China should allow an appropriate depreciation of the yuan to counter a slump in exports, the State Information Center said on Thursday.

"The foreign exchange regime should be more flexible, and the yuan should be allowed to depreciate in a proper way under the principle of moving in a pro-active, controllable and gradual way," the research affiliate under the National Development and Reform Commission said yesterday in a report.

The outlook for China's industrial output growth remains weak, partly due to flagging exports. A close watch should be kept on the export trend and the global forex market so that China's forex rate could be adjusted accordingly, the report said.

The yuan has gained 21 percent against the United States dollar since July 2005 when China depegged the currency from the greenback. The yuan's rise growth has been stalled since the middle of last year. So far this year, it has lost 0.2 percent against the US dollar.

Market analysts said the yuan has been relatively stable against the greenback. But there has been a "drastic depreciation" in the euro and Asian currencies that has put a lot of pressure on Chinese exporters.

China's exports slumped for the fourth consecutive month last month, putting heavy pressure on the central government's economic growth targets for this year.

Premier Wen Jiabao last week said China will keep a stable yuan and not bow to outside pressure to appreciate or depreciate the currency. Some economists had expected the yuan to depreciate slightly.

Liao Qun, CITIC Ka Wah Bank's chief economist, said he expects the yuan to rise 2 to 4 percent in a "moderate appreciation" this year. HSBC's China chief economist Qu Hongbin said he sees a stable yuan this year.

(Shanghai Daily March 20, 2009)