China currency head urges investors not to listen to ‘talking down’ of yuan

Yuan may go down against the US dollar but still appreciate against other currencies

PUBLISHED : Monday, 11 January, 2016, 11:42am
UPDATED : Monday, 11 January, 2016, 11:50am

China’s currency regulator has urged investors not to be confused by noise from overseas firms “talking down” the yuan and vowed China has the ability to defend the currency, also known as renminbi (RMB).

Guan Tao, the head of the department of international payments at the State Administration of Foreign Exchange (SAFE), said in a Q&A interview in the official Economic Daily that investors should not worry about the bearish view of the yuan expressed by the foreign institutions.

“Don’t be confused by the talk of the foreign institutions who have kept talking that the yuan will go down,” he said. “This is because when they said the yuan may go down it does not mean the yuan will definitely go down. There may be some institutions that want to take profit from their portfolio by spreading bearish views and lead the mainland firms and public to feel panic and rush to sell the RMB. The rational Chinese institutions and families should not become these foreign institutions’ scissors for shearing.

“China has determination and ability to defend the yuan from devaluation.”

He said people should remember the lesson of 1994 when China devalued the yuan in one hit from 5.80 to 8.70 against the US dollar, with many market players predicting the yuan might further devalue to the nine or 10 level.

“But in reality, the yuan did not depreciate but appreciated 3 per cent that year, while the foreign reserves doubled,” Guan said. “ The yuan has since risen to become a strong currency. The investors who sell short the yuan have not been able to gain.”

Guan said that although the yuan has devalued by about 4 per cent to 5 per cent against the US dollar last year, it had still appreciated against a basket of currencies.

He said the devaluation of the yuan has led to capital outflow and the foreign exchange reserves were down. However, China still had sufficient reserves the defend the currency.

“The future outlook of the yuan will be subject to a number of elements,” he said. “The economic slowdown is a key reason for the recent devaluation of the yuan. The mainland economy is slowing down but the economic growth is still higher than many developed countries.

“The strong US dollar is also a reason for the devaluation of the yuan but we should also note that the US is increasing its interest rate, which means it is also facing a bumpy road ahead.”