Chinese Yuan Depreciates As Economy Weakens, Manipulation Concerns Linger

The  Chinese yuan weakened against the  US dollar and  a  basket of  currencies on  Tuesday. Despite some modest gains in  July, the  currency is still hovering around a  13-month low, leaving many traders and  world leaders wondering if Beijing is manipulating the  yuan.

It has been several months since the  US government applied hefty tariffs on  tens of  billions of  dollars of  Chinese goods. Although negotiators on  both sides are optimistic they will come to  a  satisfying conclusion, President Donald Trump and  his administration remain open to  the  idea of  slapping levies on  all Chinese exports. And  the  economy is beginning to  feel the  pain.
A  plethora of  official economic data is pointing to  a  downward trend for  the  remainder of  2018.
The  official manufacturing purchasing managers’ index (PMI) slumped to  a  five-month low of  51.2, down from 51.5 in  June. The  subindex of  the  PMI fell to  a  23-month low, but the  export subindex remained relatively unchanged due to  a  weaker yuan.
Overall, official reports of  factories and  service providers are showing tumbling domestic demand. Because of  this, many businesses are reducing production and  investment: the  subindex measuring production slipped to  53.0 from 53.6 and  the  new orders index dropped to  52.3 from 53.2. With the  White House considering additional tariffs, national business sentiment is at  its lowest in  years.
Last week, it was reported that the  Chinese government would be launching a  stimulus program to  spur economic growth. This includes increasing bank lending, issuing special bonds, slashing reserve requirement ratios, and  boosting infrastructure spending. Analysts note that Beijing’s tepid growth is being capped by  a  depreciating currency.
Does this mean the  People’s Bank of  China (PBOC) is purposely manipulating the  yuan?
President Trump thinks so, tweeting that “China, the  European Union and  others have been manipulating their currencies,” adding that they are “taking away our big competitive edge.”
US Treasury Secretary Steven Mnuchin also noted last week that the  US government, as  well as  other G7 partners, will be monitoring the  yuan in  the  coming weeks to  determine if unscrupulous practices are taking place.
However, the  experts, including the  International Monetary Fund (IMF) and  Goldman Sachs, say that the  yuan is “fairly valued” and  that any depreciation in  the  currency stems from trade tensions, a  sluggish economy, and  diminishing domestic property market. With proposed state interventions that will inevitably drive up debt levels, the  yuan could further slide when we enter 2019.
Real estate observers are projecting that international property investments could gain some momentum from wealthy Chinese investors. As  part of  their efforts to  hedge risk of  the  yuan’s debasement, Chinese investors may target Canada’s booming real estate market, including Toronto, Montreal, and  Vancouver. In  recent years, there have been concerns that foreign property owners are driving up the  cost of  homeownership, prompting local and  provincial governments to  impose a  foreign buyers and  speculation tax.
The  USD/CNY currency pair rose 0.27% to  6.8331, from an  opening of  6.815. The  EUR/CNY currency pair advanced 0.33% to  8.0089, from an  opening of  7.9776.

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