PBOC policies may stave off depreciation

To get rid of one-way expectations that the yuan will depreciate, China must liberalize its capital market to allow foreign participation and attract renewed capital inflows, said Liu Ligang, managing director and chief economist for China at Citigroup Inc.

"If China opens its capital market to foreign investors effectively, the country will soon draw substantial capital inflows, which will change depreciation expectations on the renminbi," he said in Beijing on Wednesday.

The People's Bank of China, the central bank, is considering including the government bond market in some global government bond indexes. If it were to be included in Citi's World Government Bond Index with an initial share of up to 5 percent, the associated capital inflow could be as large as $100 billion to $150 billion, according to a recent Citi report.