**China Strengthens Support for Yuan Amid Mounting Economic Pressures**
**SHANGHAI/HONG KONG** (Reuters) – In a bid to stabilize its ailing currency, China has unveiled new measures designed to enhance capital flows and support the yuan, which has recently been trading near 16-month lows against the U.S. dollar. On Monday, the People’s Bank of China (PBOC) announced plans to increase foreign reserves parked in Hong Kong and relax borrowing limits for companies looking to tap overseas financing.
The Chinese yuan faced significant downward pressure partially due to a robust U.S. dollar and declining bond yields within China, compounded by the looming prospect of heightened trade tensions as Donald Trump prepares to take office next week. The PBOC’s proactive steps signal a concerted effort to combat these challenges.
Since late last year, the PBOC has employed various measures to stem the yuan’s decline, including warnings against speculative trading and efforts to bolster yields. The central bank reiterated its stance on avoiding yuan speculation during Monday’s announcement. By raising the limits on offshore borrowings, the PBOC aims to facilitate greater foreign exchange inflow.
At the Asia Financial Forum in Hong Kong, PBOC Governor Pan Gongsheng noted the intention to significantly increase the proportion of China’s foreign exchange reserves available in the region, although specific details were not disclosed. Current foreign reserves are estimated to be around $3.2 trillion, but their exact allocation is often opaque.
Analysts, including Lynn Song, chief economist for Greater China at ING, commented on the PBOC’s focus on currency stability. He mentioned that the central bank’s current approach demonstrates its prioritization of maintaining stability in the yuan, despite market speculation about a potential intentional devaluation.
As of 0450 GMT on Monday, the onshore yuan was trading at 7.3318 per dollar, just shy of its recent low of 7.3328 hit the previous Friday. Since the U.S. presidential election in early November, the yuan has depreciated over 3% against the dollar, raising concerns that Trump’s proposed trade tariffs could further strain China’s economy.
The PBOC has been setting the official midpoint for the yuan higher than market predictions as a response to the currency’s challenges—an indication of its discomfort with the current trajectory of the yuan.
Recent developments from the PBOC reflect the complexity of its economic management strategy. The central bank is faced with the dual challenge of stimulating economic growth through easy monetary policy while averting a lengthy bond rally and maintaining currency stability amid uncertain political and economic landscapes.
Additional measures include a suspension of treasury bond purchases to curb yield declines, alongside plans to issue a significant quantity of bills in Hong Kong. Gary Ng, senior economist at Natixis, pointed out that while mainland China has a strong base of yuan deposits, Hong Kong remains essential for currency liquidity and transactions, particularly through foreign exchange swaps and spot trading.
Recent trade data indicates that China’s exports picked up pace in December, alongside a recovery in imports. However, the boost in exports was partly driven by manufacturers accelerating shipments as they prepared for potential trade challenges under the incoming Trump administration.
For forex traders, these developments suggest that while the PBOC is committed to stabilizing the yuan, ongoing economic pressures and external political factors will continue to play a crucial role in shaping currency movements. Traders should remain attentive to further announcements from the PBOC and global economic indicators, as these will be instrumental in navigating the current market landscape.
