Cheerleaders for the renminbi shouldn’t yell themselves hoarse. The Chinese currency has risen unexpectedly against the dollar in the past few months thanks to a confluence of factors that will fade sooner or later. When they do, markets will revert to worrying about renminbi weakness and what it means for the global economy.
One of the main reasons for the currency’s rise is the vigour with which China has enforced capital controls. The campaign has reversed an exodus of capital that forced the People’s Bank of China, the central bank, to sell $1tn of foreign exchange reserves in 2014-15 to slow the currency’s decline.
The crackdown has snared individuals, multinationals and Chinese businesses alike. Notably, banks were ordered to check whether overseas spending sprees by a quartet of high-profile private companies — Dalian Wanda, Fosun, HNA and Anbang — posed systemic risks. No wonder that overseas direct investment by Chinese firms has tumbled this year.