China’s currency is facing strong downward pressure this year as the country’s once surging growth rates slow amid a stalling global economy and signs of capital flight after years of inflows.
It is a new development for the yuan, once on a steady upward trajectory on the back of expectations that China’s impressive economic strength made the currency a one-way bet.
The economy, though, has slowed for six straight quarters and the 7.6 percent year-on-year expansion in GDP for the three months ended June 30 was the worst since the 2008 to 2009 global financial crisis.
Photo: AFP
The yuan has dropped just 1 percent this year, but the fall has come after years of gains amid foreign pressure by China’s trading partners, especially the US, who claimed it was undervalued.
The China Securities Journal, a state newspaper, carried a front-page commentary this month saying markets have now accepted that the currency is on a weakening track, calling that a potential boon for the economy.
A weaker yuan could spur positive effects, such as boosting exports, it added.
Broader trends are also pressuring the yuan as the US dollar has started to strengthen this year against other Asian currencies, Hong Kong-based Mirae Asset Securities chief emerging markets economist Bill Belchere said.
Analysts say that the decline so far in the yuan would be far larger if authorities were not providing a floor by selling some of China’s trove of US$3 trillion in foreign reserves.
“If it were freely traded today, the RMB would be 10 percent below where it is,” Shanghai-based independent economist Andy Xie (謝國忠) said. “That’s what the real economy is trying to get.”
Xie said that authorities cannot let that happen because they are dealing with a serious property slump that, if mishandled, could lead to a loss of confidence.
“If the currency drops significantly, the property market will collapse,” he said. “They are trying to achieve some sort of soft landing.”
The US dollar traded late on Friday at about 6.36 yuan. Though the Chinese currency is down 1 percent since the start of the year, it has risen about 30 percent over the past seven years.
China has taken a series of steps since July 2005 to loosen its grip on the yuan, but it remains highly controlled compared with the US dollar, euro and yen, which float freely.
The People’s Bank of China, China’s central bank, has since April set a daily central parity rate from which the yuan can only trade 1 percent up or down, though that is a doubling from the previous 0.5 percent band. Another reason economists cite for the yuan’s atypically bearish year is capital outflows, evidenced by China in the second quarter recording its first capital account deficit since 1998.
“There is a flight to quality,” Beijing-based IHS Global Insight analyst Alistair Thornton said. “You’ve seen this against all broad emerging markets, you’ve seen risk-on, risk-off, all this capital leaving emerging markets.”
Not everyone agrees.
Capital Economics China economist Wang Qinwei (王秦偉) cites a surge in foreign currency deposits in China, which on the books are classified as an outflow, as likely pressuring the central bank to sell reserves.
“Fears about capital leaving China are overdone,” he wrote in a report, adding that “firms are in less of a hurry to exchange foreign currency receipts into renminbi now that expectations for renminbi appreciation have fizzled out.”
The State Administration of Foreign Exchange said in a report in March that “expectations on the yuan’s unilateral appreciation have been broken,” citing volatility in global markets from late last year.
“The weakening of the yuan indicates that the currency now fluctuates on both sides and suggests it has become more flexible, which is good for the Chinese economy,” Manila-based Asian Development Bank deputy chief economist Zhuang Juzhong (莊巨忠) said in an e-mail.
Longer term, economists say the yuan’s prospects for a return to a strengthening mode depend on recovery in the broader global economy and the government carrying out structural reforms.
Last month, the IMF said the yuan was now more closely aligned with China’s overall economy, yet remained “moderately undervalued.”
A stronger currency would increase household purchasing power and facilitate reform of the financial sector, among other positives, the IMF said in a report.
Among the rows of vibrators, rubber torsos and leather harnesses at a Chinese sex toys exhibition in Shanghai this weekend, the beginnings of an artificial intelligence (AI)-driven shift in the industry quietly pulsed. China manufactures about 70 percent of the world’s sex toys, most of it the “hardware” on display at the fair — whether that be technicolor tentacled dildos or hyper-realistic personalized silicone dolls. Yet smart toys have been rising in popularity for some time. Many major European and US brands already offer tech-enhanced products that can enable long-distance love, monitor well-being and even bring people one step closer to
Malaysia’s leader yesterday announced plans to build a massive semiconductor design park, aiming to boost the Southeast Asian nation’s role in the global chip industry. A prominent player in the semiconductor industry for decades, Malaysia accounts for an estimated 13 percent of global back-end manufacturing, according to German tech giant Bosch. Now it wants to go beyond production and emerge as a chip design powerhouse too, Malaysian Prime Minister Anwar Ibrahim said. “I am pleased to announce the largest IC (integrated circuit) Design Park in Southeast Asia, that will house world-class anchor tenants and collaborate with global companies such as Arm [Holdings PLC],”
TRANSFORMATION: Taiwan is now home to the largest Google hardware research and development center outside of the US, thanks to the nation’s economic policies President Tsai Ing-wen (蔡英文) yesterday attended an event marking the opening of Google’s second hardware research and development (R&D) office in Taiwan, which was held at New Taipei City’s Banciao District (板橋). This signals Taiwan’s transformation into the world’s largest Google hardware research and development center outside of the US, validating the nation’s economic policy in the past eight years, she said. The “five plus two” innovative industries policy, “six core strategic industries” initiative and infrastructure projects have grown the national industry and established resilient supply chains that withstood the COVID-19 pandemic, Tsai said. Taiwan has improved investment conditions of the domestic economy
Sales in the retail, and food and beverage sectors last month continued to rise, increasing 0.7 percent and 13.6 percent respectively from a year earlier, setting record highs for the month of March, the Ministry of Economic Affairs said yesterday. Sales in the wholesale sector also grew last month by 4.6 annually, mainly due to the business opportunities for emerging applications related to artificial intelligence (AI) and high-performance computing technologies, the ministry said in a report. The ministry forecast that retail, and food and beverage sales this month would retain their growth momentum as the former would benefit from Tomb Sweeping Day