The yuan traded within 0.2 per cent of a 19-year high yesterday, amid speculation capital inflows would spur appreciation.
China might face "large scale" inflows of speculative funds in the next few years, which would drive asset prices higher and push up consumer prices, Su Ming, deputy head of the Ministry of Finance's research institute for fiscal science, said in an article published yesterday in People's Daily. New-home prices rose last month in 68 of 70 cities tracked by the government, data showed on Saturday.
"When the property outlook is improving, more people tend to bring capital into China," said Jonathan Cavenagh, a strategist at Westpac Banking Corp.
"Authorities see that as a risk, creating a stronger exchange-rate environment than what they are happy with."
The yuan rose to 6.14 per dollar yesterday in Shanghai. It touched 6.13 on May 9, the strongest level since the government unified official and market exchange rates at the end of 1993. The currency was 0.97 per cent stronger than the central bank's reference rate, which was little changed yesterday at 6.1998.
The spot rate is allowed to diverge from the fixing by a maximum of 1 per cent.
China's foreign-exchange reserves, the world's largest, climbed by US$131 billion in the first quarter to a record US$3.44 trillion.
The jump in the reserves is large enough for China to be judged a currency manipulator by the US Treasury, Tim Condon, Singapore-based head of Asia research at ING, wrote in a note. The nation faces "relatively large pressures" from capital inflows and yuan appreciation, Ji Zhihong, an official at the research bureau of the People's Bank of China, was quoted as saying in People's Daily.