China’s appreciating yuan could ultimately damage economy, says former top financial official

Guan Tao, a former senior official at the State Administration of Foreign Exchange, says long-term appreciation of the yuan could hurt job creation among small exporters

China’s yuan has gained about 12 per cent against the dollar since May 2020, hitting its highest levels in more than three years

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There are fears that long-term appreciation of the yuan could hit smaller exporters in China, causing them to leave the market and result in the loss of jobs for many. Photo: Bloomberg

Published: 12:29pm, 16 Jun 2021Updated: 12:57pm, 16 Jun 2021

Long-term appreciation in the yuan could have a large negative impact on China’s economy even if there was no substantial effect on the country’s exports in the short-term, a former senior official at China’s foreign exchange regulator warned.

One-way bets on a rising yuan could hit smaller exporters, causing them to leave the market and result in the loss of jobs for many people, Guan Tao, global chief economist at BOC International, wrote in an opinion piece for financial news outlet Yicai.

“If there are no jobs, people will not have an income and there is no way to expand domestic demand,” said Guan, who is the former head of the balance of payments department at the State Administration of Foreign Exchange.

“It is hard to view appreciation of the yuan as an absolute benefit for the Chinese economy and even the stock market,” he said.

Purchasing managers’ indices data shows the new exports orders index for smaller firms has been below 50 since November, representing a contraction.