China will widen the floating band of yuan against U.S. dollar for daily spot trading on the interbank market from 0.3 percent to 0.5 percent as of May 21, the People's Bank of China, or the central bank, announced on Friday.

The central bank said that over the past two years, Chinese enterprises and residents have got used to controlled foreign exchange rate floating system. The new move will be helpful for growth of forex market, making the yuan more flexible, enhancing the anti-risk strength of enterprises and financial institutions and sharpening their competitive edge.

"The higher flexibility indicated that the fluctuations of yuan will rely more on market forces. It's a good step forward in the correct direction, "said Zuo Xiaolei, an analyst with Galaxy Securities.

The central parity rate of yuan against U.S. dollar has accumulatively appreciated by 5.54 percent since July 21, 2005, when China scrapped the yuan-dollar peg amid drastic currency reforms.

"The new move will also be conducive to containing inflow of speculative money and to mitigating pressure on yuan to appreciate more quickly," said Zuo.

Zuo was echoed by Tan Yaling, a researcher with the global financial market department of the Bank of China. "The widened band makes it difficult to accurately predict the revaluation of yuan and therefore reduces speculation in the market," Tan said.

As a related measure against inflow of hot money, the State Administration of Foreign Exchange has since April been carrying out a special campaign to scrutinize inrush of foreign currencies in 10 coastal provinces and cities. They are Guangdong, Jiangsu, Zhejiang, Shandong, Fujian, Liaoning, Ningbo, Qingdao, Xiamen and Dalian.

"These regions boast most speculative money flowing from abroad. The check-up in the areas will be able to improve transparency of capital inflow," said Tan.

Sources with the administration said Friday that one of the major tasks for foreign exchange control at the present time is intensifying regulation over inflow of hot money.

Observers said the band widening move did not come under pressure from abroad but came upon increased domestic tolerance toward the controlled forex rate floating system. They believed it will help expand import and prompt industrial upgrading for export-oriented enterprises.

Citing the textile sector as an example, Zhao Yumin, an analyst from the trade and economic cooperation institute with the Ministry of Commerce, said the new move may bring industrial upgrading as it leaves little room for domestic companies to profit from low-value-added and labor-intensive products.

Chinese textile companies reported an average profit margin of only 3.7 percent last year, much lower than the national average of 5.69 percent for all industrial enterprises, according to the National Development and Reform Commission (NDRC).

"China's textile exports, pressured by the appreciating yuan and the reduction in tax rebates, are losing their low-cost cutting edge across the global market," said an NDRC report.

In an effort to help textile companies improve their competitiveness and efficiency, China has set up a special fund using revenues from textile export tariffs.

The 1.36 billion-yuan-fund (170 million U.S. dollars) will be used to boost technical innovations in production, develop new fibers and help make the industry more environmentally friendly and energy efficient.

According to a circular posted Friday on the central bank's website, in the interbank foreign exchange market, the daily band of RMB spot rate against non-U.S. dollar foreign currencies will remain unchanged, as will the band for posted rates against U.S. dollar for customers.