LOCAL academics expect a rebound in the value of the yuan against foreign currency in the next two or three months but forecast a continuing devaluation in the long run. Baptist College senior lecturer in economics Tsang Shu-ki told a seminar yesterday that the yuan sell-off had been largely triggered by rumours that the Chinese authorities were about to devalue the yuan greatly in a bid to facilitate China's re-entry into the General Agreement on Tariffs and Trade (GATT). He believed that speculators had realised that the authorities would find various ways to calm the frenetic trading in the swap and grey markets. The dramatic fall in the yuan's value in both swap centres and grey markets in the last few months was due to fundamental, psychological and speculative factors, he said. Mr Tsang reckoned that with China's re-entry into GATT not imminent, speculators would be more willing to take profits by selling the foreign currency in return for yuan. The tightening of money supply as a result of inflation would also force mainland enterprises to use their retained foreign currency to sustain production, he said. However, he stressed that these factors would only temporarily arrest the fall of the yuan, with devaluation remaining the long-term trend. Hongkong Polytechnic China business centre co-ordinator Thomas Chan agreed that the yuan would become stable for a short time. However, he believed that the recent sharp fall in its value in the swap centres was indicated the supply and demand forces in the currency market. The fall reflected the fundamental changes in the country's trade balance, from a trade surplus to deficit since last December when imports had soared, he said. Mr Chan said the booming Chinese economy, which had resulted in high demand for foreign currency for importing raw materials and goods, had created pressure on the yuan. With much more foreign money at their disposal, speculation has become very common not just among export-oriented enterprises but also the wealthy. Mr Chan said people in coastal cities with a heavy exposure to foreign currency were particularly active in speculating in the foreign currency markets. If the central government did not intervene, the current yuan devaluation would probably lead to a crisis affecting the mainland financial market as well as the overall economy, he said. He said that a more co-ordinated stand by various government bodies in China would also help crush currency speculation based on an expectation of the yuan's devaluation.