China may not weaken the yuan in a trade war with the US

China will not be able to possess the weaker yuan as a weapon in its deepening of the trade war with the US because such a move can cause the financial market instability, according to CNBC observers.

The Chinese Sea Yuan weakened to a record minimum 7,4287 against the US dollar earlier this week after the People’s Bank of China set its average rate at the weakest level since 2023. Similarly, on Thursday, on the shore, on Thursday, he weakened up to 7,3509 against the green lapel, its lowest since 2007, shown with LSEG.

This step caused the assumption that Beijing would allow the currency to weaken further impact on US President Donald Trump’s tariffs. However, analysts warn that a significant weakening of the yuan can have the effects of pulsation, including launching capital outflows, which is to avoid policy. Indeed, Yuan has since strengthened both on the shore.

Among the 11 analysts surveyed by CNBC, most do not see that the currency is significantly relaxed in the long run. Instead, economists expect the Central Bank to develop an ordered and gradual cushioning.

“The devaluation of the RMB (Reminbi) will not be part of China’s retribution tools for tariffs in the US,” said HSBC leader FX Joey Chew, citing another name for Chinese yuan.

“In fact, fast cushioning can weaken consumers’ trust and risk the capital flight,” she said CNBC.

Capital outflow accelerated in 2015 when China depreciated its yuan. This year in China saw nearly $ 700 billion when this year The data of the Institute of International Finance showed.

If China’s economy is already stuttering and rapidly increasing in US tariffs that threaten export exports, rapid capital outflow from the country can further complicate the work of politicians.

“The devaluation is no longer an effective trading weapon,” said Dan van, the director of China in Eurosia Group, who added that it will “invite the financial crisis on its own.”

Capital flight is the main problem of Beijing, she said.

“The government will try everything that is only possible to see the market that it has the opportunity to defend Yuan from the US sanction and that no one should have a short yuan on the market,” Van added.

Also there are restrictions in the benefits that are weaker Currently is 145%.

“How the country can reduce the same rate at the same level without causing financial instability. It will be very difficult,” said Jianwe Sie, Senior Economist Natixis.

While the main currencies such as the US dollar and Japanese have a free layer, China brutally regulates the cost of the yuan in its domestic market.

Every morning, PBOC establishes a daily correction of the middle point based on the final meaning and the introduction of the interbank dealers of the previous day. On the shore, the yuan is allowed to trade only in a narrow strip 2% above or below this standard.

“I think China wants it to be regarded as a stability center on each variable, including the course,” said the veteran David Rosh.

The weaker Yuan can also ease this “easier” for the US, given the way China is its largest supplier of goodsRosh noted.

“The best way to make Americans pay for it is to keep the currency stable,” he said.

The commitment of Chinese politicians to stability was emphasized by a number of measures to reinforce the yuan earlier this year, when the sharp splash of the US dollar sent other currencies that collapsed around the world. These efforts were aimed at dissuading market participants from the location of unilateral rates on the Slide Yuan.

The Central Bank manages the gradual cushioning of the yuan by fixing, but the sharp devaluation is not scale, according to Ken Cheun, the main Asian strategist Mizuho, ​​whose forecast at the end of the year due to the fight against USD/CNY was the lowest among analysts interviewed by 7.12.

Instead of using currency cushioning to resist the impact of tariffs on the US, Cheun said that PBOC could “introduce more bilateral FX volatility to set up with cheeky FX market”.

Christopher Wong, the Fx OCBC strategist said that in the near future the bank does not rule out “wild swings” in currency, which would see it from 7.20 to 7.50 for both shore and sea currencies.

Not all CNBC interviewees believe that Beijing to choose a stable yuan. When raised tariffs imposed by the United States and China remain in place, the capital economy sees that Yuan is significantly depreciated.

Jonas Golderman, Deputy Chief Economist of the Capital Economics, said CNBC that he expected a USD/CNY rate by the end of the year. However, given how the US-China trade war has developed in recent days, Golderman said that markets could “get to what before.”

However, he added that even this did not fully compensate for the hike at the US tariffs.

China may be more likely to use a household incentive to compensate for the lost trading and stability of the project, said Camil Dimic, a portfolio manager north of the South Capital LLP. This includes a stable yuan, perhaps even strengthened by repatrial capital from the US Treasury market, he developed.

On Friday PBOC also confirmed His plans for “moderately free” when Beijing is preparing for increased uncertainty amid a rapidly enhanced global trade war.

– Evelyn Chang Evelyn Chenc introduced this report.