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Chinese Yuan Strengthens Despite Banks Making Fewer Loans

September 12, 2018 at 13:23 by Andrew Moran

Various yuan banknotesThe Chinese yuan is making gains against its US counterpart midweek, despite new economic numbers that show weaker corporate loan demand and a Bank of England (BOE) warning that China threatens the global economy. The yuan has strengthened over the last week, but it is still down 1% since August against the greenback.

According to the People’s Bank of China (PBOC), financial institutions extended fewer loans in August, totaling $186.4 billion, which is less than the market forecast. Corporate loans slipped to $89.12 billion last month, down from $650.12 billion in July. Consumer loans did increase to $102.08 billion, up from $92.35 billion in July.

Over the last couple of months, the central bank has been trying to boost credit to small businesses. Because there has been a drop in demand at home and a decrease in export orders, the PBOC is employing a series of accommodative policies to spur economic growth.

The broad M2 money supply surged 8.2%, lower than initial projections of 8.5%.

In the province of Guangdong, one of China’s biggest export regions, the government is instituting measures to attract foreign investment and stimulate domestic manufacturing amid trade spats with the US. The provincial government has modified its foreign direct investment regulations that essentially incentivises foreign capital. Officials also aimed to slash costs for companies operating in the province.

Meanwhile, speaking in an interview with the BBC, BOE Governor Mark Carney warned that China’s financial system poses one of the biggest risks to global economic stability.

One of the bigger risks for the global economy are developments in China. China is a great source of growth in the global economy, an economic miracle — lots of positives. At the same time their financial sector has developed very rapidly, and it has many of the same assumptions that were made in the run-up to the last financial crisis.

He believes that if regulators remain “complacent,” then a new financial crisis akin to the US economic collapse a decade ago could happen again.

Could something like this happen again? Could there be a trigger for a crisis — if we’re complacent, of course it could.

Carney also listed Brexit, rising household debt, and cyber attacks as potential risks to both the British and the world economies.

The USD/CNY currency pair slid 0.04% to 6.8698, from an opening of 6.8724, at 13:06 GMT on Wednesday. The EUR/CNY dipped 0.12% to 7.9659, from an opening of 7.9766.

If you have any questions, comments or opinions regarding the Chinese Yuan, feel free to post them using the commentary form below.

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