China’s yuan tumbled on Tuesday to its lowest level in nearly 15 years on Tuesday as investors fled Chinese assets amid fears about Xi Jinping’s dramatic move to tighten his grip on power in a major reshuffle of Communist Party leaders
On the tightly controlled domestic market, the yuan dropped sharply, hitting the weakest level since late 2007. It was last down 0.6% at around 7.3 per dollar. The currency has lost 15% against the US dollar this year.
In trading outside of mainland China, the yuan briefly plunged to around 7.36 per dollar early Tuesday, the lowest level on record, according to Refinitiv, which has data going back to 2010. It later pared losses, trading at 7.33 by 3:35 p.m. Hong Kong time (3.35 a.m. ET).
The currency was pegged at 8.28 to the US dollar for years until 2005 when China moved to a “managed floating exchange rate.” It then appreciated steadily, climbing to a peak of nearly 6.01 in 2014.
The declines came alongside a historic market rout for Chinese assets worldwide. On Monday, Chinese stocks plummeted in Hong Kong and New York, wiping out billions of dollars in market value. Hong Kong’s benchmark Hang Seng (HSI) Index closed down 6.4%. The Nasdaq Golden Dragon China Index, which tracks many popular Chinese companies listed on Wall Street, dived more than 14%. On Tuesday, the Hang Seng (HSI) slipped further and was down 0.2% in afternoon trading.
The huge sell-offs came just days after the ruling Communist Party unveiled its new leadership for the next five years. In addition to securing an unprecedented third term as party chief, Xi packed key positions with staunch loyalists.
A number of senior officials who have backed market reforms and opening up the economy were missing from the new top team, stirring concerns about the future direction of the country and its relations with the United States.
International investors spooked by the outcome of the leadership reshuffle dumped Chinese assets despite the release of stronger-than-expected Chinese GDP data on Monday. They’re worried that Xi’s tightening grip on power will lead to the continuation of Beijing’s existing policies and further dent the economy, which despite the rebound last quarter is still growing way below the official 5.5% target for this year.
China’s leadership reshuffle “sparked worries about the continuation of market-unfavourable policies and increasing risk of policy mistakes under President Xi’s power domination in coming years,” said Ken Cheung, chief Asian forex strategist at Mizuho Bank.
“Foreign investors took action to cut their exposure on Chinese assets,” he said, adding that the Chinese currency was faced with mounting capital outflow pressure.
The Chinese yuan, together with other major global currencies, has weakened rapidly against the dollar in recent months. The greenback has surged to the highest level in two decades against a basket of major counterparts, boosted by a hawkish Fed that attempts to contain runaway inflation.
The yuan is on track to log its worst year since 1994 — when China devalued its currency by 33% overnight as part of market reforms.