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Stronger RMB points to resilience

Yuan: RMB?appreciation?helps reduce?frictions

By JIANG XUEQING and??ZHOU LANXU | chinadaily.com.cn | Updated: 2025-12-25 23:14
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The recent strengthening of the renminbi against the US dollar reflects the resilience of China's economic fundamentals and the improving stability of its financial system, while a weaker dollar has also provided external support for the renminbi's gains, economists said.

They also said that if the yuan maintains a firm trajectory next year, it could help attract more foreign capital into China's onshore financial markets and further enhance the attractiveness of renminbi-denominated assets.

Their comments came as the offshore renminbi strengthened past the 7.0 level against the US dollar on Thursday for the first time since late September 2024, reaching as much as 6.996 per US dollar during the day. Meanwhile, the central parity rate of the renminbi rose by 79 pips to 7.0392 against the dollar, marking its strongest level since Sept 30, 2024.

The offshore renminbi has appreciated against the US dollar by about 4.6 percent so far this year, according to data from Wind Info.

The People's Bank of China, the country's central bank, said in a statement on Wednesday that it would enhance the resilience of the foreign exchange market, stabilize market expectations, guard against the risks of exchange rate overshooting, and keep the RMB exchange rate basically stable at an adaptive and equilibrium level.

Guan Tao, global chief economist at BOCI China, said the Central Economic Work Conference repeatedly stressed the importance of keeping the RMB exchange rate basically stable, with the core objective of preventing overshooting in either direction.

Guan said that the renminbi's strength this year has been supported by China's resilient economy, which grew 5.2 percent year-on-year in the first three quarters. At the same time, emerging growth drivers, including China's homegrown artificial intelligence model DeepSeek, humanoid robots and the overseas expansion of innovative pharmaceuticals, have reinforced expectations of a revaluation of Chinese assets.

In addition, diminishing confidence in the US dollar led to the currency's depreciation in the first half of the year, lending support to the renminbi. Easing China-US trade tensions, together with rising expectations of US Federal Reserve rate cuts, have also helped stabilize market sentiment, he said.

Wang Qing, chief macro analyst at Golden Credit Rating International, said that as the end of the year approaches, corporate demand for foreign exchange settlement has increased, contributing to a seasonal strengthening of the renminbi.

Liang Zhonghua, chief macro analyst at Guotai Haitong Securities, said that as the belief in a "strong dollar" weakens, companies are becoming less inclined to hold foreign currency, with ongoing conversion into renminbi providing sustained support for the exchange rate.

As expectations for RMB appreciation strengthen, arbitrage funds that had previously remained overseas may flow back, together with capital-account inflows, helping to lift risk appetite in China's equity market, Industrial Securities said.

Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered, said that RMB appreciation in the future would help reduce trade frictions with other countries. At the same time, gradual RMB appreciation would help boost international confidence in the currency. Therefore, China may accept a gradual appreciation process for the RMB, he said.

Zhang Jianping, deputy director of the academic committee at the Beijing-based Chinese Academy of International Trade and Economic Cooperation, said, "As the US dollar enters an easing cycle, China-US economic and trade frictions are showing signs of easing, while a firmer renminbi is improving sentiment."

Zhang said these factors are helping to revive global capital flows and gradually bring Chinese assets' underlying appeal back into focus.

Hu Yifan, head of macroeconomics for the Asia-Pacific region at UBS Global Wealth Management, said the impact of a stronger yuan on China's exports was limited, as the RMB's strength was mainly against the US dollar, while it remained broadly stable against other currencies. The RMB also remained broadly stable with a modest upward bias against the dollar this year, though the scale of appreciation was limited, Hu added.

In the first nine months of this year, China's exports of goods grew 6.1 percent year-on-year to $2.78 trillion, according to the General Administration of Customs.

Wang from Golden Credit Rating International said companies should not bet on a one-way move in the exchange rate, but instead focus on their core businesses and make greater use of foreign exchange derivatives such as options and futures to manage exchange rate volatility risks.

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