From Nation, issue no. 379 August 4 2008
Translated by Liang Duo

The yuan's performance in July was dramatic in a new way, and combined with other policy signals, may mark a new trend of slower appreciation.

A recent central bank meeting on exchange rate policy noted a shift from the emphasis on market influence on the yuan's exchange rate to stabilizing the rate at a "reasonable level".

On August 1, media reported that the People’s Bank of China was planning to set up a new Exchange Rate Bureau. Many experts thought it was a timely move.

But the sudden nature of its emergence surprised one director at the Bank, who told the EO that the urgency indicate its importance.

During the last half month, the yuan-to-dollar exchange rate has fluctuated broadly.

On July 16, the yuan central parity rate climaxed to 6.8128 and then dropped to about 6.82 in the following two exchange days.

On July 28, the yuan depreciated 221 base points—the biggest decline since it was unpegged from the US dollar in July of 2005.

And July 30 saw a one-day, 42 base point drop.

This clear abatement may be the prelude of an exchange-rate policy adjustment, an officer in the National People's Congress Financial and Economic Committee revealed to the EO.

Market observers anticipated that the yuan would continue to appreciate in the long term, but that the speed would drop off during the latter half of 2008 because regulators were focused on preventing the bankruptcy of domestic exporters and suppressing hot money flows.

"The exchange rate reformation played an important role in improving and balancing trade, and suppressing soaring sourcing prices in the last three years," said Lian Pin, chief economist for the Bank of Communications. However, under such regulation, Lin said the rate was short in flexibility and "individuality".