Focus on China’s long-term growth – not on yuan’s short-term fall, top Chinese economist says

Yu Yongding says the Chinese currency has declined against the US dollar but the big issue is to restore confidence in the economy

The major challenge is to sync ‘Covid-19 controls with expansionary policies’

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The biggest challenge for China is to coordinate Covid-19 controls and expansionary policies, according to economist Yu Yongding. Photo: EPA-EFE

Published: 7:00pm, 2 Oct 2022

China should focus on lifting growth and restoring confidence in the country’s economy rather than intervening in the foreign exchange market to try to stem capital outflow risks, according to former central bank adviser Yu Yongding.

In an interview with Shanghai-based news outlet The Paper on the weekend, Yu said the yuan’s depreciation against the US dollar was a short-term issue and the central bank should not set a “red line” for intervention because it would encourage speculators.

He said downward pressure on China’s economy was high and authorities had unveiled expansionary policies to drive growth but Covid-19 controls had limited the impact of those policies.

“US Fed rate hikes have put some pressure on China’s macroeconomic policies. But fundamentally, the challenges are internal,” he said.

“The most important job now is to accelerate economic growth and resolve problems that will affect growth.

“When people gain confidence in the economy, there won’t be massive capital outflows.

“The biggest challenge for us is to coordinate Covid-19 controls and expansionary policies.”

The Chinese currency has fallen steadily against the US dollar as the US Federal Reserve has raised interest rates five times so far this year.

Yu said the central bank should make the most of the yuan’s foreign exchange rate flexibility and maintain regular cross-border capital flows, but not focus on the short term.