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The yuan declined against the United States dollar for a second day this week on speculation China is slowing the pace of gains in the currency to support the economy.
China's yuan has depreciated 0.6 percent since the government pledged on July 25 to focus on sustaining economic growth as well as curbing inflation.
"The economy may experience a further slowdown toward the end of this year," said Lu Zhengwei, an economist at Industrial Bank Co in Shanghai. "It no longer supports fast yuan appreciation. The yuan's recent fall also reflects the dollar's strength against the euro and yen."
The yuan slipped 0.04 percent to 6.8600 per US dollar as of 5:30pm in Shanghai, from 6.8570 late Wednesday, according to the China Foreign Exchange Trade System.
China should prepare emergency plans to bolster the economy in case of an abrupt slump in growth, the State Information Center, a government think tank, said in a report in the China Securities Journal on Wednesday. Slower growth in the US, Europe and Japan may have a bigger "negative impact" on China, the center said.
China's industrial output growth cooled in July to 14.7 percent, the lowest since February 2007, the statistics bureau said yesterday. That was less than the 15.9 percent median estimate of 20 economists surveyed by Bloomberg News.
The US Dollar Index, which tracks the currency against those of six trading partners, has advanced 4.2 percent since July 31. It rose 0.2 percent yesterday.
The yuan is still "undervalued" and the advance should continue as the nation has surpluses in both capital and current accounts in international trade, Wang Yong, professor at an academy affiliated to the People's Bank of China in Zhengzhou of Henan Province, wrote in a report in the Securities Times yesterday.
"The arguments for medium-term appreciation are intact," Ben Simpfendorfer, a currency strategist at Royal Bank of Scotland Group Plc in Hong Kong, wrote in a report yesterday. "A stronger currency helps the government replace an aging export-led growth model with a consumer-driven version."
The yuan will rise to 6.6 versus the US dollar by the end of 2008, weaker than a previous forecast of 6.4, according to Simpfendorfer.
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