Chinese yuan has been depreciating in the new year. Economists say the dip is an extension from 2015 year-end and was triggered by market panic. They believe a cheaper yuan could also create opportunities for China's economic restructure.

Yuan's foreign exchange rate is softening in 2016, causing panic and questions to arise about the Chinese currency and its economic health. Experts say the market behavior is multi-layered.

"The slide is an extension of the depreciation from late last year, when the yuan's midpoint against dollar dropped for 11 straight sessions. Other factors include new regulations on foreign banks' trading, and participation from foreign central banks in trading yuan. Since Chinese authorities rely on the onshore market to set the currency's rate, the offshore yuan market becomes much more speculative," said Tan Yaling, chief economist of China Forex Investment Research Insititute.

What's more, Ms. Tan said the market panic has exaggerated the volatility. Participants pay more attention to the needs of trade hedging and arbitraging, instead of their genuine need to use the currency for payment and transaction methods.

Economists say a depreciating yuan may be conducive to China's economy as it would readjust capital market dynamics, guide investment into the real economy, and push forward innovation and business start-ups.

"Cheaper currency would help stabilize and re-boot economy. When the yuan rises, market sentiment focuses on investing and speculating. When the yuan drops, it is time to focus on the real economy, such as production and innovation. In this way, we would reshape the structural mismatch of an overheated finance market and a cooling real economy," Tan said.

Looking ahead, the Chinese currency still faces pressure from both a slowing economy and widespread bearish outlook after a multi-year appreciation.

Ms. Tan said the currency has shot up about 36 percent over eight years, and decreased around 10 percent in the past couple of years.

Yuan's rate against the dollar could be volatile in 2016, depending not only on China's economic fundamentals, but also U.S. Federal Reserve's rate decision. While market widely expects several rate hikes, economists say rise in the interest rate may not necessarily lead to a strengthening dollar.

"The U.S. dollar would rise briefly on the rate hike, and then depreciate. A strong dollar would disadvantage America's asset price and economic growth. So policy-makers would opt to depreciate the greenback at times to benefit US economic growth. In addition, the U.S. dollar has been rising in 2014 and 2015, which makes depreciation urgent. Last but not least, the U.S. rate hike has a low starting point, and the level wouldn't be higher than 2 percent even after four or five raises. So the rate level does not have major advantages," Tan said.

Analysts say the yuan's rate will run in synch with the country's economic development. If the economy warms up, then depreciation would ease, or even turn to appreciation. As the US central bank normalise its rates, the yuan's rate would also stabilize.