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Amanda Lee

He Huifeng

For Zheng Bo, August was the tipping point.
In anticipation of an interest-rate cut from the US Federal Reserve, Zheng – founder of Livall, a Shenzhen-based producer of smart bicycles and helmets – began converting his US dollar-denominated assets into yuan.
Up to then, exporters like Zheng had been hoarding their US dollar holdings to reap higher returns – sometimes as much as 5 per cent annually – compared to yuan deposits with typically lower yields.
But some exporters expressed concerns over the impact a sustained appreciation of the currency would have on profits, as Chinese exports could become more costly and less competitive when weighed against goods from other countries.
“This [the appreciation of yuan] is not good for us, since the domestic economy is still in overcapacity,” Zheng said. “It will be difficult to grow export orders next year for most industries.”
Last Wednesday, the US central bank lowered the federal funds rate to between 4.75 and 5 per cent. In an unexpected response, China left its benchmark lending rates unchanged on Friday, holding the one-year loan prime rate (LPR) at 3.35 per cent and the five-year LPR at 3.85 per cent – both of which bolstered the yuan.
The only way out is to develop new products. Only with new products will we have better bargaining power
Levi Tan, Lionway Electronics
Last month – as the yuan gained 1.9 per cent against the US dollar – Chinese exporters converted US$37 billion in foreign exchange revenues, the highest monthly shift since September 2022, according to a note published by Macquarie Group on Friday.
The wave of conversions helped to ease capital outflow pressures, which had been exacerbated by interest rate differentials. As a result, China had a capital inflow of US$7 billion in August – its first inflow since July 2023, per the financial services provider.
But the amount registered in August was still relatively small. Tianfeng Securities estimates US$501.8 billion in foreign exchange revenue has been accrued by Chinese exporters since 2022.
It is harder to raise prices if the yuan becomes too strong, said Levi Tan, founder of lighting producer and exporter Lionway Electronics.
“The yuan has been hovering and weaker than 7 [yuan per US dollar] for a long time,” Tan said. “If it gets stronger, goes to 6.9, 6.8 or even 6.5, that’s a terrible thing to deal with, as most product prices have been set at 7.” Tan had exchanged most of his US dollar holdings into yuan before Wednesday’s rate cut.
“I think the only way out is to develop new products. Only with new products will we have better bargaining power.”




Analysts have said weak domestic demand in China has made exports all the more essential for the country to meet its “around 5 per cent” target for gross domestic product this year – making a strong yuan potentially counterproductive.
Goldman Sachs recently upgraded its three-month forecast to 7.15 yuan per US dollar, an adjustment from 7.35. “However, we continue to expect the yuan to underperform other currencies,” the investment bank said in a note issued on Monday.
As the interest rate gap has remained even after the Fed’s cut of half a percentage point – and as options are limited for high-quality investment products in onshore China markets – the conversion flow is unlikely to be “one-way”, said Ken Cheung, chief Asian FX strategist at Mizuho Bank. A move below 7 yuan per US dollar remains “challenging”, he added.
Seven yuan per US dollar is traditionally considered a psychological level for the currency, though it has been breached on occasion over the past few years. The yuan had gone through normal fluctuations on Monday, holding at 7.0573 per US dollar as of early evening.
“US election risks and weak China fundamentals could keep the yuan upside limited, holding off a massive foreign exchange conversion among exporters,” Cheung said.


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Cuts by the Federal Reserve have prompted exporters to convert their US dollar assets into yuan, strengthening China’s currency


Cuts by the Federal Reserve have prompted exporters to convert their US dollar assets into yuan, strengthening China’s currency.


China’s yuan gains ground after rate cuts, exporters’ US dollar exodus

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Cuts by the Federal Reserve have prompted exporters to convert their US dollar assets into yuan, strengthening China’s currency

Cuts by the Federal Reserve have prompted exporters to convert their US dollar assets into yuan, strengthening China’s currency