China’s stronger currency means difficult choices for Beijing

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Hong Kong: China’s yuan is stronger than it has been since the start of the US-China trade war.

That has left Beijing in a pickle. If the currency appreciates too quickly, the country’s financial markets could be rattled by a rapid influx of capital, and the economy’s fragile recovery could be thrown off track.

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But government intervention to weaken the yuan could provoke Washington, which has long been suspicious of how much Beijing controls its currency. If China is trying to mend fences with the United States, renewed accusations that it is a currency manipulator aren’t going to help.

The rising value of the yuan isn’t a completely new development. The currency has jumped more than 10% over the past year. But lately it has picked up even more steam, recently climbing above 6.4 yuan per US dollar — a boost attributable in part to the country’s economic recovery and a weaker dollar.

The appreciation of the yuan indicates that the People’s Bank of China (PBOC) has been willing to tolerate a stronger currency, according to Chaoping Zhu, global market strategist at JP Morgan Asset Management. He added in a research note this week that the central bank — which allows the currency to trade every day within a narrow band — may be trying to counter the escalating costs of commodities like steel and other building materials, which are necessary for China’s ambitious infrastructure plans.

Source: CNN

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