China’s yuan currency slides to fresh 11-year low, sparking fears of capital flight from Asia

China appears to be preparing to offset the impact of Donald Trump’s new US trade war tariffs, increasing fears of regional currency declines and further equity exodus

On September 1, the US is set to implement the first phase of a 10 per cent tariff on a wide range of Chinese manufactured consumer goods worth around US$130 billion

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Chinese authorities let the yuan drop to its weakest level since March 2018, the seventh straight daily decline, on Friday. Photo: AFP

Published: 8:00pm, 23 Aug 2019Updated: 11:45am, 26 Aug 2019

The value of the Chinese yuan fell to a fresh 11-year low against the US dollar on Friday, fuelling worries that China has given up on achieving any progress to end the trade war with the United States in the near term and so is moving to offset the effect of new tariffs with a weaker exchange rate.

The weaker yuan, in turn, dragged down regional currencies, aided by central bank interest rate cuts, that would lead to an acceleration of capital outflows from Asia this year.

Recent signs appear to indicate that China was preparing its economy for a scenario in which no progress is made at the face-to-face trade negotiations between US and Chinese officials expected to take place in Washington next month, analysts said.

And despite the US labelling China a currency manipulator early this month to address what it sees as the unfair trade advantage resulting from a cheaper yuan, Chinese authorities let the yuan drop to its weakest level since March 2018, the seventh straight daily decline.

The drop in the yuan followed a reduction in interest rates by the People’s Bank of China (PBOC) this week. The central bank set its new one-year lending prime rate at 4.25 per cent, down from the old lending benchmark rate of 4.35 per cent, which analysts believe is the start of an easing cycle to prop up economic growth.