China awaits ‘relatively stable’ yuan in 2017
China’s central bank governor said that the yuan should be “relatively stable” this year after losing seven percent of its value in 2016 amid accusations by US President Donald Trump of currency manipulation on Friday.
People’s Bank of China Governor Zhou Xiaochuan said the world’s number-two economy was expected to stabilise after posting its slowest growth in more than a quarter of a century last year, with benefits for the yuan.
Zhou said in Beijing, “Under these circumstances, we believe this year that the yuan exchange rate will be relatively stable.”
He added however that “no one can predict exactly what uncertainties and events” will impact the yuan.
“Of course, the foreign exchange market is always very sensitive, and will follow the overall global economy, as well as continuing fluctuations in China.”
The country has struggled to prop up the yuan in the face of a huge flight of capital as the prospects of better and safer returns overseas entice investors away from the Chinese market.
Trump, however, has repeatedly accused Beijing of deliberately weakening the yuan to boost exports and has threatened to officially declare it a currency manipulator and slap hefty tariffs on its goods.
Zhou’s remarks came on the sidelines of the annual meeting of China’s Communist-controlled rubber-stamp parliament, where the ruling party approves legislation and sends signals about its plans for the year.
Opening the session on Sunday, Premier Li Keqiang announced a 2017 official economic growth target of “around 6.5 percent, or higher if possible”, citing an even “more complicated and graver situations” this year.
Last year’s growth came in at 6.7 percent, lowest since 1990.
The central bank has quietly tightened monetary policy, raising short-term borrowing rates for the first time since 2013 after an explosion of lending last year to support growth led to concerns of mounting financial risks.
Zhou said monetary policy would remain neutral, adding that there was a danger that too much loosening could fuel asset bubbles.
Zhou added that the financial-asset management market is “somewhat chaotic” and supervision of risks must be strengthened.
Financing must “serve the real economy,” instead of “going here and there without ever reaching the real economy.”
Asked about the dramatic drop last year in China’s massive stockpile of forex reserves, which shrank from a peak of roughly $4 trillion to under $3 trillion last year, he said the country “does not need so much”.
But he said last year’s flood of Chinese investment overseas which included purchases of Hollywood studios and European football teams involved some investments that had “no benefit” and should be managed.