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China is said to study Yuan devaluation as tool in trade spat
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Chinese 100-yuan (RMB) bank notes being counted at a bank in Huaibei, in eastern China's Anhui province. (AFP/File)
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hina is evaluating the potential impact of a gradual yuan depreciation, people familiar with the matter said, as the country’s leaders weigh their options in a trade spat with US President Donald Trump that has roiled financial markets worldwide.
Senior Chinese officials are studying a two-pronged analysis of the yuan that was prepared by the government, the people said. One part of the analysis looks at the effect of using the currency as a tool in trade negotiations with the US, while a second part examines what would happen if China depreciates the yuan to offset the impact of any trade deal that curbs exports.
The analysis doesn’t mean officials will carry out a devaluation, which would require approval from top leaders, the people said, asking not to be named as the information is private. China’s central bank didn’t immediately respond to a faxed request for comment.
Any effort to depreciate the yuan risks eliciting a strong response from Trump, who regularly bashed China on the campaign trail for keeping its currency artificially weak. So far the trade spat between the world’s two largest economies has centered on tariffs, with both countries proposing levies on $50 billion of goods and Trump instructing his administration to consider tariffs on an additional $100 billion of Chinese products.
The yuan has remained steady in recent weeks despite the escalating war of words. Since Trump took office in January 2017, the Chinese currency has strengthened about 9 percent against the dollar, buoyed by a stabilization in China’s economic growth, an official clampdown on capital outflows and receding fears of a credit crisis. The yuan gained 0.1 percent to 6.2984 per greenback in onshore trading at 2:52 p.m. local time on Monday.
Other markets have been far less steady. The S&P 500 Index has slumped more than 9 percent from this year’s peak in January, while the Shanghai Composite Index has lost 12 percent on concern that tensions between the U.S. and China could devolve into a full-blown trade war. Yields on US Treasuries have also declined from this year’s highs as investors shifted into haven assets.
