Exclusive: China ready to slow yuan descent, worried about capital outflows - sources

Fri Nov 18, 2016 5:19am EST
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By Kevin Yao

BEIJING (Reuters) - Chinese policymakers have been unfazed by the yuan's recent slide, but are ready to slow its descent for fear of fanning capital flight if the currency falls too quickly through the psychologically important 7-per-dollar level, policy advisers said.

The yuan fell on Friday to an eight-year low of 6.8950 per dollar, extending a sharp decline in the past week and taking its fall so far this year to 5.8 percent. If maintained, it would mark the yuan's biggest annual decline since the landmark revaluation in 2005.

Chinese policymakers believe the decline in the yuan since October reflects market trends, especially of late when most currencies have fallen in the face of a resurgent U.S. dollar.

But the yuan's outlook is clouded by the election of Donald Trump as U.S. president because he promised during campaigning to label China a currency manipulator on Jan 20, his first day in office, and to impose tariffs on Chinese imports.

"The central bank is following the trend as the dollar is rising. It's not necessary for it to resist market forces," said a policy adviser, who declined to be identified when recalling policy discussions.

"Appropriate yuan depreciation will be good for stabilizing market expectations and the economy, as long as there is no sharp, run-away depreciation."

The People's Bank of China (PBOC), the central bank, declined to comment.

Beijing's biggest concern is that a sharp fall in the yuan will trigger the sort of capital flight that followed August's surprise devaluation of the currency, which sparked fears the health of the economy was worse than Beijing had let on. China's currency reserves slumped by more than $400 billion by the end of January as Chinese moved cash overseas.   Continued...

100 Yuan notes are seen in this illustration picture in Beijing November 5, 2013. REUTERS/Jason Lee