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24 Jan, 2022 10:50

China’s yuan going from strength to strength

Positive trade balance underpins growth of national currency as overseas demand for Chinese-made goods surges
China’s yuan going from strength to strength

In 2021, Beijing’s trade surplus reached an all-time high of $676 billion, boosted by buoyant demand for Chinese-made goods across the world, while a major decline in outbound travel amid the Covid pandemic also limited the deficit in services trade.

The surplus on China’s current account climbed to an eight-year high of $224.2 billion, while the capital account surplus hit $83.2 billion, the highest since records began in 2010, Bloomberg reports, citing calculations based on data released by the State Administration of Foreign Exchange.

The reported figures reflect the nation’s robust trade surplus during the coronavirus pandemic and inflows into yuan-denominated bonds, according to Stephen Chiu, chief Asia FX at Bloomberg.

The soaring surplus bolstered a rallying yuan that strengthened by 2.7% against the US dollar in 2021, extending the gains of 6.7% recorded for the previous year. China’s national currency is climbing toward 6.33 per dollar, a level last recorded in December, when the People’s Bank of China increased the foreign-currency reserve ratio to cool the gains.

“In 2022, overall forex settlements are likely to be similar to last year, especially in terms of a robust current account surplus,” Chiu told Bloomberg.

“Even though global economic growth may slow cyclically, China’s exports are likely to continue to constitute a large share globally because the pandemic continues.”

Last year, foreign investors reportedly expanded their holdings of Chinese sovereign bonds by 575.6 billion yuan ($90.9 billion), marking the fastest pace on record.

Meanwhile, foreign exchange settlement under securities investment in the capital account jumped to $23 billion in December, the highest since records began in 2010.

The big returns of yuan-denominated assets along with the stability of the yuan exchange rate attracts foreign capital, according to Ken Cheung, chief Asian FX strategist at Mizuho Bank, as quoted by Bloomberg.

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