The Chinese authorities launched new steps to limit capital flights, including increasing oversight of foreign investment, because the Yuan currency was under increased pressure.
The threat of President Donald Trump’s tariff increases the tension of Sino-As and reduces foreign investment. Yuan USDCNY has lost 2.2% of the dollar since the victory of Trump’s election in November.
China has increased overseas oversight by domestic companies and the use of proceeds from the sale of Hong Kong shares, Bloomberg reported quoting unknown sources this week.
Meanwhile, Chinese commercial banks sell the most foreign currencies to their clients since July last month, official data shows, increasing demand for foreign currencies. Conversion ratio – gauges that measure households and the company’s willingness to sell dollars to Yuan – down to the lowest level in seven months.
Xinquan Chen, an economist at Goldman Sachs, said the account went to show a fairly large currency outflow in January.
The broad gap between the US 10Y AS10Y interest rate and the Chinese yield decline (CN10YT = RR) has become a factor that erodes Yuan’s attraction with land investors. The results of the results reached the widest level in January.
“Weak domestic demand and low interest rates present the main structural headwinds for Yuan,” said Alvin Tan, Head of Asia FX Strategy at RBC Capital Markets.
The inventory of dollars on land has also fallen because more businesses borrow cheaply in Yuan. Extraordinary foreign exchange loans fell to their lowest level in more than 13 years in January, while foreign currency deposits grew to the highest level since April 2023.
Lynn Song, Chief of Economist for Greater China in Ing, said that uptick in FX deposits earlier this year is seasonal. But “Unless or except there is a continuous turnover in investor trust, FX deposits tend to move higher as a whole this year.”
Bank Rakyat China (PBOC) has guided its official mid-point guidance that is stronger than market expectations since mid-November, which is marketed by the market as a sign of anxiety over the decline of yuan.
Chinese state-owned banks are also constantly seen selling dollars to support the currency.
Their support for Yuan and Chinese hopes will not let the currency weaken sharply have anchored Yuan’s values in the front market, for now.
Source: Reuters
