Where has the concern surrounding the devaluation of the yuan gone? Earlier this year, the general consensus was almost as good as certain that Beijing would move to devalue the yuan after the 50th National Day celebrations were over. This talk has largely subsided. External trade has rebounded amid a regional recovery and there are signs of price stabilisation. Furthermore, the mainland government on Sunday again confirmed that it would not devalue the yuan next year. Central People's Bank of China governor Dai Xianglong was quoted as telling visiting United States Treasury Secretary Lawrence Summers in Beijing that 'based on the situation of China's economic development this year and next year, the exchange rate of the [yuan] will remain stable'. However, the possibility cannot be discounted if deflation persists. Barclays Capital credit research head Desmond Supple said: 'I think at the moment, people are increasingly moving towards the view that there will be no devaluation because people are getting more nervous about the [US] dollar. 'The focus that is becoming vogue once more is a dollar crisis, and that is becoming more talked about as there is a fear about US inflation picking up. 'For that reason, people are increasingly talking about a view that China does not need to devalue.' However, Mr Supple does not share that opinion. The Barclays house view for some time has been that a yuan devaluation is needed. The policy mix Barclays forecast was devaluation-reflation, with a policy shift expected early next year when the present fiscal expansion is due to end. Others in the market differed. SG Securities analyst Manu Bhaskaran said there was no need for a 'disruptive' change in the yuan policy. He said the fall in exports earlier this year was not a pricing problem but weak demand in Asia, which was being reversed. 'I think the concerns about devaluation have subsided,' Mr Bhaskaran said. 'Some people seem convinced about it . . . I think they wrongly decided that the Chinese economy was failing. 'Economic data has improved, growth has been reasonable and the export figures have bounced back.' Mr Bhaskaran believed a more likely scenario was a change in the foreign exchange regime at a time of the mainland government's choosing. The 'most likely outcome' was a shift to a so-called dirty float, otherwise known as a managed float next year, Mr Bhaskaran said. 'This is not [a foreign exchange] regime that can be sustained for the long term so it is best to change that regime when you do have some control over the way it is changed rather than wait for a crisis to come in,' Mr Bhaskaran said. A dirty float is defined as a government policy of allowing its currency's exchange rate to float freely according to market demand, with occasional interventions to adjust the rate to suit other priorities. Credit Suisse First Boston regional economist Dong Tao said a managed float was a possibility but whether the mainland's economy was 'ready to take this chance' remained to be seen. Mr Tao's stance was that if the mainland economy remained on a deflationary path, then he would be 70 per cent convinced the government would devalue the yuan. 'We are seeing a significant improvement from the external front and this is where the no-devaluation arguments are coming from,' he said. 'The export performance in the past two months has been spectacular . . . and with the strength of the regional currencies, the pressure from the external factors has eased somewhat.' However, whether the yuan needed to be devalued or not depended on the state of the domestic economy. Mr Tao said his argument rested on the continuing deflationary atmosphere. 'If deflation persists, devaluation is probably one policy option there to reflate the economy,' he said. Mr Tao did not have a timetable for such a move because this depended on how the economy performed and 'the political will of the Chinese Government'.