Chinese yuan seen 20 percent undervalued

The poll of 33 respondents showed that China's moves to liberalise its currency mean the yuan will be freely traded by 2020, which is the target date set by Beijing to make Shanghai an international financial centre.

“It's a policy issue,” said Wensheng Peng, an economist at Barclays Capital in Hong Kong. “In the long term, as the Chinese government wants to promote the yuan as an international currency, that is a driver for liberalisation, but my guess is it will be gradual rather than a big bang.”

Officials from Beijing and Washington have been sniping all week over China's controversial currency policy as President Obama was on an official visit to the emerging global power.

Outside pressure has been building on China to let the yuan rise after more than a year of having effectively pegged it to the dollar to protect exporters during the global downturn.

However, market expectations for the extent of yuan appreciation have eased during Obama's visit as China showed no intention of changing tack.

Offshore benchmark dollar/yuan non-deliverable forwards implied a rise in the yuan of 3.7 percent over one year on Nov. 13, but that eased to a rise of 2.9 percent as of Friday. The spot rate on Friday was 6.8282.

The Reuters poll showed a median estimate that the yuan was 20 percent undervalued, implying an exchange rate of around 5.69 per dollar, although forecasts of how much the unit was undervalued ranged from 3 percent to as much as 50 percent.

Three analysts said the yuan was not cheap, including Geng Xiao, director of the Brookings-Tsinghua Center for Public Policy in Beijing.

“The exchange rate is about right, but the prices of energy, land, and natural resources are too low, while property and stocks are too high,” he said.

Two more analysts said it was “hard to say” whether the yuan was trading below its fair value against the dollar. The currency has appreciated nearly 19 percent since a one-off revaluation of 2.1 percent in July 2005.

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