The market has strong expectation towards yuan appreciation which attracts attention of related supervision divisions. Recently, Yi Gang, vice president of central bank posted an article on a magazine. It claimed that as interest rate is high in China, arbitrage across border results in rising expectation on yuan appreciation.

This article arose many discussions. Previously, in regard to the blame on low yuan exchange rate from western world, the monetary division has given no direct response. Only Ministry of Finance and Ministry of Foreign Affairs have claimed that the yuan exchange rate will remain steady.

Lv Suiqi, vice director of Finance Research Center indicated that yuan is possible to rise in academy view. As national strength and purchasing power in yuan are rising, the internal value of yuan is rising too. In this case, the pressure of yuan appreciation exists with academy support.

Besides, being Vice President of central bank and director of State Administration of Foreign Exchange, Yi Gang’s claim is partially official , and might has deep meaning in reform of yuan exchange rate and policies of exchange rate.

Yi Gang said arbitrage across border is main contribution to rising expectation mentioned above. In 2010, the inflow pressure of foreign currency might rise. As world economy rising steadily, export in China is possible to get recovered growth. Investment from foreign investors in China might rise; inflow of overseas investment is possible to rise.

He pointed out that arbitrage across border is the source to cause currency appreciation across emerging economies. According to estimation, cost of carry in America hit USD 250b-550b in first half of 2009. Massive trades of arbitrage across border promote currency appreciation in India, Brazil and other emerging economies. Meanwhile, stock and real estate market has kept rising with big risk. As interest rate is high in China, yuan is expected to rise which results in localizing assets and foreign debt. However, there is no further analysis on exchange rate of yuan.

According to previous news, Ministry of Commerce and Ministry of Industry and Information Technology of the People's Republic China have made a survey on influence from yuan appreciation to labor-intensive industries. This move is considered as exploration before yuan appreciation.

Credit Suisse thinks test of yuan appreciation is helpful to government decision. If yuan appreciation is going to appreciate, the speed is expected to be slow. And, it is possible to issue support policies to small manufactures in order to relieve pressure before yuan appreciation.