Managing the yuan is turning into a different game for China’s policymakers these days.
After more than a decade of curbing the currency’s gains to help turn the nation into a manufacturing colossus, there are signs the People’s Bank of China (PBOC) is now propping up the yuan to stem an exodus of capital that is threatening the Chinese economy.
A gauge of capital flows on the PBOC’s balance sheet fell by the most since 2003 last month in a sign it is selling foreign currency, while the yuan’s reference rate set daily by policymakers is at its strongest-ever level compared with the market price.
Chinese Premier Li Keqiang (李克強) yesterday said the nation would implement measures to manage the economy more effectively and boost competition.
“Everyone thought the movie would never end, and suddenly it ended, so everyone is hurrying to leave,” Kevin Lai (賴志文), an economist at Daiwa Capital Markets in Hong Kong, said by telephone on Thursday last week.
“The authorities need to think of a way to keep the audience in the theater” as the economy slows, he said.
China amassed a world-leading US$4 trillion of foreign exchange reserves by the middle of last year as exports surged and capital flowed in, attracted by a currency that strengthened for four consecutive years.
Now that the yuan’s gains are faltering, the PBOC is trying to prevent its declines from turning into a rout that could deter investment, just as the economy suffers its slowest growth in 24 years.
The yuan’s onshore rate fell to as low as 6.2569 per US dollar yesterday, the weakest level since June last year, before paring its slide to 6.2542. That is down from a two-decade high of 6.0406 set on Jan. 14 last year. China’s currency retreated 2.4 percent last year, after climbing 12.8 percent in the previous four years.
The declines were partly engineered by the PBOC, which lowered its daily reference rate by 0.9 percent in the first half of last year to prevent the currency from becoming a one-way appreciation bet for speculators. The central bank allows the yuan to trade 2 percent on either side of that daily rate.
Since then, the PBOC has raised the reference rate in each of the past five months, suggesting policymakers judged the declines had gone too far.
Yesterday, the yuan was as much as 1.89 percent below the daily fixing set by the central bank, data compiled by Bloomberg show.
Evidence of capital outflows shows how China is moving beyond using the reference rate to prop up the currency, and also reflects how money is leaving the nation as growth slows.
A key barometer of foreign-exchange flows on the central bank’s balance sheet, known as its yuan positions, fell 128.9 billion yuan (US$20.6 billion) last month from the previous month, the most since 2003, the bank’s data show. China’s foreign exchange reserves dropped to US$3.84 trillion as of last month, from an all-time high of US$3.99 trillion in June last year.
These data “suggest there’s been net dollar demand in the onshore foreign exchange market, which the authorities have met,” Robert Minikin, the London-based head of Asian currency research at Standard Chartered PLC, said by phone on Wednesday last week.
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
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
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],”
MAJOR BENEFICIARY: The company benefits from TSMC’s advanced packaging scarcity, given robust demand for Nvidia AI chips, analysts said ASE Technology Holding Co (ASE, 日月光投控), the world’s biggest chip packaging and testing service provider, yesterday said it is raising its equipment capital expenditure budget by 10 percent this year to expand leading-edge and advanced packing and testing capacity amid strong artificial intelligence (AI) and high-performance computing chip demand. This is on top of the 40 to 50 percent annual increase in its capital spending budget to more than the US$1.7 billion to announced in February. About half of the equipment capital expenditure would be spent on leading-edge and advanced packaging and testing technology, the company said. ASE is considered by analysts