China needs a strong national currency. Various external intrigues, primarily from the US, will in no way stop China from pursuing its goal. According to CNBC analysts, Chinese authorities are unlikely to use a weak yuan as a weapon in the trade war with the US. The reason lies in concerns over turmoil in financial markets.
This week, the Chinese offshore yuan weakened to a record low of 7.4287 yuan per US dollar. Earlier, the People’s Bank of China (PBoC) had set its mid-point rate at the lowest level since 2023. Recently, the yuan plummeted to 7.3509 against the dollar, its lowest level since 2007.
This move triggered speculation that Beijing might allow its currency to depreciate further in order to cushion the impact of Trump’s tariffs. However, analysts believe this scenario is unlikely. They warn that the yuan’s serious weakness could have negative consequences, including capital outflows—something Chinese policymakers are keen to avoid.
According to CNBC experts, a major depreciation of the yuan will hardly happen in the long term. Instead, economists foresee an orderly and gradual devaluation managed by the PBoC. “The yuan’s depreciation will not be part of China’s strategy in response to US tariffs,” Joey Chew, Head of Asian FX Research at HSBC, noted. “Moreover, a rapid depreciation could damage consumer confidence and trigger capital flight,” she added.
Dan Wang, China Director at Eurasia Group, stated that “devaluation is no longer an effective trade weapon for China.” She believes that pursuing this tactic would lead to a financial crisis.
Interestingly, the yuan’s previous devaluation sparked a massive capital outflow, causing China to lose $700 billion in overseas investments. The Chinese government is determined to avoid a repeat of that scenario.
Currently, China’s economy is facing challenges because elevated US tariffs pose a threat to the country’s exports. The financial environment could deteriorate significantly if coupled with rapid capital flight. Beijing’s main goal now is to prevent capital outflows. “The Chinese government will do everything possible to convince markets that it has the leverage to defend the yuan against US sanctions,” Wang emphasized.
Preserving financial stability is a top priority for Chinese policymakers. To achieve this, the authorities are prepared to take all necessary measures to support the yuan and prevent it from malaise.
