Global Courant
The People’s Bank of China (PBoC) has allowed a 2% fall in the Chinese currency so far this month after Chinese exports and foreign direct investment (FDI) fell year on year in May.
The country’s central bank lowered the daily center point of the Chinese currency by 261 basis points on Monday, leading to a further depreciation of the renminbi.
On Monday, the yuan fell to 7.23 to one US dollar, close to the 7.3 level recorded last October and November, when China still had zero Covid rules. It’s down 5% in the past three months.
Due to the yuan’s devaluation and disappointing tourism data during last week’s three-day Dragon Boat Festival, the Shanghai Composite Index fell 1.48% to 3,150 on Monday. The Hang Seng Index, the benchmark of Hong Kong’s stock market, fell 0.51% to 18,794.
The depreciation of the yuan sparked an internet debate in China about whether Beijing’s promotion of the internationalization of the renminbi played a role.
Some Chinese commentators blamed Brazil, Argentina and Russia, which earlier this year began accepting yuan payments for their exports to China, but continued to sell Chinese currency to obtain Western currency.
A Shandong-based writer surnamed Huang published a article with the title: “Russia is selling crazy renminbi? We cannot rule out that possibility.”
“In recent months, some countries have accepted renminbi payments, but they have sold the Chinese currency for the dollar,” Huang said in the article. “Some netizens believe this is why the yuan has fallen significantly.”
He says Brazil and Argentina have trade surpluses with China, but they may not have much renminbi to dispose of. He says China has a trade deficit with Russia, which has run up some $10 billion in the first five months of this year and may now be selling out the Chinese currency.
But, he continues, it is unclear whether Russia’s sales of the yuan are strong enough to depress the Chinese currency’s exchange rate.
A columnist from Henan, nicknamed Niu, says in a article published on Sunday that Russian companies do not want to keep the renminbi they received from their exports to China. Niu says they sell the renminbi for euros and dollars and use this western currency to buy raw materials and equipment.
“Such a practice has created a vicious circle and depreciated the renminbi,” says Niu. “To address this, China has recently taken some measures. Some media reports said that the Bank of China has already stopped Russian customers from transferring Renminbi to Europe and the US.
RBC, a Russian media organization, reported on June 18 that the Bank of China has restricted transactions for Russian banking customers to banks in the European Union, the US, Switzerland and the UK. But some analysts say Beijing’s move was only to prevent secondary sanctions from the West.
widening interest rate differential
While Huang and Niu’s comments have been welcomed by many netizens, some financial commentators and economists say their speculation has gone too far.
“Some people say that Russia sells renminbi for Western currencies through Chinese banks, while others even blame the currency exchange deal between Russia and China,” said Zhang Bin, a financial commentator from Jiangxi. say in a video released Monday. “Either these people are ignorant or they want to spread fake news to attract attention.”
Zhang says there is no mechanism for Russians to sell renminbi for Western currency through Chinese banks and that the currency exchange deal between Russia and China is just a financial tool for both parties to borrow each other’s currency.
He adds that the renminbi has depreciated for several reasons, including the interest rate hike in the United States and the weaker-than-expected economic recovery in China. He emphasizes that the depreciation of the yuan is within a manageable range.
A financial columnist who called himself Laonan say in an article that the renminbi had grown by more than 10% in dollar terms between 2020 and 2022 as the US economy declined while Chinese exports continued to increase. Since that trend reversed last year, he notes, it’s normal for the yuan to fall in value.
He says the widening interest rate differential caused by the “crazy rate hikes” in the United States and interest rate cuts in China has also put pressure on the renminbi. He says it is ridiculous that Russia is being accused of “stabbing China with a knife”.
“The Japanese yen is down 9.57% so far this year. So, who stabbed Japan? he asks.
Guo Lei, chief economist at GF Securities, told the media last month that the renminbi will continue to fluctuate for the rest of 2023 but that the likelihood of a sharp fall remains remote. Guo said the value of the renminbi will depend on China’s economic performance.
China’s total exports fell 8% to US$283.5 billion in May from US$308.2 billion a year ago, according to the General Administration of Customs.
Besides, the Ministry of Commerce said on June 16 that China’s FDI fell 18.7% to US$10.85 billion in May from US$13.35 billion a year earlier. FDI fell 5.6% year-on-year to $84.35 billion in the first five months of this year from the same period last year.
Read: Chinese retail sales grow slowly, job markets falter
Follow Jeff Pao on Twitter at @jeffpao3
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