China has tightened controls on trading in its yuan to discourage speculators after a decline against the US dollar amid a tariff dispute with Washington fueled fears of a damaging outflow of capital from the world’s second-largest economy.
Traders must post a 20 percent deposit starting yesterday for contracts to buy or sell yuan on a future date. That raises the cost of betting it will drop and might help to discourage speculative trading.
The tightly controlled yuan has been allowed to decline by about 8 percent against the US dollar since early February.
Photo: Reuters
That helps Chinese exporters that face US tariff hikes by lowering their prices in US dollar terms, but it also encourages investors to shift money out of China, which would have a broader impact by raising financing costs for other industries.
On Friday, the yuan slipped to a 13-month low of 6.91 to the US dollar, close to the highly symbolic level of 7, before strengthening to 6.83 after the margin requirement was announced.
The US-Chinese tariff fight prompted suggestions that Beijing might weaken the yuan to help exporters.
However, analysts say the decline has been driven mostly by China’s slowing economic growth and the diverging direction of US and Chinese interest rates.
Washington on July 6 imposed 25 percent tariffs on US$34 billion of Chinese goods and is considering an increase on an additional US$16 billion, with another US$200 billion list of goods threatened.
Beijing matched Washington’s first round of increases and on Friday threatened penalty charges on another US$60 billion of US imports.
Chinese leaders have tried to stick to long-term economic plans, resisting US President Donald Trump’s demands to change industry development strategies Washington and other governments say violate their market-opening commitments.
That business-as-usual approach has included the People’s Bank of China allowing the yuan to fluctuate more widely.
Beijing is seeking to make the exchange system more market-oriented and efficient.
The central bank “had been largely tolerant” of the yuan’s decline, IG Asia Pte Ltd analyst Pan Jingyi (潘婧怡) said in a report.
However, the latest changes “may have gathered concerns including capital flight,” Pan said.
The margin of decline against the US dollar has been unusually wide because other currencies in the basket used by the Chinese central bank to set exchange rates have not risen along with the greenback.
Compared with the overall basket, the yuan has declined by a smaller margin of 4 percent, according to Carl B. Weinberg of High-Frequency Economics.
“These are trivial moves in the medium term, despite volatility recently,” Weinberg said in a report.
The effectiveness of the latest controls will be limited, analysts said.
The yuan still faces downward pressure as Chinese and US interest rates head in opposite directions.
The US Federal Reserve is raising US rates, while Beijing eases access to credit to pep up cooling economic growth. That encourages investors to convert money into US dollars in search of higher returns.
Due to that, “the outlook of yuan remains weak,” CMC Markets analyst Margaret Yang (楊燕) said in a report.
TARIFF TRADE-OFF: Machinery exports to China dropped after Beijing ended its tariff reductions in June, while potential new tariffs fueled ‘front-loaded’ orders to the US The nation’s machinery exports to the US amounted to US$7.19 billion last year, surpassing the US$6.86 billion to China to become the largest export destination for the local machinery industry, the Taiwan Association of Machinery Industry (TAMI, 台灣機械公會) said in a report on Jan. 10. It came as some manufacturers brought forward or “front-loaded” US-bound shipments as required by customers ahead of potential tariffs imposed by the new US administration, the association said. During his campaign, US president-elect Donald Trump threatened tariffs of as high as 60 percent on Chinese goods and 10 percent to 20 percent on imports from other countries.
Taiwanese manufacturers have a chance to play a key role in the humanoid robot supply chain, Tongtai Machine and Tool Co (東台精機) chairman Yen Jui-hsiung (嚴瑞雄) said yesterday. That is because Taiwanese companies are capable of making key parts needed for humanoid robots to move, such as harmonic drives and planetary gearboxes, Yen said. This ability to produce these key elements could help Taiwanese manufacturers “become part of the US supply chain,” he added. Yen made the remarks a day after Nvidia Corp cofounder and chief executive officer Jensen Huang (黃仁勳) said his company and Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) are jointly
United Microelectronics Corp (UMC, 聯電) expects its addressable market to grow by a low single-digit percentage this year, lower than the overall foundry industry’s 15 percent expansion and the global semiconductor industry’s 10 percent growth, the contract chipmaker said yesterday after reporting the worst profit in four-and-a-half years in the fourth quarter of last year. Growth would be fueled by demand for artificial intelligence (AI) servers, a moderate recovery in consumer electronics and an increase in semiconductor content, UMC said. “UMC’s goal is to outgrow our addressable market while maintaining our structural profitability,” UMC copresident Jason Wang (王石) told an online earnings
MARKET SHIFTS: Exports to the US soared more than 120 percent to almost one quarter, while ASEAN has steadily increased to 18.5 percent on rising tech sales The proportion of Taiwan’s exports directed to China, including Hong Kong, declined by more than 12 percentage points last year compared with its peak in 2020, the Ministry of Finance said on Thursday last week. The decrease reflects the ongoing restructuring of global supply chains, driven by escalating trade tensions between Beijing and Washington. Data compiled by the ministry showed China and Hong Kong accounted for 31.7 percent of Taiwan’s total outbound sales last year, a drop of 12.2 percentage points from a high of 43.9 percent in 2020. In addition to increasing trade conflicts between China and the US, the ministry said
RSS