From Reuters via the Japan Times, November 22:
Chinese firms are squirreling away even more dollars, pricing contracts in yuan and opening import lines to mitigate currency risks as trade tensions threaten to roil foreign exchange rates.
The trend shows exporters are preparing for a long-term shift in trade toward Asia, Latin America and Africa, and safeguarding against potential currency fluctuations such as those seen during U.S. President-elect Donald Trump's first term.
Knife-edge margins are also adding to companies' anxieties, with spot markets already pushing the dollar about 2% higher on the Chinese currency in the weeks since the U.S. presidential election on Nov. 5.
"There's an obvious spike in willingness to hold dollars offshore," said David Jiang, founder of risk management consultancy Qian Jing.
A business in eastern Jiangsu province, which earns $300 million in annual exports, wants help to protect 5% margins from currency risks as it must also navigate Trump's threat of imposing 60% tariffs on Chinese goods, he said.
For now, most firms are holding on to their dollar earnings from exports and keeping them offshore, if possible. Onshore foreign-currency deposits swelled 6.6% to $836.5 billion over the 12 months to end-October, central bank data showed.
Analysts' average forecast is for the yuan to fall to 7.30 per dollar by the end of next year from around 7.24 per dollar currently.
"The interest rate differential between the United States and China is wide and that will continue to persist for a prolonged period ... holding dollar assets is natural for Chinese exporters," said Liu Yang, general manager of the financial market business department at minerals exporter Zheshang Development Group....
....MUCH MORE
As we've pointed out over the years China is torn in two directions over currency moves.
Here's the July 2024 iteration:
One of the reasons China has to be cautious about rate moves is the very real risk of capital flight. A slow-motion devaluation of the yuan has a couple negative effects: 1) Converting your currency into jade or whatever and sending it off to Uncle Liu in Tibet starts to look more attractive despite the risks and 2) A weaker yuan makes it much more expensive to purchase dollars to service and repay dollar-denominated debts.
At one time those debts, both corporate and various levels of governmental were estimated at $3 trillion* meaning a 10% depreciation adds $300 billion to the eventual cost.
Here's five years of USDCNY via TradingView. Up is weaker i.e. more yuan to buy a buck:
And November 11:
....Skipping up to China, one of the quoted analysts is looking for the yuan to weaken to 7.30 - 7.35 to the USD. Here's the cross rate for the past month, apparently something happened on November 5:
