's economy expanded by 7.7 percent year on year in the first three quarters, higher than the 7.5-percent annual economic growth target set for 2012.

Total retail sales in September hit 1.82 trillion yuan, up 14.2 percent year on year, with the month-on-month growth rate increasing 1.46 percentage points.

Industrial value-added output grew 9.2 percent in September, up 0.3 percentage points compared with the growth in August. Fixed-asset investment rose 20.5 percent year on year in the first nine months, up 0.1 percentage point from the first half.

Lian Ping, chief economist with the Bank of Communications, said signs of economic stabilization are becoming increasingly conspicuous, adding that the positive signs will encourage overseas capital to enter China.

On Sept. 13, the U.S. Federal Reserve announced a new round of bond-buying and extended the duration of its ultra-low interest rates to bolster the country's weak economic recovery.

The U.S. has made it clear that it will not change its monetary policy before 2015, which will expedite international capital flow, Lian said.

Differences in investment returns, interest rates and exchange rates are determining factors for international capital to enter China, according to Lian.

The government said in a statement released earlier this month that it will continue to implement a proactive fiscal policy and prudent monetary policy, effectively carrying out a structural tax reduction policy and maintaining appropriate money supply.

"Market expectations for the yuan to appreciate will gradually strengthen in the future," Lian said.

However, Chen said the yuan's exchange rate is likely to see fluctuations in the coming year, as China's economic recovery might falter in 2013.

"China's economy has stabilized and is seeing a slight rebound at present, but the foundation of recovery is not solid yet and the domestic impetus for economic growth has not come into form," Chen said.

Therefore, the economic situation does not support drastic appreciation for the yuan, according to Chen.