The PBOC had been guiding the yuan sharply lower since the start of the year, rattling risk markets and stoking worries about the actual state of the Chinese economy.
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China’s foreign exchange reserves, the world’s largest, fell $107.9 billion in December to $3.33 trillion, the biggest monthly drop on record, central bank data showed on Thursday.
Yesterday’s shake-out was triggered by volatile trading in China after a very weak reading on a Chinese manufacturing index, and it was another nervous day today in Asia Pacific, despite the Chinese central bank, the People’s Bank of China (PBoC) whacking in 130bn yuan, or close to US$20bn, into the system to encourage more borrowing.
China accelerated the depreciation of the yuan on Thursday, sending regional currencies and stock markets tumbling as investors feared the Asian giant could trigger competitive currency devaluations from trading partners. Taiwan’s TAIEX declined 84.72 points or 1.05 percent to end at 7,990.39.
Trading was halted just before 10am (0200 GMT) as a “circuit breaker” kicked in after the benchmark Shanghai index slumped 7.32 percent and the Shenzhen composite index, which tracks stocks on China’s second exchange, had tumbled 8.35 percent.
The greenback attracted some repurchases in the afternoon, but its topside remained heavy, also pressured by North Korea’s announcement that it has successfully carried out a hydrogen bomb test for the first time, traders said.
The FT said that the spread between the offshore market and the more tightly controlled onshore market is an embarrassment for the People’s Bank of China, which pledged in August to narrow the gap as part of its efforts to make the Chinese currency “free floating”. Hong Kong slumped 2.4 percent by lunch and while Tokyo shed 2.2 percent.
Two separate reports this week fanned fears of slower growth in the world’s second-largest economy.
Beijing reacted forcefully, spending at least $236 billion to stop the slide.
Energy firms were among the worst hit after Brent oil prices fell six percent to its lowest finish since July 2004.
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There are “lingering concerns” within the Fed about China, particularly whether a slowdown there could impact USA economic growth and jobs or, more likely, pull down global inflation and keep the Fed from reaching its 2 percent inflation goal, according to the minutes from the Fed’s December policy meeting, which were released this week. When Chinese markets were halted Monday, the move triggered a global selloff, including losses of roughly 2% in the U.S.
