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Yuan continues slide, PBOC approves
June 30, 2016, 12:17 pm

This is not the first time the PBOC takes measures to devalue the yuan currency [Xinhua]

This is not the first time the PBOC takes measures to devalue the yuan currency [Xinhua]

The People’s Bank of China (PBOC) is reportedly throwing its support behind the yuan currency’s recent post-Brexit depreciation in a bid to make Chinese exports more lucrative for foreign markets.

The yuan fell 3 per cent from its March level on Thursday to 6.6 against the US dollar. According to Reuters quoting an unnamed Beijing official source, the PBOC is willing to see the yuan drop as low as 6.8 against the dollar this year.

Meanwhile, the benchmark Shanghai Composite Index slipped very slightly at the end of Thursday trade following two days of gains.

Hong Kong’s Hang Seng Index, however, closed up 1.75 per cent to 20,794.37 continuing a week of solid performance.

According to China Beige Book International (CBB), a data analytics firm focused on the country’s economic performance, there has been a pickup especially in Q2 2016. Of particular note is the services industry which not only improved on Q1 but also on performance in 2015.

CBB said the same of the construction industry.

“There are finally signs of effective fiscal stimulus, with the transportation and real estate construction sectors each suddenly showing signs of life. This is pure fiscal stimulus coursing through the country, causing a big jump in hiring as well,” says CBB CEO Leland Miller.

The CBB report comes just three days after Chinese Premier Li Keqiang told World Economic Forum delegates in Tianjin that Beijing will not allow drastic changes in capital markets to wreak havoc on the economy.

“Just like in China’s economy, it is inevitable to have short-term volatility in some sectors of the capital market, but we should ­prevent skyrocketing or precipitous fluctuations,” Li said.

The Chinese government and PBOC have intervened a number of times to prevent significant drops in the exchanges – Beijing saw this as necessary after the Shanghai Composite plummeted 8.5 per cent in a single day of trading, prompting chaos in global markets.

In late July, the PBOC said that it would maintain prudent monetary policy in the second half of the year to ensure that liquidity stays at an appropriate level.

The PBOC also injected 50 billion yuan ($8.05 billion) into the money markets through seven-day reverse bond repurchase agreements.

The measures worked for a while. The benchmark Shanghai Composite index began to rise after its drastic July fall.

In mid-August, Chinese markets tumbled again on weak economic data, such as excess capacity, weaker manufacturing, decline in exports and profit, and lower domestic demand.

The PBOC stepped in and devalued the yuan by three per cent over the course of three days.

That sent markets into a spin with indices across the board in every country falling on suspicion that China’s economy was worse than anticipated.

Chinese authorities stepped in to ease the tension in domestic markets – introducing measures which have stabilized the economy by years-end and have apparently worked in 2016.

The BRICS Post with inputs from Agencies

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