[Correspondent Diary] Yuan Strengthening: What Is China's Strategy?

Preparing for Prolonged US-China Conflict, Yuan Strengthening Effectively Tolerated
Domestic Demand Revitalized Through Stable Import Prices... Concerns Over China's Economic Dominance

[Asia Economy Beijing=Special Correspondent Jo Young-shin] Recently, the number of Koreans looking for Chinese people holding Chinese yuan has increased significantly. Since the dollar exchange rate is very unfavorable, the intention is to exchange some won (including dollars) if there is spare money (yuan). The yuan has risen so much that it affects real life.

When demand exceeds supply, prices naturally rise. The same applies to foreign currencies. When there are many seekers (demand), the currency value rises.

Recently, the Chinese yuan is like that. The yuan's value started to rise gradually from June. On May 29, the yuan was 7.1316 yuan per US dollar. This means that if you give 10 dollars, you can receive 71 yuan.

As China's economy turned from negative to positive in the second quarter, the yuan's value rose to 6.7332 yuan per dollar (according to the People's Bank of China announcement on the 16th). With the yuan strengthening, now you can only get 67 yuan for 10 dollars. This means the value of the dollar has fallen.

[Image source=Yonhap News]

Considering that China is an export country, the rise in yuan value is a loss. For a $10 product exported, previously 71 yuan was received, but now only 67 yuan can be obtained. Although 4 yuan (about 685 Korean won) may seem insignificant, it is an enormous amount at the corporate and national levels.

This is why China has been reluctant to allow the yuan's value to rise despite criticism and pressure from the United States accusing it of currency manipulation.

China's stance has changed. The dominant analysis is that Chinese authorities are enjoying the yuan's appreciation.

Chinese President Xi Jinping mentioned the term "dual circulation (export and domestic demand activation)" at the Communist Party Central Political Bureau Standing Committee in May, roughly coinciding with the yuan's shift to a strong trend. This suggests that the economic policy focus was intentionally shifted to domestic demand (imports), deliberately inducing the yuan's appreciation.

They also created a justification for the yuan's rise: COVID-19 control. Unlike Western countries such as the United States, where tens of thousands of confirmed cases occur daily, China reportedly has no domestic confirmed cases excluding overseas imports (?). This created an environment where profit-seeking foreign capital flows into China, inevitably raising the yuan's value.

From the import perspective, the yuan's appreciation is beneficial. Products that previously cost 71 yuan to import now only cost 67 yuan, saving 4 yuan. The cheaper imports are then sold cheaply in the Chinese domestic market. The goal is to stabilize import prices and stimulate domestic demand.

The Chinese government is likely to showcase with statistics that the dual circulation policy is working when announcing the third-quarter economic growth rate on the 19th.

A Korean company official in China said, "The rapid recovery of the Chinese economy is positive for the Korean economy, but since China's unilateral dominance could be harmful to us, we need to pay close attention to changes in China's economic policies."