Tensions between the US and China are so elevated — and the prospect of a trade war between superpowers so grim — that every change in the economic backdrop is significant. So signs that Beijing is successfully containing capital outflows, and preventing its currency from depreciating against the US dollar, are crucial. After all, some of President Donald Trump’s anti-China rhetoric often takes the form of accusations of currency manipulation.
Confounding widespread expectations of a sharp depreciation, the renminbi, China’s currency, has in fact appreciated by 1.2 per cent against the US dollar during the first six weeks of this year, reversing some of the 7 per decline in 2016.
This relative stability has been engineered in part by a crackdown on capital outflows, which resulted in a slight decline in overseas investments by Chinese companies in January after a year of surging cross-border acquisitions. A gentle uplift of interest rates in domestic capital markets has enticed more Chinese money to stay at home rather than seek higher returns abroad.