China's Yuan Loses Value As Economy Is Battered By COVID Lockdowns

The Chinese currency is declining rapidly as the world's second largest economy falters under the weight of COVID restrictions, Laura He reported for CNN Business.

Photo Insert: "A stronger US dollar, dampened sentiment towards China's economic outlook, and narrowed interest rate spread between China and the US all contributed to the rapid depreciation of the currency."

Since the start of the year, investors have been moving money out of China, driven by concerns about rising lockdowns in major cities, and Beijing's close ties with Moscow in the wake of Russia's invasion of Ukraine. The links have raised fears that China could be targeted by Western sanctions if it helps Moscow.

The yuan — also known as the renminbi — hit its lowest levels since September 2020 early on Friday in the onshore market that Beijing controls as well as offshore, where it can trade more freely. The currency recovered later in the day to stand around 6.78 per US dollar.

In the past three months, the yuan has lost about 7% of its value against the greenback. In April alone, it posted its biggest monthly drop on record. In the same month, China's foreign exchange reserves fell by the most since late 2016.

It is a stark turn for the yuan, which was one of the strongest currencies in the world in 2021. Analysts say a combination of Beijing's COVID restrictions and rate hikes by the US Federal Reserve have made investors wary about keeping their money in China.

The country witnessed record outflows from Chinese bonds in February and March. "A stronger US dollar, dampened sentiment towards China's economic outlook, and narrowed interest rate spread between China and the US all contributed to the rapid depreciation of the currency," said Goldman Sachs analysts on Friday.

So far, at least 32 cities in the country remain under lockdown, as President Xi Jinping's government relentlessly pursues its zero COVID policy, which has hit almost every industry and pushed the economy backward.

Authorities this week tightened Covid restrictions on the country's two most important cities — Shanghai and Beijing — after Xi pledged to "unswervingly" double down on the strict zero-COVID policy.

Worries over these restrictions intensified further on Friday when China banned citizens from going overseas for non-essential reasons.

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