Yuan's value surges but China's currency vow expected to disappoint

China's yuan hit its strongest level in years yesterday after authorities pledged limited currency reform, but analysts said Beijing's vow was unlikely to buy off critics of its exchange-rate controls.

China had pledged on Saturday to allow more flexibility in what was widely seen as a bid to head off a spat with Washington at this weekend's G20 summit in Canada over charges that Beijing cheats on trade by skewing its forex rate.

But yesterday the central bank held the central parity rate - the centre point of the currency's official trading band - at 6.8275 to the dollar, unchanged from Friday.

However, the yuan subsequently pierced the 6.8 barrier to hit 6.7969 to the dollar yesterday, according to Dow Jones Newswires.

It was its strongest level since July 2005 when policymakers unpegged the yuan from the dollar and moved to a managed floating exchange rate.

But that was still within Beijing's tight trading band and analysts said China's pledge did not presage a major revaluation.

"They have been dragging their feet on yuan appreciation so this was an obvious attempt to pre-empt being a target at the G20," said Willy Lam, a China analyst at the Chinese University of Hong Kong.

"The appreciation will be very limited, at most five per cent over the next 12 months, so it will be well short of expectations."

Policymakers revalued the yuan in July 2005 before reimposing a de-facto peg three years later during the global financial crisis to protect exporting companies, which have been the backbone of China's economic boom.

Critics, not least in the US Congress, say that has left the yuan undervalued by as much as 40 per cent and gives Chinese exporters an unfair trade advantage at the cost of US jobs. Prior to Saturday, Beijing had insisted that the yuan's rate was not up for discussion at the G20, when presidents Hu Jintao and Barack Obama will meet other global leaders. But US demands for reform are getting ever louder.

In Saturday's vaguely-worded statement, the central bank said it would "strengthen the flexibility" of the yuan's exchange rate.

However, the bank followed up on Sunday to say there would be no "large swings" in the currency and no one-off adjustment. Yuan "stability" - code for Beijing's tight grip - would remain. "China is unlikely to abandon its policy of gradualism," said Ben Simpfendorfer, an economist at Royal Bank of Scotland in Hong Kong.