China’s central bank chief plays confident, longer-term game on yuan stability

Zhou Xiaochuan accuses hedge funds of trying reap rewards from market panic

PUBLISHED : Friday, 10 March, 2017, 7:51pm
UPDATED : Friday, 10 March, 2017, 11:14pm

Chinese central bank governor Zhou Xiaochuan sought to reassure the public on Friday that the yuan would remain stable, while lashing out at developed countries and hedge funds as sources of financial ­instability.

Zhou, governor of the People’s Bank of China, said China’s healthy economic growth and stable financial market meant there was no basis for depreciation of the currency.

“As the Chinese economy stabilises and becomes healthier, and the nation makes achievements in supply-side reforms and global investors become more confident in China’s economy, the yuan’s exchange rate will naturally be on a trend to stabilise,” he said on the sidelines of the National People’s Congress in Beijing.

Yuan flat while US dollar firms ahead of Fed jobs data

The yuan has weakened by about 10 per cent against the US dollar since August 2015 when Beijing changed the way it calculated the exchange rate to better reflect market forces.

The yuan’s value against the US dollar fell last year as the greenback rallied on expectations of a US interest rate rise and hopes that US President Donald Trump would launch pro-growth policies. Confidence in the yuan was also undermined by concerns about China’s slowing economic growth and capital flight.

But Zhou said on Friday that suspicions about the yuan and the Chinese economy “went too far” last year, with some traders and hedge funds wanting to benefit from market panic.

All eyes are watching to see whether Zhou and the country’s financial officials can make it through the gathering storm as money flees the country at an alarming rate and the currency’s value falls despite Beijing’s US$1 trillion efforts to defend it. China’s foreign currency reserves fell for seven straight months up to January, before a small increase in February.

Zhou said that in the aftermath of the 2008-09 global financial crisis, developed countries created about U$4.2 trillion in liquidity through quantitative easing, with about a third of that cash streaming into China. But some money had since flowed out again as a number of developed countries had rallied, resulting in fluctuations in the yuan, he said.

Yuan slides as strong US jobs data cements imminent rate rise expectations

Zhou said observers had also “overreacted” to China’s dwindling foreign reserves, saying the present level of about US$3 trillion was “sufficient” and still the world’s biggest stockpile.

Zhou, 69, has been the central bank’s helmsman for more than 14 years.

While he has been praised for his unrivalled command of policy and his capacity to match his international counterparts, he has been under scrutiny for the excessive liquidity spilling over from the 2009-10 4 trillion yuan stimulus package and the panic from the yuan’s surprise devaluation in 2015.

When pressed yesterday about retirement, Zhou batted the questions away with a smile, saying: “I can’t hear clearly.”

Additional reporting by Wendy Wu