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Center urges depreciation to aid exports

CHINA should allow appropriate depreciation of the yuan to counter the exports slump, the State Information Center said today.

"The foreign exchange regime should be more flexible and the yuan should be allowed to depreciate in a proper way with the principle of moving in a pro-active, controllable and gradual way,"the research affiliate under the National Development and Reform Commission said today in a report.

The outlook for China's industrial output growth remains weak, partly because of flagging exports. A close watch should be kept on the exports trend and the international forex market and China's forex rate could be adjusted accordingly, the center said.

The local currency has gained 21 percent against the greenback since July 2005 when China depegged the yuan from the US dollar. While its growth stalled since the middle of 2008 it has lost 0.2 percent this year against the US dollar.

The yuan has been stable against the greenback. But there has been a "drastic depreciation" in the euro and Asian currencies that has put a lot of pressure on Chinese exporters.

China's exports slumped for the fourth consecutive month in February, putting heavy pressure on the central government's economic growth goals for this year.

Despite the central government's 4-trillion-yuan (US$586 billion) stimulus package to curb a sharp slide in industrial output growth, factors like weakening exports will continue to pull the sector down in the short term, the center said.

China's industrial output grew 3.8 percent in the first two months, close to a seven-year low.

Premier Wen Jiabao said last week that China will keep a stable yuan and bow to no outside pressures.

Some economists have expected a slightly depreciated yuan.

Liao Qun, CITIC Ka Wah Bank's chief economist, said that he expected the yuan to appreciate 2 to 4 percent in a "moderate appreciation" this year.

HSBC's China Chief Economist Qu Hongbin said he expected the yuan to remain stable this year and in 2010 to sit at 6.8 against the US dollar.

The yuan is now around 6.83 against the greenback.


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