At the end of June, Beijing’s assets were at a 14-year low of $835 billion as there is growing signs that the post-COVID economic recovery is waning.
According to Carson Group, the nation is probably selling its Treasury bonds to support the yuan, which is still declining versus the US currency.
Sonu Varghese, global macro analyst at Carson Group, noted that historically, China has kept its currency relatively weak by purchasing US bonds to aid in boosting exports.
But Beijing might find the yuan to be excessively weak at this point. Early in 2022, one US dollar was roughly 6.3 yuan, but as of right now, the exchange rate has declined to 7.28 yuan. The currency is declining as a result of China’s faltering economy, which is having a domino effect.
The current issue is that capital is attempting to leave China due to the country’s decreasing growth. More than they would like, that puts downward pressure on their currency, according to Varghese.
In China, youth unemployment has reached 20%, deflation has taken hold, and compared to a decade ago, it now takes an estimated $9 in investments to generate $1 in GDP growth. And to top it off, over the past year, the US has decreased its imports of Chinese goods, relying instead on those from other growing markets like Vietnam, the Philippines, and India.
According to Varghese, China’s recent reduction in its Treasury stockpile is equivalent to selling dollars and buying yuan. “More than anything, it’s a sign of economic weakness.”
The truth is that China needs the US more than the US needs China, he continued. The consumer sector of the US economy is mostly driven by domestic demand. China, on the other hand, depends heavily on foreign investment and exports, which requires robust external demand.