Experts say rise shows market has confidence in Chinese economy

BEIJING - The yuan rose to an 18-year-high on Friday, climbing as Vice-President Xi Jinping prepares to step onto a plane for his trip to the United States next week.

The People's Bank of China set the yuan's central parity rate against the US dollar at 6.2937 after the rate rose for two consecutive trading days, according to the China Foreign Exchange Trading System.

"The exchange rate will see more fluctuations, although the positive outlook for the Chinese economy has sparked expectations of a strengthening of the currency," said Zhuang Jian, senior economist with the Asian Development Bank.

Zhuang predicted the yuan may rise about 3 percent this year. However, that is slower than the 6 percent against the dollar in real terms last year.

Deputy Foreign Minister Cui Tiankai said on Thursday that Xi's visit is an important opportunity to enhance mutual trust between China and the US.

Cui also expected the visit would help remove hurdles from Sino-US trade, including restrictions on US exports of certain high-tech products and obstacles to Chinese investment in the US.

Xi is scheduled to visit the US next week, where he will meet President Barack Obama and other high-level leaders.

"The rise largely reflects market supply and demand," said Zhang Jianping, senior economist with the Institute for International Economics Research under the National Development and Reform Commission.

He said the market expects the Chinese currency to rise because the economy remains positive and the government has adopted a rather tight monetary policy.

Il Houng Lee, senior resident representative at the Beijing office of the International Monetary Fund, said the currency will go forward over the medium term but in the short term it will see more ups and downs.

A report released by the IMF's Beijing office on Monday said upward pressures on the currency have diminished recently.

However, as the current account still has a sizable surplus of US dollars, and foreign direct investment remains strong, China is supposed to resume the strong pace of accumulation of foreign-exchange reserves, according to the report.

The country's foreign-exchange reserves increased by $11.7 billion between October and December, regardless of changes in the exchange rate and asset prices, the State Administration of Foreign Exchange said on Friday.

China's capital and financial account suffered a deficit of $47.4 billion in the fourth quarter of 2011, from a surplus of $66.2 billion in the third, indicating net capital outflows. Analysts said the exchange-rate fluctuations are closely connected with the crisis-affected economic scenario overseas and with speculative activities.