Yuan trades weaker after Beijing introduces new capital controls

The People’s Bank of China set the yuan reference point 0.24 per cent stronger to 6.8794 against the US dollar

PUBLISHED : Friday, 02 December, 2016, 1:41pm
UPDATED : Friday, 02 December, 2016, 1:41pm

China’s yuan traded slightly weaker against the US dollar on Friday morning, after the government introduced strict new controls to stem the currency’s outflow.

Onshore yuan in Shanghai traded at 6.8830 to the dollar at 11:50 am, flat from its close on Thursday, while offshore yuan in Hong Kong was 0.06 per cent, or 0.0039 points, weaker at 6.8833.

The People’s Bank of China (PBOC) on Friday set the yuan reference point against the US dollar at 6.8794, 1.64 basis points or 0.24 per cent stronger than yesterday.

Traders are allowed to trade up to 2 per cent either side of the reference point for the day.

The yuan has fallen almost 7 per cent this year, recently plunging to a series of eight-year lows after the surprise election of Donald Trump in the US presidential election.

China’s government has unveiled new measures to tighten currency outflow, with greater regulatory scrutiny of high-value transactions and curbs on overseas lending for the first time.

A special order by the People’s Bank of China this week capped overseas lending by non-financial Chinese companies to around 30 per cent of their owners’ equity.

The yuan is increasingly leaving the country and being converted into foreign currencies, as offshore yuan deposits decline, according to a Morgan Stanley report from earlier this week.

Cross-border yuan flows rose to an average of US$28 billion per month in the first 10 months of the year, the report said.

But the central bank’s deputy governor Yi Gang told Xinhua in an interview that the currency’s exchange rate will continue at a stable and balanced level.

“I believe capital that has flown from China will return in the future,” he told the state-owned news agency.

Citi analyst Liu Li-gang said in a note that the tightening of yuan controls will slow the pace of the currency’s internationalisation, just weeks after it joined the International Monetary Fund’s basket of currencies that make up the Special Drawing Rights (SDR).

In other currency trading, the Japanese yen strengthened against the US dollar by 0.16 per cent to 113.95 at 11:50 am.

The British pound weakened by 0.12 per cent to 1.2606 against the greenback in morning trading.