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Yuan strength reflects dollar weakness as much as China’s economic recovery
- China’s economic situation justifies some degree of yuan appreciation, but there is more at play than just renminbi strength. Rather, the US dollar has been weakening against several currencies, and this suits American interests
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Beijing needs to be vigilant on the currency front. The strength of the yuan in recent months partly reflects China’s impressive economic recovery from Covid-19 but the rise of the renminbi is not all about China. It’s also about the currency market’s wider and well-grounded disillusionment with the US dollar.
China’s own economic situation undoubtedly justifies some degree of yuan appreciation. But Beijing must also be mindful that when a rising renminbi is more a function of US dollar weakness – which Washington may not directly be pushing for but is also doing nothing to discourage – that may not suit China’s own economic interests.
It’s indisputable that China’s economic recovery from the pandemic has been striking, especially when compared to other major economies where attempts to contain Covid-19 have so far been less effective, and also that, as other economies do start to pull round, Chinese exporters are already satisfying resurgent overseas demand.
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Indeed, China’s customs agency reported on December 7 that exports grew by 21.1 per cent in November year on year, expanding at the fastest pace in almost three years and representing a sixth consecutive month of growth.
01:47
China GDP: economy grew by 4.9 per cent in third quarter of 2020
China GDP: economy grew by 4.9 per cent in third quarter of 2020
It’s also indisputable that central banks in many major economies continue to use ultra-accommodative monetary policy tools in their attempts to mitigate the economic impact of the pandemic.
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