China warns against shortselling of yuan

China’s banking and insurance regulator said yesterday it did not expect a persistent decline in the yuan and warned speculative short sellers they would suffer “heavy losses” if they bet against the currency.

The yuan has lost more than 2.5 per cent against the dollar since the festering China-US trade dispute intensified earlier this month. It is now less than a tenth of a yuan away from the 7-per-dollar level authorities have in the past indicated as a floor.

“Short-term fluctuation of the yuan exchange rate is normal, but in the longrun, China’s economic fundamentals determine that the yuan will not depreciate persistently,” Xiao Yuanqi, the spokesman for the China Banking and Insurance Regulatory Commission (CBIRC), told a finance forum in Beijing.

“Those who speculate and short the yuan will for sure suffer heavy loss,” Xiao was reading from a script prepared for Guo Shuqing, CBIRC’s chairman and the Communist Party chief of the People’s Bank of China (PBOC). Guo was scheduled to give a speech at the same forum but couldn’t make it due to last-minute arrangements.

Intervention

Sources said China’s central bank will use foreign exchange intervention and monetary policy tools to stop the yuan weakening past the key 7-per-dollar level in the near-term.

A defence of the 7 level could help boost confidence in the currency and soothe investor fears about the yuan, even as souring trade relations with Washington make competitive devaluation a compelling option for Beijing. Xiao also said Beijing must look out for hot money moving in and out of the country.