Yuan strengthens to 5-month high

Business | Agencies 14 Jan 2020

China's yuan strengthened to a five-month high, punching past 6.9 per dollar ahead of this week's planned trade-deal signing with the United States, for the first time since August.

While analysts say the exchange rate is being driven by improving market sentiment as China's economy steadies and trade tensions ease, the recent bout of strength comes at a pivotal time for Sino-US negotiations. Chinese Vice Premier Liu He is expected to sign the long-awaited phase one agreement in Washington tomorrow.

The onshore yuan closed 348 basis points higher at 6.8942 per dollar yesterday, the highest since July 31, last year. The offshore yuan rose 262 basis points to 6.8930 as of last night. Some yuan watchers are advising caution. Cliff Tan, head of global markets research for East Asia at MUFG Bank, says expectations of fiscal stimulus may be running too high. Khoon Goh, head of Asia research at Australia and New Zealand Banking, says the yuan's strength is temporary, as it's partly related to corporate spending and exporter conversion before the Lunar New Year.

Meanwhile, Chinese firms implemented 1.4 trillion yuan (HK$1.58 trillion) debt-to-equity swaps in 2019, Huang Hong, the vice-chairman of China's Banking and Insurance Regulatory Committee, said yesterday.

Resolving financial risk will remain China's top priority in 2020, Huang told a press conference in Beijing.

China disposed of around 2 trillion yuan in non-performing loans over the whole of last year amid a national campaign to restrict high-risk lending, the country's banking regulator said during a weekend meeting.

It said it would continue to "dismantle" the shadow banking sector in 2020 and step up punishments for those that violate regulations.

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