Economic Daily News: Chinese yuan certain to rise

After remaining largely stable last year, the Chinese yuan has shown an upward trend since the start of 2013. There are several short-term factors behind the currency's rapid appreciation. One of them is the fast devaluation the Japanese yen, which has led to a massive influx of hot money into China. Of the US$131 billion increase in the country's foreign exchange reserves in the first quarter, US$87.8 billion are probably attributable to the hot money inflow. The other factor is China's robust exports. With exports recording 18.9 percent year-on-year growth in the first quarter, China is expected to post a higher trade surplus this year than last. This is likely to further push up the value of the country's currency. Over the long term, efforts by the United States, the European Union and Japan to stimulate economic growth by increasing the money supply are expected to keep their currencies weak. In relation to this, the yuan will maintain its upward trend. The good fundamentals of China's economy also increase the likelihood for the yuan to continue to rise. Although the country's economic growth has dropped to 7.7 percent, this still represents strong performance compared with the United States, the European Union and Japan. Another factor is related to purchasing power. China's inflation rate was only 2.6 percent last year and 2.4 percent in the first quarter of this year. If consumer prices in China remain stable for the long term, appreciation of the yuan can be expected. Lastly, China's trade volume totaled US$3.87 trillion last year, almost equal to the United States' US$3.89 trillion. China undoubtedly will replace the U.S. as the world's largest trading country this year. With so many countries maintaining trade relations with China, international demand for the yuan will remain high, which will in turn boost the value of the currency. (Editorial abstract -- May 23, 2013) (By Y.F. Low)