WHILE most global currencies are moving clearly in one direction or the other, economists are divided on whether the yuan will appreciate, depreciate or remain stable. Some market forecasters said the yuan would trade between 8.3 and 8.9 to the US dollar for the year, but there was a strong body of opinion arguing for significant movement beyond this band. Those in the appreciation camp said persistent demand for the yuan would drive the currency up, perhaps to 7.8 to the dollar. The depreciation camp said the Chinese Government wanted to ensure its exports remained competitive and would keep the currency where it was. Pan Ming, China analyst at DBS Securities, said the yuan would appreciate to 7.8 against the dollar by the end of this year. He argued sales of the US dollar to buy the yuan would continue with some investors taking advantage of the interest rate spread between the yuan and the dollar savings rate. On April 3, the Bank of Communication was offering a one-year deposit rate for the yuan of 9.15 per cent, while the rate for dollar savings was 5.81 per cent. 'I tend to think the demand for yuan will remain high,' he said. Furthermore, Mr Pan said the softening dollar, which has been trimmed more than 15 per cent since the start of this year, also provided room for the yuan's appreciation. 'A rebound in the US dollar is not expected in the wake of the country's widening trade deficits with its leading trade partners and huge debt accumulation,' he said. 'On the contrary, China's trade surplus reached US$4.46 billion [HK$34.48 billion] during the first two months of this year. That is the equivalent of 84 per cent of the total surplus for 1994. When more and more export contracts are to be cleared in hard currencies other than the dollar, the yuan has the strength to appreciate.' Hang Seng Bank senior economist Stanley Ng agreed. He said a minor appreciation of the yuan would be in line with China's monetary policy, with the growth rate of narrow money controlled to between 20 per cent and 23 per cent this year. But Qu Hongbin, an economist at Smith New Court Far East, did not expect an appreciation in the yuan, seeing instead a small depreciation. He argued the Chinese authorities would concentrate on maintaining export growth. 'Most long-term loans granted to China in the 1980s will finish soon. The amount of debt servicing thus reaches its peak in the next two years. The Government is in need of foreign exchange to repay the debts and exports will be the major source of money,' he said. Mr Qu believed the yuan would depreciate because of the mainland's rocketing production costs. 'Chinese manufacturers cannot raise prices easily because low pricing is their main competitive edge in the international market,' he said. 'To maintain the same profit margin, the yuan must depreciate.' Those supporting the argument of a possible yuan depreciation agreed the adjustment would not be large. 'The Chinese Government does not want to hurt market sentiment when many structural reforms are driving forward. They fear an excessive reaction from investors if the yuan drops significantly,' said an analyst. Sanwa Bank's Yang Zhi said demand for the yuan would not be as strong as last year in view of a deceleration in foreign investment. There were concerns in the international capital market about China's political and overall investment environment, he said.