China is encouraging State-run banks to buy more US dollars to rein in the rising Chinese yuan. The People’s Bank of China (PBOC) is moving to ease the pinch exporters are feeling with the rising local currency. The Chinese yuan is up nearly 7% against the US dollar since last April and is causing an imbalance in trade. The import and export sector in the country wants the yuan to devalue to keep businesses running and profitable.
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Chinese Businesses Hit by the Rising Yuan, Seek US Dollars for a Safety Net
PBOC is encouraging US dollar buying and is looking to pause the sparkling rally of the Chinese yuan. This is the strongest push-up in recent months, and China’s intervention in the currency market would benefit the exporters. “It means the PBOC is intervening as the yuan’s appreciation is too fast,” said Yuan Tao, an analyst at Orient Futures to Reuters.
“It is clear that PBOC wants the yuan appreciation pace to slow,” wrote Maybank in a note to clients. China’s exporters often settle payments in the US dollars and want the revenue stream to remain stable. While the stronger yuan makes Chinese goods more appealing to foreigners, leading to cheaper imports, exporters don’t ring in the profits. The PBOC wants its exporters to reap the profits and not allow foreigners to benefit from the rising yuan.
Even Chinese tech firm Beijing Ultrapower Software Co blamed its 28% loss in revenue to the rising yuan. It joined the growing chorus of software companies that noted the same reason for the rise in losses. “The company’s revenues are mainly settled in the dollar, so we swung to forex conversion losses,” it said in a flash earnings statement. Not just the imports and exports sector, even tech firms are facing the heat and are buying US dollars for safety.
