Chinese regulator: Betting against yuan will result in 'heavy losses'
BEIJING: China's banking and insurance regulator said on Saturday that it did not expect a persistent decline in the yuan and warned speculative short sellers they would suffer "heavy losses" if they bet against the currency.
The yuan has lost more than 2.5 per cent against the US dollar since the China-US trade dispute intensified earlier this month.
It is now less than a tenth of a yuan away from the seven-per-dollar level authorities have in the past indicated as a floor.
"Short-term fluctuation of the yuan exchange rate is normal, but in the long run, China's economic fundamentals determine that the yuan will not depreciate persistently," Mr Xiao Yuanqi, the spokesman for the China Banking and Insurance Regulatory Commission, told a finance forum in Beijing.
Sources have told Reuters that China's central bank will use foreign exchange intervention and monetary policy tools to stop the yuan from weakening past the key seven-per-dollar level in the near-term.
A defence of the seven level could help boost confidence in the currency and soothe investor fears about the yuan, even as souring trade relations with Washington make competitive devaluation a compelling option for Beijing.
Mr Xiao also said Beijing must look out for hot money moving in and out of the country, as well as large amounts of capital flowing into the frothy real estate market.
"We must be especially vigilant about money from overseas moving in and out in large quantities, and we must resolutely fight bubbles in real estate and financial assets," he said.
Chinese policymakers have struggled to manage bubble risks in the property market, the world's largest, without hurting growth in the sector, which is crucial for the wider economy.
With talks stalled between Washington and Beijing, and US President Donald Trump threatening to slap tariffs of up to 25 per cent on all Chinese imports, investors are nervously reassessing risks.
Washington slapped higher tariffs on US$200 billion (S$275 billion) in Chinese goods earlier in May, prompting Beijing to retaliate.
But Mr Xiao said the impact of additional US tariffs on China's economy would be "very limited" even if the tariffs were levied "to their extreme level".
Mr Xiao added he expected further pressure on China's financial market to be "not too big" as it has become more resilient after suffering an "over correction" last year.- REUTERS
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