(Bloomberg) — China is challenging growing investor pessimism about the world’s second-largest economy.
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The central bank bolstered its support for China’s falling currency on Tuesday by setting the daily benchmark rate much higher than estimates. The move came a day after a prominent financial writer and two of his peers were suspended from a social media platform for spreading “negative and harmful information” about the country’s faltering stock market.
The government’s reluctance to add meaningful stimulus at a time of darkening economic outlook spurred stock market outflows, helping push the yuan to its lowest level in seven months. MSCI Inc’s Chinese stock gauge is nearly 20% below this year’s high in January.
While some investors may welcome attempts to stem losses, the impact of government interference in markets is often short-lived and can sometimes backfire. Restrictions on financial commentary are likely to fuel concerns among foreign investors about access to independent information about Chinese companies and the economy.
The fixation is a “strong signal” that the People’s Bank of China views the recent measures as excessive, said Christopher Wong, strategist at Oversea-Chinese Banking Corp. in Singapore. Still, any intervention will only slow the pace of depreciation, he said, adding that 7.25 to the dollar is likely just the first line in the sand.
The yuan was trading up 0.45% at 7.21 against the greenback at 2:32 p.m. local time, after falling 1% on Monday. The Chinese currency has fallen nearly 5% this quarter, making it one of the worst performers among 31 major peers.
The PBOC has a history of pulling the levers of the currency back and forth in a “managed float” system when betting becomes one-sided. The so-called fixation – long seen as a political signal on China’s exchange rate – was pegged at 111 pips higher than the average estimate from a Bloomberg survey – the biggest premium since November.
The PBOC has other tools at its disposal to stem the currency’s losses, such as reducing the reserve requirement ratio for foreign currency deposits and increasing the cost for traders seeking to short the yuan. Public banks were seen selling dollars on Monday and after the opening on Tuesday.
Pressure on the yuan will gradually ease as the economy improves on growth-friendly measures, the state-run China Securities Journal said in a report on Tuesday. It will then return to a normal state of two-way movements, he said.
Doubts that the government will unveil strong enough stimulus are undermining the stock market. The MSCI China index plunged more than 7% in six days before rebounding 2% on Tuesday.
On Monday, Sina Corp’s Weibo. released a statement banning Wu Xiaobo and two other writers who have not been fully named. They had “attacked and undermined” China’s policy and harmed stock market development, a statement said.
Wu has 4.7 million followers on the Twitter-like social media platform, making him one of China’s most influential writers on finance. His recent posts have been deleted, making it unclear what triggered the ban.
China is struggling with weak economic growth and rising youth unemployment. The unemployment rate for 16-24 year olds reached 20.8% in May. This weighs on consumer confidence already shaken by years of Covid Zero policies.
Domestic travel spending during the recent Dragon Boat Festival holiday was below pre-pandemic levels, according to official data released over the weekend. Home sales figures are below the level of previous years, while car sales estimates in June showed a decline from a year ago.
Other outspoken commentators have already been suspended from social media. Well-known economist Ren Zeping was banned from Weibo in January last year after posting comments calling on the central bank to print money to pay for childbirth subsidies.
In mid-2022, analyst Hong Hao’s public social media accounts were suspended for unspecified violations following bearish reports about the country. Shortly after, the Chinese strategist left Bocom International Holdings, where he had worked for a decade.
In 2021, China waged a two-month campaign to crack down on business platforms and social media accounts that posted financial information deemed harmful to the economy.
–With help from Ran Li, April Ma, Amanda Wang, Li Liu and James Mayger.
(Adds context to fourth paragraph.)
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