China should allow yuan to appreciate, says analyst

China should let its currency rise against the US dollar as soon as possible and allow for a one-off 10 per cent appreciation of the yuan, an official at a government-backed think tank said yesterday.

Zhang Bin, a senior researcher in the Chinese Academy of Social Sciences, said an appreciation of the Chinese currency would not hurt the world's third-largest economy. "In my opinion the yuan is undervalued and needs to be adjusted... the sooner, the better," Zhang said, ahead of the release of a research report on the nation's exchange rate policy.

"We think a 10 per cent rise is acceptable because it will not have a significant impact on the overall economy in the short term."

A more flexible exchange rate policy was needed to resolve imbalances in the Chinese economy, Zhang said.

"The foreign exchange rate is a very important policy tool for reforming [China's] economic structure," he said.

The value of the Chinese currency, which has effectively been pegged to the US dollar since mid-2008, has been a bone of contention between Beijing and its Western trading partners, which say it is kept low to boost exports. While China has acknowledged the need to boost domestic consumption, it has so far refused to budge on its policy.

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