China is relaxed about yuan strength, and that’s good news

Name: China GDP: economy grew by 4.9 per cent in third quarter of 2020
Uploaded: 2020-10-27T06:45:12.000Z
Duration: 1 min 47 s
Description: China GDP: economy grew by 4.9 per cent in third quarter of 2020

China’s central bank governor said the market should decide the exchange rate, which sends a powerful message to currency markets when international investors are already clamouring for Chinese assets

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The Chinese authorities have signalled a greater degree of tolerance of yuan strength. Photo: Bloomberg

Neal Kimberley

Published: 2:45pm, 27 Oct 2020Updated: 10:15pm, 27 Oct 2020

You do not have to be a true believer in “Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era” to acknowledge that China’s economy is having a good pandemic.

What matters to markets is that Beijing’s approach to suppressing the coronavirus has resulted in the Chinese economy rebounding even as other economies are still struggling.

That economic recovery in China spells opportunity for international investors, and even more so when the mood music from Beijing seems to be signalling a greater degree of tolerance of yuan strength, strength that already materially reflects overseas demand for Chinese assets. After all, if you want to buy a piece of the action in China, you have to pay in yuan.

And the importance of Beijing’s apparent lack of concern about the yuan’s rise should not be underestimated. That insouciance is influencing currency market psychology because foreign exchanges have a long experience of running into resistance from the Chinese authorities when the renminbi is on an upwards trajectory.

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China GDP: economy grew by 4.9 per cent in third quarter of 2020

Indeed, there’s nothing currency markets like better than pushing at an open door. As it stands, and in contrast to other major economies that are set to shrink over the year as a consequence of the pandemic, China’s economy may yet end up expanding.