HONG KONG—China’s currency has continued to climb in value this year on the back of a strong economic recovery, and Beijing doesn’t appear to be in a hurry to weaken it despite the pressure it is putting on exporters.

The yuan has risen more than 9% against the U.S. dollar since June on the back of an export boom and massive investment flows. The greenback has weakened against the backdrop of a feeble U.S. economy and low interest rates, and as investors have moved money into riskier assets around the world.

Although the yuan rallied to the strongest level since mid-2018 to 6.46 per dollar, Beijing’s official response has been relatively mild so far. Since last fall, it has made it easier for traders to bet on a weaker yuan, and allowed more domestic financial institutions to move money out of the country to invest in foreign securities.

Economists say that Beijing appears to be comfortable with a stronger yuan now in part because it could help rebalance China’s economy toward consumption and make it cheaper for China to import commodities and chips.

“China will evolve into a consumption-driven economy, which means they don’t have to keep an undervalued currency like a typical emerging export-oriented economy,” said

Ju Wang,

a Hong Kong-based senior FX strategist at


“Beijing is already shifting towards this new model, which means they see a fundamentally stronger currency as more beneficial than harmful for the economy.”

A stronger yuan could also boost the global status of its currency and help ease a bone of contention with Washington, which has long criticized China for keeping a lid on its currency to boost the sales of made-in-China goods globally.

The yuan appreciated 8.2% against the dollar in the second half of 2020, but it didn’t derail global demand for Chinese goods from medical equipment to home appliances. China logged $535 billion in trade surplus last year, the highest level since 2015.


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But the yuan’s appreciation has added financial pressure to Chinese exporters, who were already hammered by an unexpected surge in costs, ranging from raw materials to shipping, due to the Covid-19 pandemic. Some say they are now planning to pass on some of those costs to customers.

Xue Dong, chief executive at Anji Wanbao Smart Home Technology Co., which sells office chairs mostly to the U.S. and some European countries, said they plan to raise the price across the board by 5% later this month.

“We’ve been shouldering the loss by ourselves and barely made any money last year,” he said.

Bao Jimi, a saleswoman at a nonwoven fabric exporter in Shanghai, said they were also caught off guard by the sudden rise in the yuan’s value last year. The company in January increased the price on some products to cover the losses incurred by a stronger yuan to protect its 10% profit margin.

“Most of our new clients can accept the new price, but it’ll take some time to negotiate with existing clients,” she said.

Economists say that one reason Beijing may be holding off on more-aggressive currency measures is that the forces that pushed up the yuan’s value last year may taper off. China’s expansion in exports last year could be temporary, especially if the manufacturing sectors improve in more countries as vaccine rollouts gather pace.

Goldman Sachs

in January raised the forecast for the U.S.’s gross-domestic product growth to 6.8% in 2021, citing expectation of a larger stimulus package. China’s economy is expected to expand by around 8% this year.

Policy makers in Beijing see a limit to how much the export sector can sustain its growth momentum. Ma Jun, a member of the monetary policy committee of China’s central bank, warned in January that a further 5% or more appreciation of the yuan would put “obvious pressure” on the country’s export sector.

Mr. Ma said the country should continue easing some of its capital controls, reducing the appreciation pressure by letting more money exit the country.

“For Beijing, capital outflow is a far more worrying scenario than inflows,” said

Fraser Howie,

co-author of the book “Red Capitalism.” “I don’t see any evidence of panic [from the government] yet.”

Chinese authorities have already taken several measures to tame the currency’s rise. Last September, after a 17-month pause, China began granting new overseas investment quotas that allow banks and other financial institutions to convert more yuan into foreign currencies to buy securities offshore. More than $21 billion have been issued since then.

In October, Chinese regulators scrapped a reserve requirement that had made it more costly for financial institutions to bet against the currency’s rise in value.

Chinese authorities are looking into letting individuals use the $50,000 in foreign currency they are allowed to buy per year to purchase offshore securities and insurance products, an official at the State Administration of Foreign Exchange said last week.

China is testing a digital yuan, aiming to accelerate the replacement of cash and increase state control in a society where digital payments via Wechat Pay and Alipay are already the norm. Here’s what Beijing’s new system looks like—and how it would work. Photo credit: Florence Lo/Reuters

Unlike other countries with freely trading currencies, Beijing has long kept a tight grip over its currency through capital controls and setting daily reference midpoints to guide the direction of trading.

Last year, China’s foreign-exchange reserves increased by $108 billion to $3.2 trillion, a sign that many economists interpreted as Beijing’s cutting back on intervening in the currency market. Between 2014 and 2017, China’s central bank burned through $1 trillion of its reserves, selling foreign currencies to prop up the value of the yuan.

Some scholars have suggested that the central bank, in an attempt to damp the pace of the recent rally, could have done the reverse discreetly through state-owned banks, whose net foreign assets surged since the second quarter of 2020. China’s central bank didn’t immediately respond to a request for comment.

Many economists expect the yuan to strengthen further this year.

China drew a record of more than 2.3 trillion yuan ($367 billion) in portfolio investment last year from overseas to its bond and equity market, according to data provider Wind.

“Global demand for Chinese assets is still pretty solid,” said

Freddy Wong,

head of Asia-Pacific for


Fixed Income. “We are getting so many inquiries from everywhere regarding what kind of exposure to China they should get.”

Michael Pettis,

a professor of finance at Peking University, said that China’s outbound investment could surge this year, as Beijing encourages greater capital outflows.

“I think they like to see a stronger yuan but also with strong stability,” he said. “I think it’s extremely unlikely that the yuan will depreciate this year.”

Policy makers in Beijing see a limit to how much the export sector can sustain its growth momentum. Shipping containers stacked at a port in Lianyungang, Jiangsu province, last month.


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Write to Stella Yifan Xie at [email protected]

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