MNI China Press Digest Sep 8: Weak Yuan, FX Reserves, Exports

The following lists highlights from Chinese press reports on Thursday:

• The threat of a break in the yuan through 7 against the U.S. dollar will have a limited impact on capital flows and longer term sentiment towards the currency, the China News Service reported citing analysts. The level of the yuan is less important than stable cross-border capital flows, the newspaper said citing Zhong Zhengsheng, chief economist at Ping An Securities. Previous breaches of the 7 level in 2019 and 2020 show it is unlikely the currency will overshoot sharply to lower levels.
• China's foreign exchange reserves dropped by USD49.19 billion to USD3.05 trillion by the end of August 2022, the 21st Century Business Herald reported, citing data from the State Administration of Foreign Exchange. The sharp rise in the U.S. dollar led to a significant drop in the valuation of non-U.S. assets. Analysts believe Chinese authorities can stabilize the yuan without using FX reserves as it has abundant policy tools, including withdrawing liquidity from the offshore market, reintroducing the counter-cyclical factor and cutting the FX reserve ratio.
• China’s export growth may slow due to weakening external demand and tough comparisons compared to Sept-Dec 2021 when exports grew more than 20%, said a 21st Century Business Herald commentary. Exports may be resilient as low-cost products are in demand at a time of high global inflation. Additionally, China still has advantages in manufacturing as the pandemic and war in Ukraine disrupt global supply chains. The recent yuan depreciation against the U.S. dollar will boost exports, the newspaper added.