Investing.com — In a bid to bolster its weakening currency, China has unveiled plans to store more dollars in Hong Kong and improve capital flows. The measures, announced on Monday, include allowing companies to increase their overseas borrowing.
The yuan has been struggling, hovering near 16-month lows amid a dominant dollar, falling Chinese bond yields, and the looming threat of higher trade barriers as Donald Trump’s U.S. presidency begins next week.
The People’s Bank of China (PBOC) has been taking steps to halt the yuan’s decline since late last year, including issuing warnings against speculative moves and taking measures to support yields. On Monday, authorities reiterated their warnings against speculating against the yuan and increased the limits for offshore borrowings by companies, a move aimed at allowing more foreign exchange to flow into the country.
PBOC Governor Pan Gongsheng addressed the Asia Financial Forum in Hong Kong, stating that the central bank plans to considerably increase the proportion of China’s foreign exchange reserves in Hong Kong. However, he did not provide further details. China’s foreign reserves were around $3.2 trillion at the end of December, but little is known about where these reserves are invested.
The currency has lost more than 3% to the dollar since the U.S. election in early November, due to concerns that Trump’s proposed new trade tariffs could put additional pressure on the struggling Chinese economy.
The PBOC has been setting its official midpoint guidance on the stronger side of market projections since mid-November, which analysts interpret as a sign of concern over the yuan’s decline.
The central bank also announced other measures in recent days, including suspending treasury bond purchases and planning to issue large amounts of bills in Hong Kong. These steps aim to prevent yields from falling too much and to control the circulation of yuan offshore.
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