The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.NEW YORK ( TheStreet) -- Sunday, Beijing announced it was widening the daily trading range for the yuan to 1% against the dollar. Some are heralding this news as another indication that China is liberalizing its currency and that the yuan may now be fairly valued. They're wrong.
Also, Chinese officials have liberalized a bit on the capital account, permitting Chinese exporters to keep some of the dollars they earn from foreign sales, and permitting private firms to be more aggressive in acquiring assets abroad. This is creating some temporary downward pressure on the value of the yuan. All of these capital account pressures on the underlying market value of the yuan are likely temporary, and on the basis of the trade account, the yuan remains overvalued. When assessed in terms of differences in productivity growth and inflation between the U.S. and China, the yuan appreciation permitted by Beijing since May 2007, has not changed the fundamental undervaluation. The currency has been permitted to appreciate in line with net changes in productivity and inflation, and the underlying undervaluation of the currency remains in tact. 9 Stocks That Prove Dividends Make All the Difference Hence, over the long term, the yuan is likely still undervalued by some 40%.