Samuel Shen and Ankur Banerjee
SHANGHAI/SINGAPORE (Reuters) – China’s bourses and central bank scrambled to fend off a falling yuan and a slide in stock markets on Monday, trying to reassure investors worried about Donald Trump’s return to the White House and Beijing’s ability to revive the economy.
Two weeks before Trump begins his second US presidency, his threats of heavy tariffs on Chinese imports have rattled the yuan, sent mainland bond yields tumbling and sent stocks off to a rocky start to 2025.
On Monday, under strict control, the Chinese yuan weakened to the lowest level in 16 months, while the world stock index touched the weakest level since the end of September, as much as 0.8% on the day. The index fell 5% last week and posted its biggest weekly loss in more than two years.
Stock exchanges in Shanghai and Shenzhen recently held meetings with foreign institutions, both exchanges said on Sunday, assuring investors that they will continue to open up China’s capital markets.
The People’s Bank of China may issue more yuan notes in Hong Kong in January, state-run Yicai news agency reported on Monday, in a sign that the authorities are looking to absorb the currency to ease speculation. Financial News, a central bank publication, said the PBOC has the tools and experience to react to yuan depreciation.
“The decision to allow the yuan to weaken last week heightened concerns about capital outflows, further dampening investor sentiment,” said Charu Chanana, chief investment strategist at Saxo.
“Preventing a sharp fall in the yuan will be key to China’s recovery. Any tactical recovery this year will need more than just stimulus measures, particularly whether China can negotiate a deal with President-elect Trump.”
The world’s second-largest economy has struggled in recent years as a housing slump and slowing incomes have dampened consumer demand and hurt businesses. Exports have been one of the few bright spots, but could face massive US tariffs under another Trump administration.
The index rose 4%, while China’s index fell 4.3% since the US election, underscoring worries about tariffs. European stocks were unchanged in the same period.
PRESSURE ON THE YUAN
Since September, Chinese authorities have introduced various support measures, including swap and re-lending programs totaling 800 billion yuan ($109 billion), to boost investor confidence and lower stocks.
The yuan has routinely fallen to multi-month lows since Trump won the US election in early November as the threat of tariffs along with concerns about China’s slow economic recovery have fueled capital outflows.
The spot yuan hit 7.3237 per US dollar on Monday, its lowest level since September 2023, after breaching the key 7.3 level per dollar for the first time since 2023 on Friday.
The yuan fell 2.8% against the dollar in 2024, its third consecutive annual decline, reflecting the struggle of most currencies against the strong dollar.
Despite China’s efforts to stem the yuan’s decline through daily benchmarks it sets, falling domestic yields and broad-based dollar strength have undermined their efforts.
The central bank warned fund managers on Friday against pushing bond yields further lower, amid concerns that a bond bubble could hamper Beijing’s efforts to revive growth and manage the yuan.
In a sign of the bearish economy and deep-seated deflationary pressures, yields on 3-year bonds are trading below the short-term benchmark, the 7-day repo rate of 1.75%. Long-term yields are at record lows.
“While Chinese officials have promised further stimulus, signaling more monetary and fiscal easing, investors are waiting for concrete signs that demand is responding,” said Fred Neumann, HSBC’s chief Asia economist.
“After many ups and downs over the past year, more evidence is needed that the Chinese economy is responding to stabilization measures,” Neumann said.
A key test for consumer confidence will be the upcoming Lunar New Year celebration, which begins on January 29, he said.
($1 = 7.3281 renminbi)
