The Chinese yuan against the US dollar exchange rate opened the new year still below 7.3 yuan to 1 US dollar. Experts believe that under the dual pressure of the continuous deterioration of the Chinese economy and the Trump administration’s imposition of high tariffs on China, the yuan is expected to devalue by at least 10% to 20% in the future. The leadership of the Chinese Communist Party controlling the economy will escalate competition between the US and China, leading to further deterioration of the Chinese economy.
On January 1, 2025, the foreign exchange market opened in the new year with the Chinese yuan reaching a low of 7.3360 against the US dollar. On January 2, it further declined to a low of 7.3447. On December 18, 2024, the Chinese yuan against the US dollar exchange rate closed below 7.3194, marking the first time in 17 years (7.3041 yuan on January 11, 2007) that it dropped below 7.3, and it has not rebounded to above 7.3 since the turn of the year.
In 2024, the Chinese yuan against the US dollar exchange rate experienced significant volatility, falling from 7.1665 yuan per dollar at the end of 2023 to 7.3433 yuan per dollar by December 31, 2024, representing a decrease of 1,768 basis points, about a 2.49% depreciation for the year.
American economist David Huang told Epoch Times on January 1 that the yuan breaking through 7.3 is a “landmark event.” He explained, “Under normal circumstances, the first threshold for the yuan is in the range of 7.25 to 7.35. Breaking through the first threshold signals significant internal and external pressure on the Chinese economy and reflects the lack of market confidence in China’s economic prospects.”
David Huang pointed out several factors leading to the yuan breaking through 7.3: first, the slowdown in the Chinese economy; policy uncertainty; and loose monetary policies (recent measures by the central bank to stimulate the economy may create expectations of quantitative easing). Secondly, “the strength of the US dollar will also passively devalue the yuan.”
He added that the third factor is capital outflows causing the devaluation of the yuan. With global capital flowing towards Europe and the United States, particularly back to the US, it leads to “depreciation of emerging market currencies, including but not limited to China.” The fourth factor is market concerns that trade friction between the US and China may intensify after Trump took office, prompting capital to accelerate leaving China.
Yao Yuan, a professor at the University of St. Thomas in the United States, stated that the weak Chinese economy and significant outflows of foreign capital continue to drive the depreciation of the yuan. This also indicates that “China will continue to face problems of inflation.”
All economic data from the Chinese Communist Party are considered to be doctored false data. The international community, unable to access the true economic data from the Chinese Communist Party, has to rely on the published data for economic analysis and predictions.
Morgan Stanley believes that due to the US potentially announcing comprehensive tariffs on Chinese goods as soon as the first quarter of next year and implementing them in stages from 2025 to 2026, this will lead to an early devaluation of the yuan in the coming one to two quarters. It is expected to devalue to 7.6 yuan per US dollar by the end of 2025 and further decline to 7.75 yuan in 2026.
The Nikkei newspaper predicts that China may adjust the expected exchange rate of the yuan against the US dollar to devaluation, with an average value of 7.37 yuan by the end of 2025. The uncertainty in the Chinese economy and the widening US-China interest rates will increase the pressure to sell off the yuan.
The report quoted an expert from the Crédit Lyonnais Bank who stated that if the US imposes an additional 20% to 30% tariff on China, theoretically, the yuan may devalue to 8.5 to 9.1 yuan per US dollar. However, the Chinese authorities will not tolerate a significant devaluation of the yuan and may intervene in the foreign exchange market through banks and guide financial institutions to curb it.
Yao Yuan believes that the yuan may still decline by around 10% to 20%. “The sluggish Chinese economy, the exodus of foreign capital due to lack of confidence in the Chinese market, unsuitability for foreign investment, excessive government intervention, declining trade volumes, and US-China competition are all reasons that will continue to devalue the yuan.”
David Huang mentioned that some are concerned about the deteriorating situation, saying that “the yuan against the US dollar may fall to nearly 8.0.”
Regarding the various factors leading to the devaluation of the yuan, David Huang analyzed that internal factors in mainland China should first focus on the real estate and debt risk crisis, as well as whether the domestic demand recovery in China could be achieved and policy planning.
In terms of geopolitical risks, he believes that in addition to the tense US-China relations, global industrial chain restructuring, Russia-Ukraine war, South China Sea, and Taiwan Strait crises, if the Chinese Communist Party is held accountable in the future for supporting Russian aggression in Ukraine and concealing responsibility for the 2020 COVID-19 (Chinese virus) pandemic, it will face significant challenges.
He further stated that since Trump took office, the US will return to the global market, leading to further capital inflows to the US and further liquidation of assets in emerging countries. Additionally, the devaluation of the yuan will reduce foreign exchange reserves.
Tian Xie, a marketing professor at the School of Business at the University of South Carolina, told Epoch Times that the Chinese central bank has been manipulating the exchange rate for a long time. The Chinese Communist Party only allows the exchange rate to fluctuate within a very small range. If it were completely freely convertible, one US dollar could probably exchange for 20 or even 30 yuan. However, the Chinese Communist Party dare not set people completely free to exchange currency.
The Wall Street Journal reported more detailed economic conditions in China on January 1, stating that the Chinese economy is influenced by various “excessive” situations such as real estate, debt, and industrial overcapacity, with past growth now nowhere to be seen.
The report quoted Barclays Group’s estimation that the Chinese real estate market experienced a significant decline in 2021, resulting in Chinese households losing $18 trillion in total assets. The value is greater than the entire Chinese stock market, equivalent to China’s national capacity in 2024. During the financial crisis of 2008-2009, Americans suffered losses of around $17 trillion, but the severity of the Chinese real estate problem exceeds that of the US at that time.
Previously, internal sources from within the Chinese Communist Party revealed that besides believing strongly in “rising in the east and falling in the west” and sticking to an “up-to-down” economic governance model, the top leader of the Chinese Communist Party surprisingly knew nothing about the economic consequences that deflation might cause and even asked, “What’s wrong with deflation? Don’t people like cheaper prices?” The report states that Xi’s handling of the economy is raising concerns.
David Huang pointed out that Western economists view economic issues through a lens of free and market economies, whereas Xi Jinping’s management style interprets the economy from the perspective of a ruler. Their starting points are completely different.
He said that the West believes that “the state should intervene as little as possible in the market, and state-owned enterprises should reduce market monopolies as much as possible, beneficial for economic development.” But the Chinese Communist Party “tends towards centralised state management, categorising all market enterprises as state-owned enterprises,” and “their demands for political security and control far exceed economic development.” David Huang stated that Xi Jinping and his cohorts are concerned about “the security of political power and whether the overall interests are being taken care of.” He added, “This is also why Western economists have continuously misjudged China (the CCP).”
Yao Yuan stated, “Xi Jinping controls the market excessively, fears that private information of private enterprises may harm his own political power, but in turn keeps the Chinese economy continuously bottoming out. In addition, Xi Jinping’s more dictatorial and controlling methods have transformed US-China relations from cooperation to competition, making the Chinese economy worse.”