The yuan is tightly controlled by the Chinese Communist Party via China’s central bank, and analysts predict the currency will continue to fall.
Chinese currency slipped to a new 16-month low on Jan. 10, despite the efforts of China’s central bank to ease investor worries over the threat of U.S. tariff hikes under the incoming Trump administration.
China’s yuan, or renminbi (RMB), initially rose slightly on Jan. 10 after the central bank, the People’s Bank of China, said it would suspend Treasury bond purchases, triggering a jump in bond yields. Hours later, the Chinese yuan’s exchange rate against the U.S. dollar fell to 7.3324, the weakest since September 2023, slipping from 7.3301 per U.S. dollar on Jan. 6, which was a 16-month low.
Meanwhile, China’s stock market is also struggling. Its benchmark CSI 300 index is down by more than 4 percent this year.
By contrast, strong U.S. employment and services data released on Jan. 7 by the Treasury Department have increased investor confidence that the Federal Reserve may slow the pace of interest rate cuts. U.S. job openings rose to a six-month high, and the U.S. services index hit the highest level since early 2023. The U.S. dollar index rose by 0.5 percent on Jan. 8.
President-elect Donald Trump has frequently pledged to impose tariffs in excess of 60 percent on Chinese goods and to end China’s most-favored nation trading status on his first day in office. The threats have generated great attention to the growth prospects for the world’s second-largest economy.
Analysts have said that depreciation of the yuan could offset the incoming U.S. tariff hikes to a certain extent, but it could also lead to capital outflows and will bring other risks to China’s frail economy.
Chinese investors purchased large volumes of Hong Kong mutual fund products this week as they looked to invest overseas, particularly favoring products focused on U.S. Treasurys and other bonds.
The depreciation of the yuan is unlikely to be enough to offset the impact of a sharp tariff increase, Frank Xie, professor in business at University of South Carolina–Aiken, said of the falling Chinese currency. However, it will have multiple negative effects on the Chinese economy.
By Alex Wu
