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BUZZ-COMMENT-Yuan faces headwinds as China races toward new economy

Credit: REUTERS/Thomas White

The yuan is encountering headwinds as China races to develop a new-world economy. Yet as the allure of the 'Made in China' model fades, Beijing's hard push for fintech dominance and the reaffirmation of the U.S.-China trade deal will help see it through [nL1N2FR01E].

Aug 25 (Reuters) - The yuan is encountering headwinds as China races to develop a new-world economy. Yet as the allure of the 'Made in China' model fades, Beijing's hard push for fintech dominance and the reaffirmation of the U.S.-China trade deal will help see it through .

Foxconn and other manufacturers are mulling an exit from China due to U.S. pressure and supply-chain concentration risks. If Foxconn's peers also uproot, it could create a critical mass elsewhere that others would gravitate to. That would impact China's trade surplus, and thereby appeal for the yuan, even if the non-manufacturing sector constitutes 60% of the economy .

Although it takes years to offshore production, Beijing knows it needs to quicken economic reform. Regulators are beefing up the breadth and depth of the tech and financial sectors, which should benefit the yuan . Whether they can replace manufacturing-based investment inflows is unclear.

The early signs are positive however. Financial firms are booming as rules are loosened to lure foreign investors , while more Chinese tech unicorns may emerge with Shenzhen's newly launched ChiNext board to rival Shanghai's STAR Market .

With Federal Reserve Chair Jerome Powell expected to reiterate low U.S. rates for longer this Thursday , the yuan's appeal is likely to be burnished even further.

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(Ewen Chew is a Reuters market analyst. The views expressed are his own.)

((ewen.chew@thomsonreuters.com))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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