China Will Limit Yuan Appreciation This Year: Pros
Currency strategists tell CNBC that they expect China to limit the rise of the yuan this year as it prepares for a leadership change amid slowing growth.
According to Michael Yoshikami, CEO, Destination Wealth Management, the government's priority in a year of leadership change is going to be social stability. And that means achieving a "soft landing" for the economy whatever it takes.
"Certainly over the next year, it's going to be a priority for the Chinese government to limit currency appreciation," Yoshikami told CNBC.
The latest evidence of slowing growth came from February’s trade data, which showed China logged its largest deficit in more than a decade. The government also recently lowered its growth target for 2012 to 7.5 percent.
Sean Callow, Senior Currency Strategist at Westpac, expects growth to slow to 6 percent in this quarter and into the next. But, after that, he expects growth, and appreciation of the yuan to pick-up.
"So as long as the Chinese economy is still seen as an attractive investment and if they do take those steps to make sure growth doesn't fall too far, then money will keep coming in to China and that puts up the pressure on their currency," he said.
Alistair Thornton, China Economist at IHS Global Insight, also expects the yuan to appreciate slowly this year. He forecasts a rise of about 3 percent in 2012 compared to the 5 percent gain in the yuan last year.
He adds that the government is especially concerned about the export sector, which is facing a confluence of pressures – weak demand, very strong wage gains, as well as currency appreciation. "I think they're going to pare that yuan appreciation down to help those exporters out."