China's Yuan Sinks Further 10/18 06:33
China's politically sensitive yuan sank to a 22-month low against the dollar
on Thursday after the U.S. Treasury declined to label Beijing a currency
manipulator amid a mounting tariff battle.
BEIJING (AP) -- China's politically sensitive yuan sank to a 22-month low
against the dollar on Thursday after the U.S. Treasury declined to label
Beijing a currency manipulator amid a mounting tariff battle.
The closely watched yuan fell to 6.9411 per dollar at mid-morning, coming
its closest to breaking the symbolically significant level of seven to the
greenback since December 2016. It recovered slightly in the afternoon.
The yuan, also known as the renminbi, or "people's money," has declined by
almost 10 percent against the dollar since April as China's economic growth
cooled and U.S. and Chinese interest rates went in opposite directions.
That helps Chinese exporters cope with tariffs of up to 25 percent imposed
by U.S. President Donald Trump in a fight over Beijing's technology policy. But
it raises the risk of inflaming American complaints about Beijing's trade
Chinese officials have promised to avoid "competitive devaluation" to boost
exports. Central bank governor Yi Gang repeated that pledge last weekend at a
finance conference in Indonesia. But they have not said how far the yuan might
be allowed to fall in response to market forces.
On Wednesday, the U.S. Treasury's bi-annual report on currency policy said
China failed to meet criteria to be labeled a currency manipulator, a status
that can trigger sanctions. But it said Beijing was, along with Japan and
Germany, on a list of governments whose currency polices would be closely
China's foreign ministry welcomed the report and said it reflected "common
sense and the consensus of the international community."
"We hope the United States will respect the law of the market and basic
facts and refrain from politicizing the currency issue," said a ministry
spokesman, Lu Kang.
The yuan's depreciation is "reasonable and explainable," said Zuo Xiaolei, a
former chief economist for Galaxy Securities in Beijing. Zuo noted some other
developing country currencies have declined by 20 percent or more in the same
"If the renminbi had appreciated instead of depreciating this year, then
China certainly would be a currency manipulator," Zuo said.
While it helps exporters, a weaker yuan also might encourage an outflow of
capital from the world's second-largest economy. That would raise borrowing
costs at a time when communist leaders are trying to shore up cooling growth.
The central bank has been trying to make its exchange rate mechanism more
efficient by increasing the role of market forces.
The People's Bank of China sets the exchange rate each morning and allows it
to fluctuate by 2 percent against the dollar during the day in tightly
controlled trading. The bank can intervene to buy or sell currency --- or order
Chinese banks to do so --- to dampen price movements.
Most analysts expect the central bank to stop the yuan from crossing the
politically sensitive line of seven to the dollar.
Allowing it to fall too far "would run the risk that Trump would brand China
a currency manipulator," said Diana Choyleva of Enodo Economics in a report.
But some say the central bank, confident it can control any side effects,
might allow the market to carry the yuan gradually lower.
Beijing's "calculation on exchange rate policy is likely to change" if Trump
and his Chinese counterpart, Xi Jinping, make no progress at a possible meeting
during a November gathering of the Group of 20 major economies, said Julian
Evans-Pritchard and Mark Williams of Capital Economics in a report.
The central bank tried to discourage speculation by imposing a requirement
in August for traders to post deposits for contracts to buy or sell yuan. That
allows trading to continue but raises the cost.
Beijing imposed similar controls in October 2015 after a change in the
exchange rate mechanism prompted markets to bet the yuan would fall. The
currency temporarily steadied but fell the following year.