MNI POLICY: Yuan's Gain Moderate, Outlook Neutral: Regulator

The yuan's 4.5% gain against the dollar this year is moderate, and the outlook for the currency is likely to remain neutral in the medium-to-long term despite a weak outlook for the dollar, Wang Chunying, the spokeswoman of the State Administration of Foreign Exchange, said at a press briefing.

China's exports have been strong and foreign investors increased yuan holdings, Wang said. The yuan's gain against the dollar is also consistent with that of other major currencies, Wang said, citing the euro's 5.9% gain and the yen's 4.1%.

While the yuan has also been supported by China's current account surplus, due partly to strong exports following the recovery from the pandemic, "it may not be easy to maintain the large current account surplus," said Wang. China's imports, overseas tourism and education demand foreign exchange, she said.

QUOTAS

The short-term outlook for the dollar is uncertain, and the outlook of the global economy is also threatened by regional conflict and protectionism, Wang said.

"The smart market can see there are two sides to the coin," Wang said. The currency is more likely to maintain two-way movement with increased "flexibility," she added and warned the market against forming a "one-sided mentality" on its future trend.

Referring to recent developments, she said SAFE has encouraged more outbound investment by issuing a new round of quotas under its Qualified Domestic Institutional Investors scheme, showing the regulator is comfortable with realizing stable economic growth and dealing with the impact of external capital and the environment.

Unlike in the past when surging surpluses helped amass huge foreign exchange reserves, China's international payments have reached "a new mode of balance," Wang said. "The forex reserves have been stable and not subject to changes in major current account items," Wang said.

While the opening of China's financial markets is attracting capital, there is also growing outbound investment or asset acquisitions, Wang said.