China’s yuan tumbles to a new record low amid fears about Xi’s third term
China’s yuan tumbled to an all-time low on international markets on Tuesday, as investors fled Chinese assets amid fears about Xi Jinping’s shocking move to tighten his grip on power at a major leadership reshuffle.
In trading outside of mainland China, the yuan briefly plunged to around 7.36 per dollar early Tuesday, the lowest level on record, according Refinitiv, which has data going back to 2010. It then pared losses, trading at 7.33 by 1 pm Hong Kong time.
On the tightly managed domestic market, the yuan also dropped sharply on Tuesday, hitting the weakest level in nearly 15 years.
The declines came alongside a historic market rout for Chinese assets worldwide. On Monday, Chinese stocks plummeted in Hong Kong and New York, wiping out billions of dollars in their market value. Hong Kong’s benchmark Hang Seng
(HSI) Index closed down 6.4%. The Nasdaq Golden Dragon China Index also dived more than 14%. On Tuesday, the Hang Seng
(HSI) rebounded slightly, up 0.8% by noon.
The huge sell-offs came just days after the ruling Communist Party unveiled its new leadership for the next five years. In addition to securing an unprecedented third term as party chief, Xi packed his new leadership team with staunch loyalists.
A number of senior officials who have backed market reforms and opening up the economy were missing from the new top team, stirring concerns about the future direction of the country and its relations with the United States.
International investors spooked by the outcome of the Communist Party’s leadership reshuffle dumped Chinese assets despite the release of stronger-than-expected GDP data. They’re worried that Xi’s tightening grip on power will lead to the continuation of Beijing’s existing policies and further dent the economy.
China’s leadership reshuffle “sparked worries about the continuation of market-unfavourable policies and increasing risk of policy mistakes under President Xi’s power domination in coming years,” said Ken Cheung, chief Asian forex strategist at Mizuho Bank.
“Foreign investors took action to cut their exposure on Chinese assets,” he said, adding that the Chinese currency was faced with mounting capital outflow pressure.
The Chinese yuan, together with other major global currencies, has weakened rapidly against the dollar in recent months. The greenback has surged to the highest level in two decades against a basket of major counterparts, boosted by a hawkish Fed that attempts to contain runaway inflation.
So far this year, the yuan has slumped more than 15% against the dollar, on track to log its worst year since 1994 — when China devalued its currency by 33% overnight as part of market reforms.