Economists expect 5pc gain against greenback

The yuan is expected to appreciate 5 per cent against the US dollar by 2015, a more gradual pace than in recent years, amid a slowdown in mainland economic growth and financial reforms designed to allow more two-way fluctuations in the exchange rate, economists say.

The yuan is set to reach about 5.80 per dollar, strengthening from the current level of about 6.11, according to the median forecast in a poll of 11 economists conducted by the South China Morning Post.

A stronger yuan is a double-edged sword as it would erode the competitiveness of exporters by making their goods more expensive, but at the same time increase their domestic buying power.

The currency has appreciated nearly 38 per cent over the past three decades, and now economists say it is time for a slowdown, thanks to weaker fundamentals on the mainland.

The central government has been caught in a dilemma - allowing the yuan to appreciate would make imports cheaper but at the expense of higher export prices.

Beijing has been buying dollars to curb the overly rapid appreciation of the yuan, despite its promise to trim the nation's huge trade surplus.

It set the daily fixing for the exchange rate at the highest level since 2005 early this month, seen by independent economist Andy Xie as a move to prevent capital flight from the country.