SHI TING

With its first interest rate rise in nearly a decade, China has moved away from a revaluation of its currency, analysts say.

"There probably won't be a yuan appreciation until the end of next year," said Xu Hongyuan , director of the department of development research at the State Information Centre, a top official think-tank.

Revaluating the yuan sooner would be too drastic and would risk inducing an economic crash landing, he said.

"The government is still experimenting with its market skills to engineer a soft landing for the economy. It's very unlikely that they'll go on a spree and spring another surprise," he said.

Gao Shanwen , chief economist at Shanghai-based brokerage Everbright Securities, said the mainland's leadership had chosen to raise interest rates rather than allow the currency to appreciate.

"This signals the end of a top-level debate between [advocates of] the two market tools," he said.

China's leaders had been wrestling with the question for at least six months and possibly since September last year, when the economy started looking out of control, Mr Gao said.

One of the concerns about full currency convertibility was that it could be destabilising, allowing surges of speculative capital in and out of the mainland, he said. An appreciation of the yuan, fixed at 8.28 to the US dollar, would not take the steam out of the country's property market, which had been on the boil for the past few years, he said.

The increase in grey-market banking and the possibility of a property bubble triggered the rate rise, economists say.

The latest figures from the central bank showed domestic deposit growth for the first nine months of the year was down 207 billion yuan on the same period last year.

"That's quite astonishing," Mr Xu said, adding that negative real interest rates had caused an increasing amount of money to be sucked into underground credit markets.

"This could imply a grave financial risk," he said.

Tao Dong , chief regional economist for Asia, ex-Japan, at Credit Suisse First Boston, said the property market would be the biggest victim of the surprise rate rise.

The 27-basis-point increase would be too mild to have an impact on the overall economy, but market sentiment would be greatly affected, he said.

The central bank had no choice but to raise interest rates to reduce fevered demand in the real estate sector - the biggest contributor to the recent economic overheating - he said.

The bank on Thursday raised its one-year lending rate to 5.58 per cent from 5.31 per cent, the first such rise since July 1995. It also increased the one-year deposit rate to 2.25 per cent from 1.98 per cent. It was the first rise in the interest paid on savings since July 1993.