US trade war could trigger further yuan depreciation against dollar and greater capital outflows, economist warns
‘Disturbing factors’ in financial markets and trade dispute could hit Chinese currency, according to former central bank adviser Yu Yongding
China should be prepared for a new round of capital outflows and currency depreciation when bracing for the impact of the trade war with the US and other disturbances to the financial markets, a prominent economist warned on Saturday.
Yu Yongding, a senior researcher with the Chinese Academy of Social Sciences and a former adviser to the People’s Bank of China, said “some disturbing factors” had emerged in the Chinese financial markets, such as the wave of peer-to-peer lending defaults or concerns about a property bubble and an economic slowdown in the second half of the year.
The trade war with the US will have a negative impact on China’s economy and market sentiment, as will the impact of interest rate increases in the US and the financial crisis in emerging markets, Yu told a financial forum in northeastern province of Heilongjiang. A link to the transcript was posted on the forum’s official website.
The lira, which fell 16 per cent against the US dollar on Friday, also took its toll on the European financial markets, weakening the euro and rouble.
“There have been discussions among investment bankers whether there would be a repeat of the Asian Financial Crisis. The so-called herd effect [like that] in the [1997] Asian financial crisis may affect China,” he said.
Taking those factors together, Yu warned that the yuan exchange rate “would face downward pressure which may reinforce the depreciation expectations”.