Beijing – the collapse of The yuan offers welcome support to chinese exporters, in full trade war with the United States. It is also a headache for Beijing, haunted by the risk of destabilizing financial and which could attempt to stop the decline of the currency, which is opposite to the charges of Washington.
Between mid-June and early August, the chinese currency has shrunk by 7%, falling Monday to 6.85 yuan to the dollar, the lowest since may of 2017.
Lashing out at this “free fall”,the us president, Donald Trump has accused mid-July, Beijing “to manipulate (its) currency” to “undermine the competitiveness” of the United States, that the communist regime immediately denied it vigorously.
Of course, after the imposition by Washington of customs duties in punitive damages on $ 34 billion of chinese assets, and while the White House is preparing to expand its sanctions, the exporters to the asian giant can enjoy.
A yuan depreciated “makes the price of chinese exports cheaper”, “boosting competitiveness”, and if 70% of the invoices of chinese exporters are denominated in dollars, their amounts are adjusted promptly, highlights Julian Evans-Pritchard, from the consultancy Capital Economics.
A depreciation of 7% of the yuan is sufficient, on paper, to counteract the impact of u.s. taxes on $ 50 billion of imports and “probably” any customs duties us $ 200 billion, said on Twitter Olivier Blanchard, ex-chief economist of the IMF.
– Laissez-faire –
But Beijing manipulates it to plan its motto?
Of course, the yuan is not freely convertible: the chinese central bank (PBOC) fixed daily rate, around which it can fluctuate within a range of 2% against the dollar. But the institution provides keep close to market trends.
And the general opinion is that the recent slide is due largely to the pressures of investors.
It reflects “the concerns” of the market against the trade war, and vis-à-vis “the monetary easing expected from the PBOC” to stimulate activity, confirms Dariusz Kowalczyk, an analyst at the Credit Agricole.
In contrast, during July, the authorities “have clearly chosen not to prevent the decline of the yuan ( … ), and virtually ceased their efforts to support it”, he insists.
Thus, contrary to the usual practice in case of stall of the yuan, the PBOC “has not sold” the last month of foreign currency from its foreign-exchange reserves to support the currency, abounds Oliver Jones, of Capital Economics.
However, “it would be wrong to think that she is not concerned about”, says he.
A sign of this ambivalence: the PBOC has raised drastically Friday, the level of reserves that investors are betting on the decline in the yuan should stop –in order to deter and thereby support the currency.
The institution has also ordered that Monday, the chinese banks to “prevent any behavior shepherd” on the foreign exchange market, ensuring that she had the tools to “stabilize” the situation, according to sources cited by Bloomberg.
In reality, the collapse of the yuan is a thorny dilemma: if it helps exporters, it also presents a costly disadvantages and threatens the financial stability of the country.
A yuan weakened chimed mechanically as the cost of imported goods, worsening the impact of the tariffs already applied in retaliation by Beijing to u.s. products. It increases also the burden of chinese companies heavily indebted in dollars.
Importantly, the situation wakes up the spectrum by the sharp devaluation in the summer of 2015, which had provoked a devastating hemorrhage of capital out of China.
“Interest rates in the United States, with the appreciation of the dollar would encourage chinese investors to increase their investments in dollars”, more remunerative, warns David Qu, analyst at ANZ.
“If confidence falters, the people will sell their assets in yuan, stock, real estate, some sectors will suffer,” says to AFP, the economist shanghaïenne independent Ye Tan.
But Beijing will want to avoid this scenario, and “a last-resort solution will be to close the door” on the movement of capital, judge she said, while recalling, however, that”there is still no panic.”
If the approach of the critical threshold of 7 yuan to the dollar could push the PBOC to act more actively, the authorities are walking on eggs.
The prolonged slump in the yuan may “derail the economic ambitions of Beijing, its financial reforms, the internationalization of the yuan”, according to Christy Tan, an analyst from National Australia Bank, as quoted by Bloomberg. But any intervention is too gimmicky could alarm investors and nourish the general distrust.