Tumble slows yuan's advance to help exporters

By Judy Chen  |   2008-8-2  |     NEWSPAPER EDITION

CHINA'S yuan completed the biggest weekly loss yesterday since a dollar peg was scrapped in 2005, as policy makers check the currency's advance to aid exporters.

Bonds fell. President Hu Jintao yesterday reiterated government goals of maintaining steady and fast growth in the world's fourth-biggest economy and controlling inflation, Bloomberg News reported. China will raise tax rebates on exports of textiles and garments to 13 percent from 11 percent, the State Administration of Taxation said yesterday.

"The government is determined to slow appreciation to help exporters to cope with weaker overseas demand," said Wen Li, a Beijing-based dealer at Bank of China Ltd, the country's biggest foreign-currency trader. "The dollar's strength this week gave the central bank a chance to adjust the pace."

The yuan fell 0.16 percent to 6.8425 per dollar in Shanghai as of 5:30pm yesterday, from 6.8318 on Thursday, according to the China Foreign Exchange Trade System. It slumped 0.34 percent this week.

Traders in the forwards market have pared bets on the extent of yuan appreciation. Non-deliverable forwards contracts show the yuan will reach an implied rate of 6.5450 per dollar in the next 12 months, compared with 6.4005 two weeks ago. The contracts, settled in dollars, allow investors to bet on the future value of the yuan. The People's Bank of China set a weaker reference rate for the yuan for a third day. The yuan is allowed to trade by up to 0.5 percent against the dollar either side of the rate, which was fixed at 6.8423.

JPMorgan Chase & Co advised investors to close three-month bets on the yuan, an investment it first recommended on May 9, according to a report published yesterday. The United States investment bank is the world's sixth-biggest currency trader. "Increasing growth headwinds are expected to slow" yuan appreciation in the remainder of this year, said Claudio Piron and Yen Ping Ho, Singapore-based currency strategists at the bank.

The Chinese currency has gained 6.7 percent versus the dollar this year, making it the best performer among the 10 most-active Asian currencies excluding the yen. The State Council approved a plan to set up an exchange rate department under the central bank to help strengthen supervision of capital flows, the China Securities Journal reported.