UPDATE 1-China yuan reform must defeat speculators -report

* China must increase yuan flexibility, make it two-way bet

* Researcher says now is the time to reform currency
(Adds CASS researcher in paragraphs 7 to 11)

BEIJING, May 19 (BestGrowthStock) – China’s yuan reform must aim to
counter expectations of appreciation and fend off speculators, a
government institute said in a report published on Wednesday.

China needs to increase the flexibility of the yuan’s
exchange rate to prevent its rise from being a one-way bet, the
Chinese Academy of Governance said in a report published in the
official China Securities Journal on Wednesday.

The academy, which trains government officials, said that
Beijing should step up efforts to increase imports to reduce its
trade surplus, thereby alleviating short-term pressure for yuan
appreciation.

But the report said the key was for the government to widen
the range within which the yuan floats to introduce more
volatility in the exchange rate and deter hot money inflows.

The yuan is currently allowed to rise or fall 0.5 percent
from a daily reference rate set by the central bank. Some
analysts have said that band might be widened to 1 percent as
part of long-anticipated exchange rate reform.

Beijing is facing international calls to let the yuan return
to a path of appreciation after effectively repegging the
currency at about 6.83 to the dollar to help its exporters ride
out the global credit crunch.

Zhang Ming, a researcher at the Chinese Academy of Social
Sciences (CASS), a top government think-tank, said there was an
excellent window now to increase yuan flexibility, with
international attention focused on Greece’s debt woes.

The debt worries were leading to a climate of risk aversion
in global markets, which would weigh against much-feared
speculative inflows after any appreciation, Zhang said in a
research report issued on Wednesday.

He also said that China’s domestic economic developments had
lowered market expectations about how much appreciation was
needed, preventing the yuan’s rise from being a one-way bet.

A narrower trade surplus and cheaper global commodities
reduced the urgency of a stronger yuan in the market’s eyes, he
said.

And the government’s property tightening campaign and a
sluggish stock market would combine to dull the charm of Chinese
assets for foreign speculators, he added.

Investing Research

(Reporting by Aileen Wang and Simon Rabinovitch; Editing by
Ken Wills)

UPDATE 1-China yuan reform must defeat speculators -report