Economy
CHINA’S YUAN REACHES ITS STRONGEST LEVEL SINCE JANUARY 2023 AS EXPORTS REMAIN STRONG
BEIJING — China’s yuan has strengthened to its highest level against the US dollar since January 2023, supported by resilient exports despite concerns...
By Patience
illustration picture in Beijing March 7, 2011
The Chinese currency reached 6.6897 yuan per dollar during trading on Friday before settling near 6.6907. The movement puts the yuan on course for its third consecutive week of gains, reflecting continued support from overseas demand for Chinese products.
The People’s Bank of China also set its daily reference rate at 6.7220 yuan per dollar, its strongest fixing since February 2023.
The currency’s performance highlights the importance of China’s export sector at a time when policymakers are trying to address weak domestic demand, sluggish private investment and the continuing downturn in the property market.
However, the stronger yuan also presents a challenge for Chinese manufacturers because further appreciation could make their products more expensive for international buyers.
STRONG EXPORTS SUPPORT THE CURRENCY
China’s export performance has remained resilient despite international trade pressures and higher tariffs affecting some of its overseas markets.
Demand for Chinese manufactured goods has helped support the yuan, as export earnings contribute to demand for the country’s currency.
The strength of exports has also provided some relief to policymakers seeking to maintain economic growth while addressing persistent weaknesses at home.
China’s manufacturing sector supplies a broad range of international markets, including those for electronics, machinery, industrial components and products connected to clean-energy technologies.
However, the benefits of a stronger currency are not evenly distributed across the economy.
While appreciation can support confidence in the yuan, it can also reduce the price competitiveness of Chinese products abroad. Manufacturers operating on narrow profit margins could face additional pressure if currency gains make their goods more expensive to overseas customers.
This creates a difficult balance for Chinese authorities as they seek to maintain currency stability without undermining the export sector.
ECONOMIC GROWTH REMAINS A CONCERN
Despite the yuan’s recent strength, China continues to face challenges in sustaining domestic economic activity.
Consumer demand remains subdued, private investment has been sluggish and the prolonged property-sector downturn continues to weigh on confidence.
These weaknesses have increased pressure on the government to introduce measures that encourage spending and investment.
Economists surveyed ahead of the release of China’s third-quarter economic figures expected gross domestic product to grow by 4.4 per cent year-on-year, slightly above the 4.3 per cent recorded in the second quarter.
That figure was a forecast rather than a confirmed third-quarter result as of October 16.
The anticipated improvement would indicate some resilience in the economy, but it would also underline the difficulties Beijing faces in strengthening growth while domestic demand remains weak.
Investors are awaiting the official economic figures expected on Monday, October 19, which should provide a clearer indication of the economy’s performance between July and September.
CHINA’S CENTRAL BANK SIGNALS CAUTION
China’s central bank is also balancing the currency’s appreciation against broader economic considerations.
The governor of the People’s Bank of China said global economic imbalances could not be resolved through exchange-rate adjustments alone, signalling caution about relying on currency movements to address international trade tensions.
The comments come as China faces scrutiny from trading partners over its large trade surplus and the competitiveness of its exports.
A stronger yuan could help ease some international concerns about exchange-rate differences, but currency appreciation alone would not resolve disagreements over trade, industrial capacity or domestic consumption.
Policymakers must also consider how currency movements affect businesses, investment and financial stability.
The yuan’s recent gains have therefore not eliminated uncertainty about the direction of China’s economic policy.
IMF URGES BEIJING TO STRENGTHEN ECONOMIC SUPPORT
The International Monetary Fund has called on China to provide stronger fiscal support to help address weaknesses in its domestic economy.
The recommendation reflects concerns that robust exports may not be sufficient to compensate for subdued household spending and the prolonged property-market downturn.
Stronger fiscal measures could help stimulate domestic consumption and encourage investment, potentially reducing the economy’s dependence on overseas demand.
For Chinese authorities, the challenge is to support growth while managing debt risks and restoring confidence among households and private businesses.
The effectiveness of future policy measures will be important in determining whether the economy can maintain momentum beyond the current year.
GLOBAL MARKETS AWAIT CHINA’S GROWTH FIGURES
Investors are monitoring developments in both China and the United States as they assess the outlook for currencies and interest rates.
In China, the release of third-quarter economic data is expected to provide fresh evidence of whether recent policy support has helped strengthen growth.
Developments in the United States are also important because changes in expectations about American interest rates can influence the dollar and international currency markets.
China’s yuan has benefited from its own export strength, while movements in the US dollar have provided an additional influence on trading.
The immediate question is whether the currency can maintain its gains as investors receive more information about China’s economic performance.
For Beijing, the wider challenge extends beyond the exchange rate. Authorities must sustain export competitiveness while encouraging domestic spending, addressing property-sector weakness and maintaining confidence in the economy.
The coming economic data will help determine whether China’s recent export strength is translating into broader economic resilience.