Chi­na Struggles With Yuan

L'Opinion - - The Wall Street & I'Opinion -

Chi­na’s ef­fort to sup­port its slo­wing eco­no­my is hea­ping pres­sure on the yuan, si­gna­ling chal­lenges for Bei­jing as it tries to sti­mu­late growth amid ri­sing trade ten­sions wi­thout trig­ge­ring des­ta­bi­li­zing ca­pi­tal out­flows.

The yuan wea­ke­ned beyond 6.93 per dol­lar this week, co­ming wi­thin stri­king dis­tance of its lo­west le­vel since Ja­nua­ry 2017, af­ter Chi­na mo­ved over the wee­kend to free more funds for do­mes­tic banks. The cur­ren­cy brie­fly re­co­ve­red to around 6.91 in Tues­day tra­ding in main­land Chi­na and Hong Kong af­ter a short-term len­ding rate jum­ped.

In­ter­bank len­ding rates in Hong Kong – an off­shore tra­ding hub for the yuan – sur­ged on Tues­day, pos­si­bly due to ef­forts by Chi­na’s cen­tral bank to prevent the yuan from wea­ke­ning too much, se­ve­ral ana­lysts said.

Chi­na’s ef­forts to ma­nage its cur­ren­cy are com­pli­ca­ted by the es­ca­la­ting trade conflict bet­ween the U.S. and Chi­na, with the U.S. le­vying new ta­riffs on bil­lions of dol­lars worth of Chi­nese im­ports and Chi­na re­ta­lia­ting with ta­riffs of its own. Pre­sident Trump’s ad­mi­nis­tra­tion is see­king to press its ad­van­tage as Chi­na struggles to ma­nage wea­ker eco­no­mic growth, heigh­te­ning pres­sure on Pre­sident Xi Jin­ping to pro­tect Chi­na’s eco­no­my and sta­ture abroad.

The pace and scale of the yuan’s de­pre­cia­tion is a sub­ject of re­cur­ring an­xie­ty in glo­bal mar­kets. For ma­ny in­ves­tors, an es­sen­tial­ly san­guine view cen­te­ring on the coun­try’s so­lid growth and low in­fla­tion is tem­pe­red by concerns about Chi­na’s ef­forts to ma­nage its en­or­mous debt load and keep the world’s se­cond-lar­gest eco­no­my run­ning smooth­ly through an ex­ten­ded per­iod of de­ce­le­ra­tion.

Those concerns are being am­pli­fied by the ef­forts of glo­bal cen­tral banks, led by the Fe­de­ral Re­serve, to tigh­ten mo­ne­ta­ry po­li­cy and li­mit the pros­pects that heal­thy U.S. growth will lead to an ove­rhea­ted eco­no­my and a sus­tai­ned in­crease in in­fla­tion.

Whe­ne­ver Chi­nese of­fi­cials step up their sti­mu­lus to the eco­no­my or pro­vide unu­sual fi­nan­cing as­sis­tance to vul­ne­rable sec­tors of the eco­no­my, as they did this week by re­du­cing re­serve re­qui­re­ments at some banks, the move raises concern among some port­fo­lio ma­na­gers and ana­lysts about Chi­na’s mar­kets and eco­no­my.

On Tues­day the over­night cost of bor­ro­wing yuan for Hong Kong banks jum­ped to 5 % from 1.745 % a day ear­lier, hit­ting its hi­ghest le­vel since May. The rate for one-week len­ding rea­ched 7.6 % Tues­day, up 4 per­cen­tage points since last week to its hi­ghest le­vel in over a year.

Hi­gher short-term rates make it more cost­ly to bet against the yuan using bor­ro­wed funds. In the past, Chi­nese au­tho­ri­ties have pu­shed in­ter­bank len­ding rates hi­gher du­ring bouts of de­pre­cia-

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