SHANGHAI: A year ago on Thursday Chinese authorities stunned global markets by devaluing their yuan currency, raising fears the world\u2019s second-largest economy was worse off than thought \u2013 but investors are now more sanguine about a weaker \u201credback\u201d.
\nThe normally stable unit was guided down by nearly five per cent over a week last August, and has declined steadily since then.
\nIt closed at 6.6430 to the US dollar on Wednesday, not far from its weakest level for almost six years and approaching the rate where authorities held it rock steady between 2008 and 2010, in a bid to escape the turmoil of the global financial crisis.
\nBut unlike the deliberate government policy of the past, financial markets see economic fundamentals as driving the recent decline in the yuan, also known as the renminbi (RMB).
\nA rise in US interest rates, Britain\u2019s vote to exit the European Union, and the failed coup in Turkey have all sparked flight to the dollar.
\nEven so, traders and China\u2019s business partners still want Beijing to pursue deeper reforms and greater transparency of its currency regime.
\n\u201cA year on, investors appear slightly more relaxed about movements in the renminbi but we suspect that they remain as wary as ever about trusting Chinese policymakers to keep their word,\u201d Capital Economics said in a research report.
\nBeijing keeps a tight grip on its currency as part of Communist authorities\u2019 control mechanisms, as well as worries that sudden inflows or outflws of capital could damage the economy.
\nThe government only allows the yuan to rise or fall two percent on either side of a daily fix on the national foreign exchange market.
\nChinese officials have pledged to keep the unit stable, but at the same time gradually move towards making it freely convertible as they seek to secure a greater role in the world financial system.
\nAfter years of lobbying, the International Monetary Fund (IMF) late last year finally agreed to include the yuan in its \u201cspecial drawing rights\u201d reserve currency basket.
\n\u201cConcerns over the renminbi have eased in recent months and outflows have returned to a more manageable level,\u201d Capital Economics said.
\nBillions of dollars have flooded out of China in the last year, although the torrent has slowed dramatically, with Chinese banks selling $49 billion more in foreign exchange than they received in the April-June period, sharply down on the $124.8 billion of the previous three months.
\nChina\u2019s foreign exchange reserves fell to $3.2 trillion in July, according to the latest figures, but remain by far the world\u2019s largest.
\nThe yuan is expected to go lower this year, given the continuing impact of Brexit.
\n\u201cGlobal uncertainties are gradually taking a toll,\u201d Citi Bank International chief economist Liao Qun told.
\n\u201cAnd how much longer yuan is going to fall depends on when the euro and pound will bounce back again.\u201d For years, Washington criticised China over what officials have said is a grossly undervalued currency, but it has remained relaxed over the yuan\u2019s current weakness.
\n\u201cChina has committed to moving in an orderly way to a more market-oriented exchange rate,\u201d a senior US Treasury official said on the sidelines of a G20 meeting in July.
\n\u201cThe test will come when there is upward pressure on the RMB and whether China will allow the RMB to appreciate,\u201d he told journalists.
\nChinese growth is slowing, with gross domestic product expanding 6.7 per cent in the second quarter of this year, the same as the previous three months but down from 6.9 per cent in 2015.
\nA weaker currency can help boost exports, and the central rate was fixed at 6.6530 on Wednesday, down almost nine per cent on a year previously.
\n\u201cChina’s economy is facing a downturn. An undervalued RMB will support China\u2019s export performance in the short term,\u201d Qin Huanmei, an associate professor at Shanghai Finance University, told AFP.
\nChina and other G20 nations last month reaffirmed a pledge to refrain from \u201ccompetitive devaluations\u201d, repeating a commitment from February when worries over China\u2019s weakening currency and slowing economy were rampant.
\nThe People\u2019s Bank of China, the central bank, on Friday defended its exchange rate regime, saying it was now weighing the yuan against a basket of currencies rather than just the US dollar to allow market forces to play a greater role.
\nBut some analysts believe authorities are still meddling.
\nANZ Banking Group said in a report: \u201cThe authorities do exercise discretion at times in setting the fixing to guide the market.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"
SHANGHAI: A year ago on Thursday Chinese authorities stunned global markets by devaluing their yuan currency, raising fears the world\u2019s second-largest economy was worse off than thought \u2013 but investors are now more sanguine about a weaker \u201credback\u201d. The normally stable unit was guided down by nearly five per cent over a week last August, […]<\/p>\n","protected":false},"author":1,"featured_media":1061,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5,6],"tags":[],"class_list":["post-1054","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","category-world"],"yoast_head":"\n