Investor confidence was chilled by the latest round of verbal threats in an intensifying US-China trade conflict. China told the World Trade Organization (WTO) on Tuesday it wanted to impose $7 billion a year in sanctions on the United States in retaliation for Washington's non-compliance with a ruling in a dispute over U.S. dumping duties. Separately, US President Donald Trump told reporters on Tuesday that the United States was taking a tough stance with China.
An escalating trade war between the world's two largest economies could persuade an increasing number of global investors to favor China's yuan over the U.S. dollar, the former People's Bank of China (PBOC) Governor Zhou Xiaochuan told on the sidelines of the Eastern Economic Forum (EEF) in Valdivostock in Russia.
Trading in the partly managed yuan also called the renminbi has been volatile over recent months, amid threats of additional U.S. tariffs against China. This comes after President Donald Trump said late last week that he was "ready to go" on tariffs targeting another $267 billion on Chinese goods "if he wants." That would follow planned charges on $200 billion of Chinese goods in several industries, including technology. Beijing has vowed to retaliate if Washington takes any new steps on trade.
NEWS FROM THE PRESS: Guangdong government rolls out new measures to revive up real economy -- The Guangdong government revealed a slew of new measures Monday to help manufacturing enterprises in the province lower their costs by as much as 200 billion yuan (US$29 billion) between 2018 and 2020. The 61 measures will lower manufacturing costs across 10 significant areas, including taxation, land cost, utilities, social insurance and transportation, with the aim of helping enterprises in Guangdong accelerate their development. The new measures will also help manufacturing enterprises facilitate structural reform and offer support to key industries such as new-generation information technology, high-end equipment manufacturing, digital economy, low-carbon economy, new materials and bio-medicine. The measures also provide subsidies for technological upgrades and advantageous policies that offer assistance to SMEs with financing issues.
CURRENCY NEWS: China's yuan continued a moderate slide against the U.S. dollar on Wednesday, inline with soft mid-point fixing by People Bank of China. Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.8546 per dollar, weakened by 58 basis points from 6.8488 on Tuesday. In China's spot foreign exchange market, the yuan is allowed to rise or fall by 2% from the central parity rate each trading day. The central parity rate of the yuan against the U.S. dollar is based on a weighted average of prices offered by market makers before the opening of the interbank market each business day.
The yuan has been sliding against the US dollar since April and has lost more than 9% since then. A weaker yuan could lessen, to a degree, the impact of trade tariffs that the U.S. has Imposed and the further tariffs that U.S. President Donald Trump has threatened.
Trump has threatened to impose sanctions on virtually all Chinese exports to the U.S. with sanctions on $200 billion worth of goods having already gone through public consultations and sanctions on another $267 billion threatened after that. While sanctions could make Chinese products more expensive in the U.S., a weaker yuan could make them cheaper.
The PBOC and other agencies have been taking steps to support the yuan. In August, the China Foreign Exchange Trade System (CFETS) reintroduced a counter-cyclical factor in setting the value of the currency after a 5% plunge over two months.
The People's Bank of China injected CNY60 billion of liquidity on Wednesday after taking a 15-day break from open market operations.
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