The Chinese yuan reached a peak of 6.1904 against the US dollar Wednesday, the highest level since the exchange rate reform program began in 2005, and beyond economists' expectations.
"The yuan's recent appreciation was unexpected," Liu Ligang, chief China economist at Australia & New Zealand Banking Group, told the Global Times Wednesday.
Both internal and external factors, including slower growth of China's economy and strengthening of the US dollar, as well as depreciation of some major currencies like the yen, should have led to depreciation of the yuan.
Instead, "the yuan still appreciated, raising concerns about the prospects of the country's exchange rate reform," Liu noted.
The Chinese central government started to ease some controls on the yuan in 2005 and pegged it against a basket of foreign currencies rather than the dollar alone.
However, "the recent appreciation of the yuan indicates that China still calculates the yuan's exchange rate only against the US dollar," Liu noted.
"The appreciation of the yuan also poses big challenges for Chinese export-oriented enterprises," Liu warned.
The purchasing managers' index, an indicator of activity in the manufacturing sector, slowed to 50.6 in April from 50.9 in March, driven by a slump in new export orders, the China Federation of Logistics and Purchasing said in a statement on May 1.
So far this year, a total of 15 financial institutions including Merrill Lynch have downgraded their forecasts for China's economic growth.
The yuan has jumped over 30 percent against the US dollar since China launched the exchange rate reform program. And since the start of 2012, many top officials, including former Chinese Premier Wen Jiabao and Zhou Xiaochuan, the governor of the central bank, have stated that the value of the yuan is approaching equilibrium.
"Actually, the yuan has risen too far in the first quarter this year, and the government needs to continue exchange rate reform and allow the currency to fluctuate in a wider range, rather than seeing continuous appreciation," Liu Dongliang, a senior analyst at China Merchants Bank, told the Global Times Wednesday.
"Fast appreciation of the yuan has also attracted hot money into the Chinese market," which could pose big risks for the economy, said Liu.
Liu Ligang of Australia & New Zealand Banking Group suggested the central bank could cut interest rates in a bid to curb the inflow of hot money.
"The regulator must take measures to limit hot money flows as soon as possible," Wang Jun, deputy director of the Consulting Research Department at the China Center for International Economic Exchanges, a government think tank, told the Global Times Sunday.
With the appreciation of the yuan, China's yuan funds outstanding for foreign exchange increased by 294.4 billion yuan ($48.02 billion) in April to bring the total to 27.36 trillion yuan, a fifth consecutive month-on-month rise, according to the central bank.
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