China's major state-owned banks are actively acquiring the offshore yuan as the currency faces increasing pressure from a deteriorating economy and strain in the property sector, effectively raising the cost of shorting the currency and stabilizing its value.
Asian currencies against the dollar had minor fluctuations, with the Japanese yen, Singapore dollar, and Taiwanese dollar showing slight gains, while the Chinese yuan experienced a slight decline; overall, there were small changes compared to the end of 2022.
China's currency, the yuan, is at its lowest level against the dollar since the 2008 financial crash, which raises concerns about the country's economic stability and its ability to boost domestic consumption.
The dollar strengthens against the yen and keeps the euro and sterling near three-month lows as investors rely on the resilience of the U.S. economy, while China's onshore yuan hits a 16-year low due to a property slump and weak consumer spending.
China's new yuan loans are expected to rebound in August after a decline in July, as the central bank implements measures to support economic growth during soft domestic and international demand.
China's yuan finished the domestic session on Friday at its weakest since the global financial crisis, impacted by capital outflow pressures and a growing yield gap with other major economies, leading to expectations of further selling pressure in the near term but likely measured losses.
The Chinese yuan bounces back from a 16-year low as the central bank vows to stabilize the currency and take necessary actions to correct market moves.
China's offshore yuan weakened after the country's central bank announced a cut in banks' reserve requirement ratio, which aims to support the economy but could further worsen the decline of the yuan.
China's currency, the yuan, has depreciated over 8% against the dollar as the Chinese economy grows less than expected, making it harder to reach its growth target of 5% for 2023, and worries about the economy have intensified due to issues in the real estate sector and financial health of local governments, causing concerns about the future of the yuan which may experience a slow but steady depreciation in the face of a weak dollar and a desire to maintain a trade surplus.
China is experiencing a significant outflow of capital, putting pressure on the yuan and raising concerns for authorities as the currency weakens and financial markets become destabilized.
China experienced its largest capital outflow since 2015, with $49 billion leaving the country, as economic concerns prompt investors to withdraw; of this, $29 billion was withdrawn from securities investments, including bonds. The outflow was compounded by a record-high $12 billion in mainland-listed stocks being dumped by foreign investors and a $16.8 billion deficit in direct investment, the largest since 2016. The decline in the capital account was exacerbated by the tourism season, with outbound travel negatively impacting the services sector, while inbound travel remained suppressed, causing a continued deficit in the services trade. Efforts by Beijing, such as reducing the foreign currency reserves held by banks, have aimed to support the yuan but have been unable to prevent a significant decline in the offshore yuan. Weak exports and the allure of US yields have also contributed to the yuan's decline, further complicating China's capital flight situation, as doubts about the country's ability to achieve its 5% GDP target for the year grow.
