The yuan dropped to its lowest level in 10 months against the US dollar as Beijing continued its war games off Taiwan's southwest coast. The yuan's fall was also influenced by China's new foreign exchange experiments and the country's sluggish export growth. The yuan fell to 8.3352 to the dollar, its lowest level since May, compared with 8.3299 on Tuesday. The yuan has fallen from 8.321 to the dollar since China announced the missile tests on March 5. A Shanghai dealer said: 'Foreign enterprises are now preferring to hold US dollars in order to avoid any risks. 'Just in case the tensions escalate, the US dollars will provide the protection.' Although the dealer said he expected the yuan to continue to strengthen in the short term, he said the People's Bank of China could intervene if the yuan fell to 8.35 to the dollar. The dealer said the central bank would want to maintain the yuan at a stable exchange rate by intervening to curb the dollar's rise. Schroders Securities Asia economist Tao Dong played down the impact of the political tensions on the yuan, saying that the weaker yuan was planned by the state to stimulate exports. 'It is possible that some Taiwanese capital is flowing out of China,' he said. He doubted there was much panic buying and selling of the Chinese currency because the yuan's convertibility was now restricted to only current account purposes. 'The main reason why the yuan gradually enters into depreciation is due to the Chinese Government's intention to increase the competitiveness of its exporters in order to stop the slide of exports,' he said. Merrill Lynch economist Nicholas Kwan said he expected the yuan to fall to 8.5 to the dollar at the end of the year as a result of China's weaker external payment position. Mr Kwan said he believed China would experience a slowdown in foreign investment and a shrinking trade surplus this year. Analysts said that China's experiment of allowing foreign enterprises to trade foreign exchange directly at banks had a side effect of hastening the yuan's slide because it resulted in a faster turnover of transactions due to the shorter time that each now required.