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Three days after Xi Jinping’s reappointment, the yuan tumbles against the dollar

Three days after Xi Jinping’s reappointment, the yuan tumbles against the dollar

“We have created two miracles: rapid economic development and long-term social stability.” It is in these terms that Xi Jinping hailed his reappointment for a historic third term at the head of the Chinese Communist Party. However, monetary stability seems to be in question at present. Evidenced by the fall of the national currency. The onshore yuan, ie the yuan which is traded on the Chinese domestic market, fell to 7.3084 yuan for one dollar (-0.6%), its lowest level since December 2007, approaching the trading limit authorized by the Chinese central bank for the day.

The same is true for the offshore yuan, which circulates outside mainland China and is traded more freely than on the domestic market. It fell as low as 7.3735 yuan per dollar. It was the lowest level since Hong Kong clearing houses were given the green light to open Chinese currency accounts freely in 2010.

As a result, Chinese stock markets plunged on Monday, with Hong Kong falling by more than 6%, Shanghai and Shenzhen by more than 2%.

US monetary tightening

There are several reasons for this decline. The Yuan is first of all a victim of the monetary policy of the United States. For several months, the US Federal Reserve (Fed) has been tightening, resulting in rate hikes with the aim of curbing consumption and therefore demand, and thus hoping to bring inflation down again. These successive increases have had the effect of pushing investors to rush into the dollar, which appears more than ever as a safe haven, to the detriment of other currencies such as the yuan. But also the euro. Driven by the dynamism of the American economy and the policy of the Fed, which is more aggressive than the European Central Bank, the dollar is at the top and at parity with the European currency, which has not been seen for fifteen years.

Soaring dollar: this is the problem for Europeans

Policy zero lust »

In the case of China, the reasons for the fall of the yuan are also to be found in the concern aroused by the reappointment of Xi Jinping. This is of particular concern to investors because the Chinese president has decided to hand over key economic positions to his political allies. zero covid »blamed for the sharp drop in growth in the world’s second largest economy.

For China alone, the country’s gross domestic product (GDP) had come to a halt in the second quarter with only 0.4% growth over one year, its worst performance since 2020, after 4.8% in the first. trimester. Because this policy to fight against the epidemic frequently leads to the unexpected closure of companies and factories, penalizing activities and travel, and weighing heavily on household consumption.

However, on Monday, China published rather encouraging figures. In the third quarter, its GDP grew by 3.9% year on year, according to official data, exceeding analysts’ forecasts. Although subject to caution, China’s official GDP figure – eminently political – is nonetheless highly scrutinized given the country’s weight as the world’s second largest economy. A group of 12 experts interviewed by AFP expected an average increase of 2.5% over one year in GDP over the July-September period.

(With AFP)