China worries yuan’s rebound could knock exporters and economy
BEIJING: Chinese policymakers are beginning to worry about a rallying yuan as exporters come under strain, policy insiders say, a sign the currency’s gains might lose steam after it scaled a near two-year top on the dollar as Beijing prepares for a crucial Communist Party gathering in the autumn.
In a rapid turn in fortunes after last year’s slide, the yuan’s sharp rebound since May presents a fresh headache for authorities, as intervening to cap it could expose China to accusations of currency manipulation by US President Donald Trump.
“Appreciation is better than deprecation, but the pace of appreciation cannot be too fast, otherwise it will be unfavourable for domestic firms,” said a policy insider, one of the four sources who spoke to Reuters.
The yuan paused this week just above 6.5 per dollar, a level policymaker sources said was one that was being watched, but then broke through it on Thursday and extended those gains on Friday to hit 6.4470, a 21-month high.
The rally has been spurred by the dollar’s broad decline, optimism about the economy, a crackdown on capital outflows, and more recently the central bank’s tighter control of the mid-point, from which the yuan can rise or fall 2 per cent.
The yuan has gained nearly 7.8 per cent against the dollar so far this year, including just over 6 per cent since late May, more than making up its losses of 6.5 per cent in 2016 – the biggest annual drop since 1994.