Don’t Read Too Much Into the Strengthening Yuan
Investors shouldn’t count on it as an economic predictor for China and the rest of the world.
Still heavily influenced by the authorities.
Photographer: STR/AFP/Getty Images
Markets have viewed the recent strengthening of the Chinese currency as a signal of both improved investor sentiment and a possible sustained bounce in the country’s growth that would spill over into the global economy. Although the development does indicate a calming of the waters of international trade and economic relations, what it says about China’s economy and the implications for the rest of the world is a lot more limited, at least as of now.
The rise of the yuan to levels not seen for a few months has come on the back of two important developments: agreement on a Phase I trade deal between Beijing and Washington that’s expected to be signed on Wednesday and a series of small confidence-building steps that most recently included the Trump administration’s decision to lift the currency-manipulation label it slapped on China last August. But there are three important reasons to be careful about the view that this is a market-led outcome with important predictors about the Chinese and global economies: