With days of declines, the Chinese yuan has fallen to its lowest value in 5 months reaching 6.85 yuan to the U.S. dollar on Tuesday. An economic expert believes devaluation of the Chinese currency would boost the economy by stimulating exports, but it might not be good for China's exporters in the long run. CRI's Yunfeng has more.

Reporter:

Doctor Zhang Ming is an economic expert from Chinese Academy of Social Sciences. He says the recent reduction in the benchmark interest rates by China's central bank is one of the main contributing factors in the devaluation of the Renminbi.

"The cutting of benchmark deposit and lending rate has reduced the interest differentials between the Chinese Yuan and the US dollar, which further prompts the flowing away of oversea capital. And global worries on China's economy growth also facilitate the devaluation."

Doctor Zhang Ming also pointed out that the devaluation of the Chinese Yuan also reflects the Chinese government's resolution to inject some energy into the economy.

As many coastal areas in China have already suffered the effect of a shrinking global market, the devaluation of the Renminbi brings some hope to the Chinese manufacturing industry.

According to Tuesday's stock market index, export-reliant industries like textiles or home electronic appliances have seen a rise in the short term.

However the economic expert is concerned that in the long run, a devalued Chinese yuan may not benefit China's export market.

"Affected by the financial turmoil, the U.S, European Union countries, as well as Japan have all decreased imports. These areas account for more than 50 percent of China's exports. Prospects remain bleak for China's exporters. Besides, the devaluation of Renminbi may prompt more trade barriers in our destination countries."

Zhang Ming suggests that given the current economic situation, the priority for the Chinese government is to boost its domestic consumption to alleviate the side effects brought on by decreased export volumes.

"We can develop our service industry which can help to take in the work force released from weakened manufacturing industries. That needs our government to loosen its regulations on social capital invested in the service industry."

The expert also predicts that since China has adopted a series of measures to maintain its economic growth, the Chinese Yuan will enter a relatively stable period without a dramatic appreciation or devaluation.

Yun Feng, CRI news.