China's central bank has stepped up efforts to stabilize the yuan, which has fallen to its lowest level in 16 months.
Chinese stocks were also busy on Monday, boosting markets that had been sliding as investors worried about Donald Trump's return to the U.S. presidency and his threats to impose steep tariffs on Chinese imports.
Trump's tariff threats Stock markets got off to a rocky start in 2025 as doubts over Beijing's ability to revive the economy hit the yuan's exchange rate and fell mainland bond yields.
See also: China considers export restrictions on lithium technology, EV batteries
On Monday, China's blue-chip index CSI 300 hit its lowest level since late September, down 0.8% on the day. The index fell 5% last week, its biggest weekly loss in more than two years.
The Shanghai and Shenzhen stock exchanges said on Sunday they had recently held meetings with overseas institutions to reassure investors that China's capital markets would continue to be open.
Concerns over capital outflows following decision to devalue renminbi
The People's Bank of China may issue more yuan notes in Hong Kong in January, state-run news outlet China Business News reported on Monday, suggesting the authorities want to soak up the currency to curb speculation. Financial News, a central bank publication, said the central bank has the tools and experience to deal with the depreciation of the yuan.
“this The decision to allow the yuan to depreciate Charu Chanana, chief investment strategist at Saxo Bank, said: “Last week's capital outflows heightened concerns about capital outflows, further dampening investor sentiment.”
“Preventing a sharp devaluation of the yuan is critical to China's recovery. Any tactical recovery this year will require more than stimulus, especially if China can negotiate a deal with President-elect Trump.
The world's second-largest economy has struggled over the past few years as a housing downturn and slowing incomes dented consumer demand and hurt businesses. Exports have been one of the few bright spots but could face high U.S. tariffs under a second Trump administration.
The S&P 500 has gained 4% since the U.S. election, while China's CSI 300 index has fallen 4.3%, underscoring concerns around tariffs. European stocks were flat during the same period.
The yuan fell 2.8% last year
Since September, Chinese authorities have launched various support measures, including a swap and re-lending program totaling 800 billion yuan ($109 billion), to boost investor confidence and provide support for the stock market.
The yuan has regularly hit multi-month lows since Trump won the election in early November as the threat of tariffs and concerns about China's sluggish economic recovery triggered capital outflows.
The yuan hit 7.3237 against the U.S. dollar on Monday, its lowest level since September 2023, and broke through the key threshold of 7.3 against the U.S. dollar for the first time since 2023 on Friday.
In 2024, the RMB exchange rate fell by 2.8% against the US dollar, which was the third consecutive year of decline, reflecting that most currencies are fighting against the strong US dollar.
While China has tried to prevent the yuan from depreciating through a daily benchmark, falling domestic yields and a broadly stronger U.S. dollar have undermined their efforts.
The central bank warned fund managers on Friday not to push bond yields further down because Worry about a bond bubble It could hamper Beijing's efforts to revive economic growth and manage the yuan.
The 3-year Treasury yield is below the short-term policy rate, the seven-day repo rate of 1.75%, a sign of bearishness on the economy and entrenched deflationary pressures. Long-term yields are at historic lows.
Fred Neumann, chief Asia economist at HSBC, said, “While Chinese officials have promised further stimulus measures and hinted at greater monetary and fiscal easing, investors are waiting for concrete signs of demand response.”
“After many ups and downs over the past year, more evidence is needed that China's economy is responding to stabilization measures,” Neumann said.
He said a key test of consumer confidence will be the upcoming Lunar New Year celebrations, which start on January 29.
- Reuters Additional editing by Jim Pollard
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