China’s currency hit a 16-month low on Monday, despite efforts by the central bank and stock exchanges to soothe investor worries about impending US tariffs under a Donald Trump presidency.
The tightly controlled yuan reached 7.3301 per US dollar, its weakest level since September 2023. It has routinely hit multi-month lows since Trump won the US election, promising massive tariffs on Chinese imports.
The CSI 300 blue-chip stock index also traded weakly on Monday, hitting its lowest point since September, dropping at least 0.9% before closing down 0.2%. It came after the index reported its biggest weekly losses in more than two years last week, falling 5%.
With two weeks until Trump begins his second presidency, expectations of his promised big tariffs on Chinese imports have rattled markets in China, driving down mainland bond yields and destabilising stocks. It has fed an already jittery market, worried about the country’s ongoing economic troubles which have triggered capital outflows.
In response stock exchanges reportedly asked several large mutual funds last week to restrict their selling of stocks to keep the market higher, according to Reuters. George Magnus, a research associate at Oxford University’s China Centre and at SOAS China Institute, London, said this might indicate concerns that foreign holders of Chinese equities were rushing to sell.
The Shanghai and Shenzhen stock exchanges also recently met foreign institutions, both bourses said on Sunday, assuring investors they would continue to open up China’s capital markets.
China does not have a floating currency driven by market forces. Instead it pegs the yuan to the US dollar, and sets a daily fixing rate around which the currency can be traded within 2%.
On Monday the People’s Bank of China kept the rate at 7.19 to the dollar despite pressure to sell, the Financial Times reported. The PBOC’s newspaper, Financial News, said the central bank would “resolutely guard against the risk of exchange rate overshooting and maintain the basic stability” of the yuan.
Magnus said fear over Trump’s tariffs was possibly driving people to get ahead of expected depreciations in the yuan, but he said there were also other factors, including falls in Chinese bonds from about 2% to 1.6% over a few months.
“That’s basically taken as an indicator of the virulence of deflation in China, which obviously is a concern that people have about the economy,” he said.
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Another was recent PBOC announcements about using more price-based transition mechanisms. “It suggests that they want interest rates to be more flexible and to send stronger signals to banks and investors and companies about how to invest and where to invest,” Magnus said, adding that he did not think it would help the economy.
China’s government has announced several rounds of packages designed to turn around ailing parts of the economy, but few have had the large impact called for by foreign observers and some outspoken domestic analysts. Last year expectations of a big stimulus package were instead met with a major restructuring of debt for local governments.
“It’s helpful for local governments at the margins but doesn’t do much for the economy,” Magnus said.
“The issues that matter, real estate, consumption, macro economic management, the private sector, these things are really not in the cross hairs of the government and that might be why confidence is low.”
