China has no intention of devaluing its currency, the yuan, to boost its competitiveness, said the head of the country’s foreign exchange regulator.
There is also no necessity for China to devalue its currency, Pan Gongsheng, head of the State Administration of Foreign Exchange (SAFE), wrote in state magazine Qiu Shi.
The yuan slumped about 6.5 percent against the dollar last year in its biggest annual drop since 1994. But since then, the yuan has regained its vigor, rising 2.4 percent against the dollar in the first half of 2017.
Faced with an entrenched bearish view on the yuan, Beijing moved swiftly to flush out currency speculators, quash expectations of a further steep depreciation and safeguard its reserves.
Data this week showed China’s foreign exchange reserves rose to $3.057 trillion in June. It was the first time the reserves had climbed for five months in a row since June 2014.
That strategy to head off risks to the economy from capital outflows seems to have worked so far, with the yuan up about 2 percent against the dollar this year.
In May, net foreign exchange sales by the People’s Bank of China (PBoC) fell to the lowest in nearly two years as the yuan stabilized.
China also recorded a surplus in its capital and financial account in the first quarter, data from the foreign exchange regulator showed, indicating net capital inflows as policymakers tightened supervision of outflows.
However, French investment bank Natixis said in a report that its capital flow tracker for China showed outflows for the second quarter would rise to $144.1 billion, reversing the trend in the first quarter.
The tighter grip on capital flows has also become a setback for China as it has been aspiring to turn the yuan into a global currency.
Traders said some major state-owned banks were spotted selling dollars in the market this week, a trend seen over the past few months in what analysts believe is part of official efforts to stabilize the yuan.
US President Donald Trump has also backed away from a campaign promise to label China a currency manipulator. Under US law, labeling a country as currency manipulator can trigger an investigation and negotiations on tariffs and trade.
Despite the yuan’s strength, China’s trade balance has stayed at a surplus since March, indicating foreign demand for Chinese goods remains positive.
“Capital outflows have eased markedly since the start of the year and are now mostly offset by the trade surplus,” Julian Evans-Pritchard, China economist at Capital Economics, wrote in a note on Friday.
“This should prove supportive of the renminbi (yuan) which we think, contrary to the consensus, will strengthen against the US dollar during the next couple of years.”
Still, the yuan is forecast to weaken to 7.05 per dollar in 12 months, according to a Reuters’ poll of more than 50 foreign exchange analysts taken in June.
The yuan is predicted to trade at 6.95 per dollar by the end of this year, compared with 7.2 per dollar forecast at the beginning of the year.
The value of gold reserves fell to $73.585 billion at the end of June, from $75.004 billion at end-May, data published on the PBoC website also showed.

Source: Arab News