The Chinese currency was trading at 6.57 against the US dollar in foreign trade, after falling to its lowest level against the dollar since November 2020 on Monday. The Shanghai Composite closed down 1.4%. It has now lost about 22% since its last peak in September 2021.
China’s strict adherence to its non-proliferation policies, along with a crackdown on big tech and private companies, declining real estate and risks related to the Russian war in Ukraine, has led to unprecedented capital flight by foreign investors in recent months.
The Shenzhen Composite — a tech-heavy indicator — is down 31% since the start of the year, behind Russia’s Moex, which is down 42%, according to Refinitiv. data. The Shanghai Composite Index is also among the top losers globally, down 21% year-to-date.
The People’s Bank of China tried to calm nerves on Monday with another promise to boost the economy. In an unprecedented move, it cut the amount of foreign exchange banks that must hold as reserves to 8% from 9%. The move will effectively increase the supply of dollars in the market, and analysts widely believe that the decision is aimed at halting the rapid decline of the yuan.
The offshore yuan changed little on Tuesday, while its value on the home market gained just 0.1%. (At home, the yuan is only allowed to trade within a narrow range of 2% of the daily average point rate set by the central bank. It can trade more freely abroad.)
“The [renminbi] It has been too costly given China’s economic weakness, Societe Generale analysts wrote on Tuesday.
They added that the economy is “close to breaking point” due to widespread shutdowns that have disrupted production, hampered consumption, and put pressure on supply chains.
“Threats to China’s growth outlook … seem to overwhelm everyone in terms of financial markets,” Jeffrey Haley, chief market analyst at Oanda, said in a note.
In its latest report on China strategy, Goldman Sachs estimated that Chinese technology stocks have lost $2 trillion in market value worldwide since peak levels 14 months ago. This equates to 11% of China’s GDP in 2021.
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