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https://scmp.com/business/banking-finance/article/3014085/chinese-middle-class-expects-yuan-decline-amid-trade-war
Business/ Banking & Finance

Chinese middle class expects yuan to decline amid trade war, eyes offshore investment to secure wealth

  • Poll conducted for Bank of Communications finds number of households planning to buy foreign-currency assets has risen by 4 per cent
  • Respondents have shown cautious stance on economy, investment prospects, analyst says
The increase in willingness to buy foreign-currency assets is in line with Chinese households’ reduced interest in buying overall liquid investment products, Bank of Communications says. Photo: Reuters

Chinese households expect a weaker yuan amid a tit-for-tat US-China trade war and are increasingly looking at offshore investments to safeguard their wealth against a slowing economy and stuttering stock market at home, according to a survey released on Tuesday.

The poll, conducted by market research firm Nielsen for Bank of Communications (Bocom) every two months, found that 26 per cent of 1,830 respondents planned to buy assets denominated in foreign currencies in the coming six months.

The survey was conducted in May, after US President Donald Trump raised tariffs on US$200 billion worth of Chinese goods from 10 per cent to 25 per cent. In the previous poll, conducted in March, 22 per cent of households said they were planned to invest in foreign-currency assets.

The increase is in line with their lower buying interest as far as overall liquid investment products are concerned, Bocom said. A bank index gauging respondents’ interest in liquid assets including stocks, bonds and investment funds, slumped by 4 points to 136.

A Bocom index tracking household interest in investment activity slipped two points to 121.

“Despite stable domestic economic growth, rising geopolitical uncertainties are ratcheting up pressure on the Chinese economy,” said Tang Jianwei, chief macro analyst at Bocom.

“The respondents have shown a cautious stance on the economy and investment prospects.

“Our survey finds that households are increasingly willing to invest in banks’ wealth-management products, commodity futures and, in particular, foreign-exchange assets,” Tang said. “Those who already hold US dollar assets said they benefited from a stronger US dollar and have reaped good returns.”

“Households are looking at foreign-currency assets to dodge a potential fall in the stock market, and a weaker yuan prompts them to pursue equities and funds denominated in foreign currencies,” said Wang Feng, chairman of Shanghai-based financial services firm Ye Lang Capital.

The respondents living in Beijing and Shanghai had annual household incomes of no less than 240,000 yuan (US$34,700), while those living in other mainland China cities earned between 120,000 yuan and 180,000 yuan a year.

The yuan has depreciated by about 2.5 per cent against the US dollar as the trade war has escalated. Punitive tariffs on goods shipped from China could technically narrow its trade surplus, hence leading to the devaluation of its currency. Trump has threatened to place tariffs on another US$300 billion worth of Chinese goods.

The mainland Chinese economy expanded by 6.4 per cent in the first quarter this year, in line with expectations. But starting in May, worsening US-China trade relations have weighed on a Chinese middle class battered by a stock market downturn, dwindling wages and declines in property values.

The benchmark Shanghai Composite Index declined in May by 5.8 per cent and stood at 2,898.7 on May 31.

The respondents were also lukewarm about property investment because of Beijing’s austerity measures limiting home transactions.

Mainland residents can buy foreign currencies equivalent to US$50,000 a year. They can also buy overseas funds through the qualified domestic institutional investor scheme.

The respondents can, however, expect China’s foreign-currency regulator to step in to control money outflows by tightening rules on foreign investment since the yuan is still not fully convertible under capital account.