China mulling weaker yuan amid tariff threat

Agencies and staff reporter

China's top leaders and policymakers are reportedly considering allowing the yuan to weaken in 2025 as they brace for higher trade tariffs in a second Donald Trump presidency in the United States.

However, the state-owned Financial News later said there is a solid foundation for the yuan to stay fundamentally stable with increasing chances that the US dollar will depreciate, citing several experts.

The contemplated move reflects China's recognition that it needs bigger economic stimulus to combat Trump's threats of punitive trade measures, people with knowledge of the matter said.

Trump has said he plans to impose a 10 percent universal import tariff, and a 60 percent tariff on Chinese imports into the United States.

Allowing the yuan to depreciate next year would deviate from the usual practice of keeping the foreign exchange rate stable. The tightly managed yuan is allowed to move two percent on either side of a daily midpoint fixed by the central bank.

While the central bank is unlikely to say it will no longer uphold the currency, it will emphasize allowing the markets more power in deciding the yuan's value, one source said. The onshore yuan fell by 97 basis points to 7.259 per US dollar yesterday.

Meanwhile, outgoing US President Joe Biden touted his administration's economic record and warned against a reprise of Republican "trickle-down economics" during Donald Trump's second term in what could be his final speech on the economy.

US Treasury Secretary Janet Yellen also said that she worried that Trump's plans to levy broad import tariffs could derail progress in quelling inflation and raise costs for households and businesses.

But the incoming Trump administration "appears to be one that's going to be running a growth-y playbook, which will be good for Goldman Sachs," chief executive David Solomon said.

Legendary investor Jim Rogers told Chinese state-backed media that he still holds assets associated with the country and will remain bullish on China's capital market.

In stock market news, Hong Kong's benchmark Hang Seng Index once rose as much as 1.6 percent before closing 0.7 percent lower at 20,155 points, mainly dragged down by some Chinese financial institutions and local developers.

In other news, Asian Development Bank maintained its forecast for China's economic growth at 4.8 percent this year and 4.5 percent next year.

But it downgraded Hong Kong's growth to 2.5 percent for this year and 2.3 percent next year.