China’s Stronger Currency Could Be a Fig Leaf for Biden

HONG KONG — China’s economy has come roaring back from the depths of the coronavirus pandemic, and its currency has joined the ride.

The currency, known variously as the yuan or the renminbi, has surged in strength in recent months against the American dollar and other major currencies. Through Monday, the U.S. dollar was worth 6.47 renminbi, compared with 7.16 renminbi in late May and close to its strongest level in two and half years.

Many currencies tend to jump around in value even more, but Beijing has long kept a leash on China’s, so the renminbi’s leap looks like a power move.

The stronger renminbi has implications for companies that make stuff in China, which is a pretty big group. It could make Chinese-made goods more expensive for the world’s consumers, though the effect seems muted so far.

The most immediate impact might be in Washington, where President-elect Joseph R. Biden Jr. is set to move into the White House next week. During past administrations, a weakening of China’s currency led to anger in Washington. The renminbi’s rise may not ease the tense relationship between the two countries, but it could remove one potential issue from Mr. Biden’s plate.

All of that has sent money flooding into China, which tends to bolster a country’s currency.

Not much, at least for now.

The Chinese government has long kept a firm hand on the value of its currency, in part by limiting how much of it can move past the country’s borders. With those tools, China’s leaders for years kept the renminbi weak against the dollar, even when the Chinese currency should have been strengthening. A weak renminbi helps China’s factories keep their prices down when they sell goods overseas.

Right now, China’s factories don’t appear to need that kind of help. China’s exports have continued to surge even as the renminbi has strengthened.

Many already price their business in dollars rather than renminbi because the United States is such a big share of their customer base, said Shaun Roache, chief economist for Asia-Pacific for S&P Global, the ratings firm. That means that while Chinese factory profit margins could take a hit, American shoppers won’t notice much of a price difference and will keep buying.

A strong currency has benefits for China, too. Chinese consumers can more ably buy imported goods, helping Beijing nurture a new generation of shoppers. It looks good to economists and policymakers who have long been pressing China to loosen up its tight control of the country’s financial system.

The stronger renminbi could also help China make its currency more attractive to companies and investors who like to do business in dollars. China has long sought to make its currency more global as a way to increase its international sway, though its desire to strictly control its use has often overshadowed those ambitions.

“This is definitely a window of opportunity for China to push forward to internationalize its renminbi,” said Becky Liu, head of China macro strategy at Standard Chartered Bank.

Still, if the currency strengthens too quickly, Chinese leaders could easily step in and end the trend.

Sahred From Source link Business

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