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Chinese Yuan Weakens As Economy Expands at Slowest Pace in 30 Years

October 18, 2019 at 12:05 by Andrew Moran

A mix of 1-yuan and 5-yuan notesThe Chinese yuan is weakening against most major currency rivals at the end of the trading week after Beijing reported that the world’s second-largest economy expanded at the slowest pace in 30 years. While the third-quarter report was dominated by the gross domestic product (GDP), there were a couple of positive indicators that still offered hope for investors, especially as US and China trade relations are stuck at a standstill.

According to the National Bureau of Statistics, the Chinese economy expanded 6% year-on-year in the July-to-September period, down from the previous quarter’s 6.2% gain. This is lower than the market forecast of 6.1% and it is the slowest growth rate since the first quarter of 1992.

But there were some positives as well. September retail sales rose to 7.8% year-on-year, up from 7.5% in August. Industrial production advanced 5.8% last month, up from 4.4% in the previous month. Year-to-date, fixed asset investment matched the market consensus of 5.4% in September, which is down just 0.1% from August.

Also, on Tuesday, it was reported that September’s new bank loans beat market expectations, suggesting that the central bank will continue easing to facilitate lending.

That is not to say China will rally anytime soon. Overall employment, electrical machinery imports and exports, manufacturing jobs, vehicle sales, and even box office revenues have all slowed considerably over the last 12 months.

Ostensibly, when Beijing coughs, the rest of the world catches a cold. Because China is cooling, it is purchasing less from the rest of the world, pushing up its trade surplus and impacting global economic growth. This trend is punishing important trade partners – both nations and industries.

It should be interesting what comes out of the International Monetary Fund (IMF)’s annual meetings in Washington in the coming days. The People’s Bank of China (PBOC) Governor Yi Gang will meet with other policymakers to discuss monetary action after the IMF cut its global growth rate forecast for the fifth consecutive time. It warned that expansion will slow to a decade low.

And most analysts believe that the IMF will continue downgrading economic forecasts.

The USD/CNY currency pair rose 0.1% to 7.0843, from an opening of 7.0773, at 11:59 GMT on Friday. The EUR/CNY advanced 0.29% to 7.8958, from an opening of 7.8746.

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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