China to boost trade amid US tariff war

Yuan fixing weaker 1st time since 2008

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SHANGHAI/ HONG KONG: China is drawing up new measures aimed at stabilising foreign trade, the official China Securities Journal reported on Thursday, to offset the effects of a bitter trade war with the United States. The newspaper, run by the Xinhua agency, said several government departments were currently drafting policies and considering revising catalogues specifying what technologies should be imported.
They were also looking at expanding cross-border e-commerce and launching new import trade demonstration zones. Importing new high-end technologies would help promote the «upgrade» and internationalisation of China›s economy, the paper said, citing government and industry officials. China›s economy grew 6.2 per cent in the second quarter of this year, its slowest rate in 27 years, hit by a costly tit-for-tat exchange of tariffs with the US.
Meanwhile, Chinse central bank set its yuan fixing at weaker than seven per dollar for the first time in more than a decade. The People›s Bank of China (PBOC) set its daily reference rate at 7.0039 per dollar. While the yuan breached the key seven level this week for the first time since May 2008, the fixing previously had not. The offshore yuan rose 0.1 per cent.
China›s daily fixing has become a closely watched event this week after a weak reference rate on Monday helped trigger the biggest loss in the yuan since 2015 and spark concern about a global currency war. While the central bank has since taken steps to limit declines in the yuan, including reassuring foreign companies that the currency won›t weaken significantly, traders remain jumpy about the potential for escalation in the trade war with the United States.
US President Donald Trump›s administration this week labelled China a currency manipulator, a formal designation which may prompt counteractive measures, and which is rejected by the PBOC. Concern about the impact of the trade war on the global economy is growing, with central banks in New Zealand, India and Thailand all making surprise interest-rate cuts.
China’s fixing is published every trading day at 9.15am, after a group of 14 lenders submit their rates. The yuan is then allowed to move 2 per cent in either direction. The rates are calculated with formulas that take into account factors such as the previous day›s official close at 4.30pm, the yuan›s move against a basket of currencies and the moves in other major exchange rates.
The mechanism has been used to manage volatility after China removed the yuan›s peg to the greenback in 2005. Until at least 2015, traders weren›t able to offer prices that diverged from the fix by more than the allowed range. The last time the yuan tested the band was in February 2015, when it closed 1.99 per cent weaker than the reference rate. The trading system was upgraded after the shock devaluation in August that year.

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