China is unlikely to use a sharp yuan devaluation to counter U.S. tariffs, as such a move could destabilize financial markets, economists said.
This week, the offshore yuan fell to a record low of 7.4287 per dollar, and the onshore yuan dropped to its weakest level since 2007. While this sparked speculation about further devaluation, analysts warned that it could trigger capital outflows—a risk China wants to avoid. The yuan has since stabilized.
Most of the 11 analysts polled by CNBC believe the People’s Bank of China (PBoC) will allow only a gradual depreciation, not a steep drop.
“Yuan devaluation isn’t part of China’s response to U.S. tariffs,” said HSBC’s Joey Chew. “Rapid depreciation could shake consumer confidence and spark capital flight.”
China experienced nearly $700 billion in capital flight in 2015 following a surprise devaluation. With the economy under pressure and U.S. tariffs rising, further outflows would worsen the situation.
Dan Wang of Eurasia Group noted that devaluation is no longer an effective trade tool, adding that Beijing’s priority is to prevent financial turmoil. She said China will work to reassure markets of its ability to defend the yuan and discourage bets against the currency.
With U.S. tariffs on Chinese goods now as high as 145%, any competitive gain from a weaker yuan would be limited. Senior economist Jianwei Xu pointed out that a large devaluation would likely spark financial instability.
Ken Cheung of Mizuho expects mild depreciation, forecasting a year-end USD/CNY rate of 7.12. Instead of aggressive devaluation, he predicts more short-term volatility.
Some analysts see potential for bigger moves if trade tensions persist. Capital Economics forecasts the yuan could weaken to 8 per dollar by year-end, though even that wouldn’t fully offset the tariff impact.
Rather than relying on the exchange rate, China may turn to domestic stimulus and capital repatriation to support the economy, said Kamil Dimmich of North of South Capital.