Forex Comment Feb 03

Yuan up 6.8% against the dollar in January over 2020 level

Chinese currency is expected to rise further, while agencies such as the IMF expect GDP growth of at least 8% this year

Yuan up 6.8% against the dollar in January over 2020 level
China is tipped to see significant economic growth this year. File photo by Reuters.

(ATF) In December 2020, the yuan exchange rate against the US dollar had risen to the '6.5 range', and the average monthly rate was 6.5423.

By January 2021, the onshore yuan exchange rate against the dollar was up in the '6.4 range', and the average rate for the month was 6.4774, meaning the yuan had appreciated significantly.

Last month, the yuan exchange rate appreciated by 1% month-on-month relative to last December, and 6.8% compared with the same period last year.

This means that even if China’s economy experienced zero growth last month GDP in US dollar terms would increase by 6.8%, according to Netease.

Stronger yuan helps GDP growth

The rise of the yuan exchange rate will boost the growth rate of China’s economy calculated in dollars. This principle also applies to the "average exchange rate of RMB to USD throughout the year", which will enhance economic development.

For most of 2020, the yuan exchange rate against the US dollar was close to 6.9 yuan for US$1, and for some periods it was 7.1 yuan per US$1.

Entering 2021, the yuan has exceeded 6.4, and it is expected to exceed 6.3 by the end of the year, or even reach 6.2.

Last year, China's GDP was expected to exceed $17 trillion, the media outlet said in an analysis.

But according to information released by the National Bureau of Statistics, China’s GDP in 2020 reached 101.6 trillion yuan, which is $14.73 trillion at the average exchange rate. That is about 70% of the US’s total GDP of nearly $21 trillion in the same period.

Most major economic analysts expect China's economy to grow by at least 8% this year. The IMF, for example, in its latest forecast, believes that with continuous promotion of various stimulus measures, the income and consumption of Chinese citizens will continue to rise this year.

The economy is expected to grow by 8% or higher, and the average exchange rate of yuan to the dollar could also rise by 8% or higher. So, there is a high probability that China’s GDP may exceed $17 trillion.

Of course, this is a special case and does not happen often. But no matter what, China’s economy is expected to usher in another stage of high growth the year, and both GDP and per capita GDP could see significant improvement.

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