Will China Let The Yuan Go In 2025?

Two, the monetary easing needed to sustain the yuan's decline - particularly with the Fed cutting rates, too - could damage Xi's deleveraging efforts. Over the last few years, Xi's inner circle has made big strides toward weeding out financial excesses.

This explains why Xi and Premier Li Qiang have been reluctant to allow the People's Bank of China to slash rates more assertively, even as deflationary pressures stalk China Inc.

Three, increasing the yuan's global use is arguably Xi's biggest economic reform success since 2012. In
2016, China
won a place for the yuan in the International Monetary Fund's“special
drawing
rights” basket joining the dollar, yen, euro and pound.

Since then, the currency's use in trade and finance has soared. Excessive easing now might dent trust in the yuan, slowing its progression to reserve-currency status.

Four, it could make China a bigger and more contentious issue in US politics just as a uniquely anti-China administration takes power.

Trump's“Tariff Man” instincts are all over moves to tap hardliner Peter
Navarro, co-author of a book titled
“Death by China,” as top trade adviser.

The same goes for strong China critic Marco Rubio being Trump's secretary of state and adding Robert Lighthizer and
Jamieson Greer
to Trump's trade negotiation team.

There's hope that Trump's pick for Treasury Secretary, Scott Bessent, can cajole the next White House to focus on the art of the deal. The Bessent camp argues that Trump's tariff talk is merely a negotiating tactic to achieve a“grand bargain” trade deal between the Group of Two.

But the one thing on which Trump's Republicans and Democrats agree is on being tough on Beijing. Hints China is manipulating the yuan lower could trigger bipartisan scorn in Washington.

That's especially true with the tariff enthusiast camp within Team Trump, which is signaling levies on Canada, Mexico and the auto industry in ways that are spooking Japan and South Korea.

“Donald Trump's victory ... is ushering in a new phase of stress on the Chinese currency,” says Wei He, an analyst at Gavekal Research.“The major question is what will happen if Trump starts to make good on his threats of new tariffs after taking office in January. In this scenario, it is highly unlikely that the renminbi will remain at its current level.”

After the US began imposing tariffs in 2018, the PBOC allowed a 13% depreciation of the yuan in order“to partially restore export competitiveness,” He says.“It's therefore well within the realm of possibility that it would allow depreciation again, especially given the renewed policy focus on supporting domestic demand.”

To be sure, it's not the most likely scenario.

Yet“if Trump does start a major trade war, China will, nevertheless, hit back, targeting American companies with interests in China, selling US Treasuries, devaluing the yuan and targeting US exports of agricultural goods,” says Evie Aspinalla, a director
at the British Foreign Policy Group think tank.“The impact on global trade would be huge. China, if it can, would rather avoid this, but if Trump follows through on his trade rhetoric, a tit-for-tat trade war seems all but inevitable.”

Trump, Aspinalla adds, has been“incredibly forthright throughout ... on his views on China, not least in his threats to impose 60% tariffs on China. China, meanwhile,
has pledged to continue to work with the US based on the
principles of mutual respect, peaceful co-existence and win-win cooperation, claiming there are 'no winners' in a trade war. With the
Chinese economy
already struggling, 60% tariffs would be crippling and China will be limited in its capacity to respond.”

That threatened tariff maneuver alone, UBS
Group estimates, will cut China's annual growth by more than half – chopping 2.5 percentage points off globe's top trading nation's GDP. China grew just 4.6% in the third quarter year on year amid weak retail spending, property investment and new home sales.

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The slow pace at which Xi's government has tackled the property crisis is adding to risks of an even more protracted economic problem.

nation's biggest insurers to report their financial exposure to China Vanke Co to discern how assertively Beijing might need to shore up the nation's fourth-largest developer by sales to avoid default.

In Hong Kong , New World Development Co, which is exposed to mainland China's property troubles, is trying to delay some loan maturities. Meanwhile, Parkview Group is seeking buyers for a well-known landmark commercial complex in Beijing.

“If there is no turnaround in property sales, asset disposals remain slow in a weak property market and financial institutions become more cautious and require additional collateral, we believe Vanke could see a liquidity shortage sooner than expected,” says Jefferies Financial Group Inc. analyst Shujin Chen.“We still put the likelihood of a government bailout at below 50%.”

A weaker currency might help. As Raymond Yeung, economist at ANZ Bank, notes, Beijing would probably try to stabilize the yuan instead of an outright devaluation. That might trigger capital outflows in a place on track for the first annual net loss in foreign direct investment since 1990.

But whether Xi moves to shock yuan traders will depend on which president arrives in the White House next month – transactional Trump or Tariff Man spoiling for an epic trade war. Only time will tell. But suffice to say, 2025 has the potential to rock foreign exchange markets in potentially unprecedented ways.

Follow William Pesek on X @WilliamPesek

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