Economy

China lowers yuan's trading range but currency stabilizes

China lowers yuan's trading range but currency stabilizes

Yuan traders are finally moving on from the 7-per-dollar complex that has gripped the market for years.

Analysts say a sharp drop in the yuan currency this week may offer only limited help for Chinese exporters, who are facing additional USA levies next month, shrinking profit margins, and sputtering demand worldwide. Analysts had expected a slightly bigger 2.0 percent drop after June's 1.3 percent fall.

But imports remained weak, declining 5.6% and highlighting sluggish domestic demand as China's economy struggles to get back on firmer footing.

Retaliatory tariffs resulted in a 17-percent drop in USA exports for products that have been targeted, it added.

China's central bank lowered its official yuan midpoint for a seventh straight day to a new 11-year low on Friday, but it was not as weak as markets had expected. Imports from the USA fell 19.1% from a year earlier, compared with a 31% drop the previous month.

In response, China said it would stop purchasing USA agricultural products.

Noting that the tariffs imposed by Washington are "costing American jobs, raising prices, hurting farmers and derailing US economic growth", the group urged the administration to "change course", and called on Congress to "get off the sidelines and take back its legislative authority on trade". The US recently warned Hanoi that some export goods labeled "Made in Vietnam" were of Chinese origin.

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But it reached US$168.5 billion in the first seven months of this year, highlighting continued imbalances that have been a core complaint of Mr Trump's in his administration's negotiations with Beijing.

As a result, China's trade surplus with the United States expanded 11.1 percent to 1.15 trillion yuan.

Can China maintain the trade momentum? Hours later, Washington branded Beijing a "currency manipulator".

Officials have this week pledged stability after abandoning the key support level, allowing the yuan to weaken past 7 for the first time since 2008.

Shipments to Europe and Southeast Asia-China's top two trading partners-also bounced back, while the decline in exports to the US eased after President Trump and Chinese President Xi Jinping struck a conciliatory tone on trade at the Group of 20 summit in Japan in June.

China does have a history of keeping the yuan weak to boost exports, although in recent years it's actually worked to prop up the currency.

This week's moves signaled the PBOC is comfortable with currency weakness while also demonstrating that China isn't prepared to let the yuan go into the kind of downward spiral that in 2015 spurred capital outflows.