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China’s yuan continues fall against the dollar
February 20, 2014, 6:45 pm

Market analysts say their could be a Central Bank push to moderately depreciate the Renminbi (yuan) [Xinhua]

Market analysts say their could be a Central Bank push to moderately depreciate the Renminbi (yuan) [Xinhua]

China’s yuan currency fell against the US dollar for the third consecutive day on Thursday to 6.11 central parity, coming in at its lowest level in 2014.

It peaked at 6.0851 midday.

The yuan, also known as the Renminbi, has been hit by recent local market data indicating that China’s powerhouse economic dynamo, which in previous years helped pull the world out of recession, may be slowing down.

On February 1, China’s purchasing managers’ index (PMI) for the manufacturing sector dropped to a five-month low to 50.5 per cent in January, according to official data released on Saturday.

A PMI reading below 50 indicates contraction, while that above 50 signals expansion.

January continued December’s decline and marked the lowest factory activity since August 2013, according to a statement jointly released by the National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing (CFLP).

Other factors may have also contributed to the drop.

Volatility in emerging markets, including BRICS, Nigeria, Turkey and Argentina, especially regarding currency depreciation, has raised investor fears.

Coupled with the US Federal Reserve’s continued tapering of its now $65-billion stimulus package, the instability has pushed foreign investors to reroute their funds back into European and North American markets.

EPFR Global, a US-based firm that tracks the flows and allocations of funds domiciled globally, says that emerging markets – which form 40 per cent of the world’s economy – have suffered from an outflow of $12.2 billion in equity in January 2014.

There has also been speculation among Chinese traders that the Central Bank may have encouraged large financial institutions to buy foreign currencies as a means of moderately depreciating the yuan

The move comes amid a report from Xiamen University in Fujian province that GDP growth will decrease to 7.62 per cent in 2014 from 7.7 per cent in 2013.

While the drop is very moderate – growth was 7.8 per cent in 2012 – it does indicate a slowdown trend.

The situation is exacerbated by fears the bustling real estate sector in China is also slowing down.

For a third straight month in January, the purchasing managers’ index (PMI) for China’s services sector slipped to the lowest level in two years.

But Mei Xinyu, a researcher at the International Trade and Economic Cooperation Institute of China’s Ministry of Commerce, believes that the country’s economic structure is robust and sufficiently different from its BRICS counterparts and other emerging markets.

Writing in China Daily, he says:

China is the world’s largest manufacturing economy and one of the biggest importers of primary commodities. So the falling prices of primary commodities will benefit the Chinese economy. The other emerging countries are highly dependent on exporting their commodities to boost their economies … China has maintained a surplus in both its commodity trade and its current account for more than 20 years, accumulating huge-scale foreign exchange reserves, which can guarantee the Chinese currency greater stability.

In related news, Britain and China pushed ahead on Thursday with plans to establish a clearing bank in London the yuan, which will allow it to become a leader in Chinese currency business in Europe, and increase the number of companies using it for international trade.

Source: Agencies