The mainland's foreign exchange chief has warned investors to expect more fluctuations in the value of the yuan as the currency moves towards a more market-based trading system and said current price moves were not large.
Yi Gang, head of the State Administration of Foreign Exchange, was responding to reporters' questions as he entered the Great Hall of the People for the opening of the annual meeting of the Chinese People's Political Consultative Conference.
He declined to respond to rising market speculation that Beijing was readying to widen the band in which the yuan traded, currently set at no more than 1 per cent either side of the reference rate set by the central bank every day, saying instead that greater two-way movement should be expected as a more market-oriented trading regime took shape.
Currencies of emerging markets were even more volatile, said Yi, who is also vice-governor of the People's Bank of China, adding that "a fluctuation of about 1 per cent is not large".
The market has been caught off guard by a sudden weakening of the yuan, engineered by regulators who have set a succession of softer daily midpoints around which the yuan can fluctuate.
The yuan sank as much as 0.86 per cent to 6.1808 against the US dollar on Friday in its sharpest one-day fall since at least 2007 as traders began to speculate that Beijing was determined to push the currency lower to help the economy weather headwinds from a sluggish global economy that are hurting demand for Chinese exports.
The currency dropped 1.4 per cent against the greenback last month. Following the release of February's purchasing managers' index data, which indicated weakness in the manufacturing industry, the yuan lost 0.02 per cent yesterday to 6.1462, according to the China Foreign Exchange Trade System. The PMI fell to 50.2 from 50.5 in January, the National Bureau of Statistics said on Saturday.
Analysts doubt the current decline will do exporters much long-term good, given the 35 per cent rally in the value of the yuan since it was de-pegged from the dollar in 2005.
Tsinghua University professor Li Daokui, a former PBOC adviser, said the yuan's drop would not be sustainable and he expected two-way movement of the currency.
"The time for widening the yuan's float band is ripe," he said. "I believe the band should at least double from the current level or even be widened more."
Li said he expected the mainland's gross domestic product would grow 7.6 per cent this year, while declining to comment on what official growth target should be set.
Commerce Minister Gao Hucheng told reporters that the export market was more or less the same as last year and the bigger issue for Chinese firms was the still sluggish global economic recovery and the beginnings of the withdrawal of quantitative easing in the United States, which could have consequences for demand in the hitherto-fast-growing emerging markets.
"The adjustment in the economic structure in some emerging countries is another uncertainty," he said, adding that China should be more prepared for the uncertainties in the external environment.