In view of the deep fall of the yuan, the People’s Bank of China has reportedly told the country’s main state-owned banks to prepare to get rid of their dollar holdings and exchange them for offshore yuan.

Official sources informed Reuters that the communist regime’s banking authorities have taken the decision as an emergency measure in the face of the crisis shaking the yuan, this being the latest effort to strengthen its currency.

How much exactly in U.S. is to be sold has not yet been decided, but it will mainly involve the foreign exchange reserves of state-owned banks. 

Overseas branches, including those based in Hong Kong, New York and London, were ordered to check overseas yuan holdings and verify that dollar reserves were ready.  

On Thursday September 29, the yuan fell 0.9% to 7.13 against the U.S. currency and is on track for its worst annual decline since 1994, having lost more than 11% so far this year.

It is true that a weaker currency relative to the dollar can sometimes be beneficial, as this is an incentive to exports. But the yuan’s recent fall below the “psychological” threshold of 7 to the dollar has been unsettling markets. 

The Chinese economy is undergoing a worrying economic crisis associated with the imbalances produced by the real estate crisis, the lack of yuan, the pandemic lockdowns, problems in the supply chain, and the flight of international companies seeking other directions away from communist policies. 

Faced with this situation, the Chinese Communist Party (CCP) is seeking various mechanisms to strengthen its currency again. This includes limiting transactions in dollars, which also implies isolating itself in some way from the Western world.

The central banks of several countries during and after the pandemic have adopted policies aimed at tightening monetary policies and favoring their exports. These political and economic maneuvers increase the risks of a global recession. 

These interventions, if they become abrupt and are not consensual, are very likely to end up damaging the normal chain of trade.

Historic announcement

As part of a landmark agreement between the two nations, the CCP and its ally Russia announced in September the signing of a new contract. China will start paying in rubles and yuan for gas supplies, avoiding the use of the dollar as the currency of exchange as they have always done. 

The agreement could be the first step in the medium-term ambition of both countries diversifying cross-border payments in their quest for greater trade independence from the United States and Europe. 

The information was first published in Russia, with gas supplier Gazprom issuing the official statement on Tuesday, September 6, informing about the newly signed contract. From now on, payments for gas supplies with the Chinese communist regime will be received in their own currencies instead of dollars.

Alexei Miller, CEO of Gazprom said, “It will simplify calculations, become an excellent example for other companies and give an additional impetus to the development of our economies.”

According to reports, the Chinese regime will start paying Gazprom half and half in rubles and yuan, but no further details were given when it would start or the mechanisms that will be used for this purpose.

China falls and others take its place?

While the CCP, seeking to strengthen itself, implements measures that distance it from the West, other countries in the region are moving to take its place in the world market.

During a conference, the Indian Gautam Adani, the richest person in Asia and one of the most influential on the continent, predicted a dark future for China. 

In his speech he said that in an international context and the measures adopted by the communist regime could go so far as to isolate the Asian giant.

In comments at a CEO symposium in Singapore organized by Forbes magazine, Adani said that China was considered the “main winner of globalization.” But instead, the failure of the Belt and Road initiative and its economic and social policies were leading the country into isolation.

During his speech, Adani referred to the profound changes that the world economy has undergone over the past 36 months.

He mentioned the geopolitical changes, the economic turbulence of the great powers, and the interventions of central banks to cool the economy in the complex context of global inflation. 

He also spoke about the role of the Chinese regime in the complex global socioeconomic reality, and how its policies are pushing it away.

The new international context seems to be marked by China’s exit from its dominant economic position, facing rejection by many countries. As a result, hundreds of large multinational companies are leaving the country and re-establishing themselves elsewhere. 

The new reality opens the game for the emergence and development of new powers. Adani pointed out that India, his home country, can play a more leading role in the global economy.

Much of the funds flowing out of China are flowing into India and other countries in the region.

In the face of global turbulence, Adani suggested that opportunities for India have accelerated. He added, “India is one of the few relatively bright spots from a political, geostrategic and market perspective.”

He said the country would become the world’s third-largest economy by 2030.

It is very difficult to know for sure whether what Adani predicts will actually happen and whether China will indeed vacate its place as the “factory of the world.” For the time being, it is undeniable that hundreds of multinational companies currently operating in China are re-evaluating their situations and devising contingency plans for a possible exit from the country.

Many others have already done so and are relocating to countries such as India, Vietnam and others in Southeast Asia.

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