Beijing aims to avoid currency war

Tensions between the US and China are so elevated — and the prospect of a trade war between superpowers so grim — that every change in the economic backdrop is significant. So signs that Beijing is successfully containing capital outflows and preventing its currency from depreciating against the US dollar are crucial. After all, some of President Donald Trump’s anti-China rhetoric often takes the form of accusations of currency manipulation.

Confounding widespread expectations of a sharp depreciation, the renminbi, China’s currency, has in fact appreciated by 1.2% against the US dollar during the first six weeks of 2017, reversing some of the 7% decline in 2016. This relative stability has been engineered in part by a crackdown on capital outflows, which resulted in a slight decline in overseas investments by Chinese companies in January after a year of surging cross-border acquisitions. A gentle uplift of interest rates in domestic capital markets has enticed more Chinese money to stay at home rather than seek higher returns abroad.

Taken together, such measures may suggest that Beijing has been doing what it can to ease US-China trade friction before the expected confirmation of Wilbur Ross, Trump’s choice for commerce secretary. The impression that Beijing may be out to mollify the US administration was underlined by the news last week that China bought $9.1bn in US Treasury debt in December, breaking a six-month streak during which it was a consistent seller.

Of course, these subtle moves may do little to assuage the thumping sentiments expressed during Trump’s campaign, when he accused China of the “greatest theft in the history of the world”, promised to brand Beijing a “currency manipulator” and said he would slap a 45% tariff on all Chinese exports to the US. London, February 17.