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News Analysis: Yuan to strengthen mildly in 2013: analysts

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BEIJING, Jan. 5 (Xinhua) -- The Chinese yuan will not see any sharp rises in 2013 due to the country's dwindling trade surplus but small gains with more two-way fluctuations will further stabilize the economy, analysts predicted.

The yuan's exchange rate experienced roller-coaster-style changes in 2012, as the first half of the year saw depreciation but reversed the trend to frequent gain by the daily limits after October.

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

On the last trading day of 2011, the yuan's central parity rate against the U.S. dollar was 6.3009.

It advanced to a high of 6.2670 on May 2, 2012 but weakened to the lowest in the year of 6.3495 on Aug. 16. It closed at 6.2855 on the last trading day of 2012.

Therefore, the yuan gained 0.25 percent last year. Considering the inter-session data, the annual appreciation was 1.15 percent.

At the end of 2011, slowing global and domestic economic recovery and the deepening European debt crisis beefed up expectations for a weaker yuan.

However, with improving trade data and developed countries introducing a quantative easing policy, expectations for a stronger yuan re-emerged, said Zhao Qingming, a China Construction Bank economist.

Lian Ping, an economist with the Bank of Communications, said there are no conditions for any sharp appreciation of the yuan. Since China started to reform its currency exchange rate regime in 2005, the yuan has risen more than 30 percent.

The current account trade surplus only accounted for less than 3 percent of the GDP at the end of 2011, much lower than a peak of 10 percent in 2007.

In the future, the proportion is expected to stay below 3 percent as overseas demand will remain recessive, which will further reduce pressure for the yuan to appreciate, Zhao said.

Liu Dongliang, an analyst with the China Merchants Bank, expects the yuan's two-way floating flexibility to become more apparent in 2013.

The stabilizing Chinese economy will reduce the possibility of yuan's depreciation. However, lackluster external demands and exports will also restrain the space for the yuan's hefty appreciation, he noted.

According to Zhao Qingming, due to western countries' quantative easing policy, international capital will flow back to emerging nations such as China.

He expects a mild appreciation of yuan in 2013 and said a more balanced exchange rate will help restructure China's economy.

Lian Ping predicted the U.S. dollar to strengthen in the long-term as United States' capability of walking out of the economic shadows can never be underestimated. That will restrain the yuan's appreciation against the U.S. dollar.

To cope with the U.S. dollar's possible gains in the future, analysts said the Chinese government should accelerate the yuan's market reform and push for its two-way fluctuations to help business companies avert risks.

In a move to accelerate market reform, the People's Bank of China (PBOC), the country's central bank, widened the yuan's daily trading limit against the U.S. dollar to 1 percent from 0.5 percent last April.

Zhang Ming, a researcher with the Chinese Academy of Social Sciences, said the move, to some extent, changed people's mind that the central bank manipulated the exchange rates. He expects the floating band will be widened further in the future.

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