Decreased surplus to hit yuan
By DENISE TSANG
CHINA'S diminishing trade surplus will trigger a gradual depreciation in the yuan in the second quarter, according to Crosby Securities.
Crosby said it expected the yuan to depreciate more than 5 per cent this year to 8.77 against the US dollar, down from its estimate of 8.32 in 1995.
The firm's quarterly economic report said China's trade surplus, which reached US$16.7 billion last year, would fall this year.
Export growth was expected to slow early this year, prompted by the cut in the value-added tax (VAT) rebate rate and the termination of preferential tariffs on export processing industries. Likewise, imports were expected to soar as barriers came down.
Crosby believed the yuan would depreciate further to 9.13 to the dollar in 1997 and 10 in 1998.
'This level of depreciation is equivalent to the cut in export VAT,' the report said.
The slowdown in export growth would also drag gross domestic product growth this year to 9.5 per cent, compared with 10.2 per cent last year.