China | Recovery pushes yuan to three-year high

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France Media Agency

On Tuesday afternoon, Beijing time, the Chinese currency was trading at 6.4051 per dollar, up 0.2% from the previous day. This is its highest level since June 2018.

The appreciation of the yuan is partly linked to “the strong recovery” in demand among main customers of China, in particular in the United States and in the European Union, notes for AFP analyst Rajiv Biswas, from IHS Markit.

The recovery in China thanks to a gradual improvement in sanitary conditions from the spring of 2020 has “improved market sentiment towards the Chinese currency,” said Biswas.

The performance of the yuan is “clearly” to be attributed to the dollar which “loses ground” against the main currencies including the euro, reports for his part Guillaume Dejean, macro and exchange analyst for Western Union Business Solution.

Too strong a rise in the yuan risks slowing the recovery in China.

Exports are indeed one of the pillars of the Asian giant’s economy. And a stronger yuan has the effect of raising the dollar prices of Chinese goods.

“The country’s central bank is aware of the risks associated with the appreciation of the yuan […] while the recovery in China is still uneven, ”said analyst Ken Cheung, of the Mizuho bank.

The yuan is not fully convertible and the central bank fixes a central rate every day, on either side of which it allows a fluctuation of plus or minus 2%.

If the first country affected by the pandemic at the end of 2019 is also the first to have recovered economically, household consumption nevertheless remains in China the weak point of the recovery.

Sectors such as tourism and transport, penalized by the continuous closure of borders, are thus still struggling.

China was one of the few large countries last year to experience positive growth (2.3%) despite the health crisis.

As a result, “capital in China is flowing rapidly” and this mechanically strengthens the value of the yuan, notes Mr. Cheung.

But this could well become in the long run “a headache” for the central bank, he warns.

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