'Rapid appreciation of yuan unsustainable'

The rapid appreciation of the yuan is unsustainable, and also not in line with the domestic and international economic and financial situation, a senior Chinese researcher and former central bank official said yesterday.

The current rapid appreciation of the Chinese yuan against the United States dollar may have overshot, Sheng Songcheng, professor of economics and finance with China Europe International Business School and former director of the People's Bank of China's statistics department told Xinhua.

The US dollar index has fallen by 2.2 percent in the past month and a half, while the euro has strengthened against the greenback by 2.3 percent and the Japanese yen has weakened by 0.4 percent, but the yuan has appreciated by 2.9 percent, said Sheng.

The US dollar index is less likely to decline further, and the exchange rate of the yuan against the US dollar should also be relatively stable according to market rules. But the yuan exchange rate has hit record highs recently, jumping above 6.4 to the dollar, indicating an overshoot in the market, he said.

Sheng predicts that the rapid appreciation of the yuan is unsustainable, as the US economy is expected to rebound in the second half of the year, and the US dollar may strengthen accordingly, while the narrowing interest spread between China and the US may weaken the momentum of hot money influx.

Meanwhile, the strengthened yuan cannot offset price hikes for bulk commodities, and it cannot be used as a tool, he said, noting that the yuan exchange rate overshoot is only short-term speculation.