All that is positive news for Beijing, as the government works to shore up stability ahead of a big leadership transition in the fall. An increase in capital outflows last year added downward pressure to the yuan, forcing officials to respond by boosting capital controls. It`s a move that experts say appears to have worked, supporting the yuan`s return this year.
And even though China`s economy has also held up better than most expected this year, experts say uncertainty for the second half of the year could change sentiment. Some analysts are starting to wonder whether gains thus far will be pared back.
The yuan rate "has been so stable so far this year that it has become a cause of concern," said Macquarie analyst Larry Hu. The big question now, he pointed out, is what happens if the Chinese economy weakens or the U. dollar strengthens in the second half of the year. "The yuan`s stability so far this year could be upset by expectations of worsening depreciation."
So far, as growth in the world`s second-largest economy has been stronger, "the economic case for a weaker currency has unravelled," said Mark Williams, chief Asia economist at research firm Capital Economics. "But we think there is a good chance that the tide for the renminbi has turned," pointing out that previous yuan bounces have before been reversed.
Indeed, a number of risks, such as financial vulnerabilities, remain when it comes to China`s economic growth. "Large and rising debt levels across China`s non-financial sector remain a significant risk factor," according to a recent Fitch Ratings report.
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