Li says China doesn’t want a currency war

China does not expect any more devaluations of the yuan, Premier Li Keqiang said Wednesday, because the country’s economic prospects remain positive and it does not want a currency war.

currency222“If a currency war does happen, it would only hurt China,” Li said. “The continued devaluation of the yuan is definitely not conducive to the currency becoming internationalized. This is not our policy preference.”

Speaking at the World Economic Forum, the Switzerland-based corporate think-tank which runs the Davos summit of world leaders, Li tried to convince investors that the major risks China’s economy has faced over the summer have been quelled that the financial system is stable.

It’s been a rough summer for China. After a 150% run up in its benchmark stock index, the stock market began a 40% decline. This accentuated fears that China’s economy, already forecast to slow down to 7% growth this year, was in fast decelerating at a much faster rate. A string of economic reports coming in softer than expected compounded those fears. Then in August, the government allowed the currency to float, which was a de facto devaluation.

“We believe there doesn’t exist (a) basis for continuing depreciation for the renminbi because China has large amount of FX reserves,” he said. On Monday, China released data showing that its foreign exchange reserves fell by a record amount in August in an effort to stabilize the currency.

Li acknowledged in the speech that China’s economy slowing down. “The government took measures to stabilize the market and prevent risks from spreading, we have forced out the possibility of any systemic risks,” Li said. “There has been overall stability in China’s economic performance in spite of a certain amount of moderation. There’s an overall positive trend in spite of difficulties we face,” he said, adding that Beijing would “fine tune” its policies to provide more support.

The news appeared to have its desired effect.

The Shanghai Stock Exchange Composite Index rose 2.3% to 3,243 on Wednesday. The Shenzhen Stock Exchange Composite Index jumped 3.3% to 1,799. The Chinext Price Index, which tracks small-cap stocks, leapt 3.5% to 2, 072.



Categories: Asia Unhedged, China

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