Concerns over Xi Jinping’s unprecedented third term, as well as a reshuffle of his leadership team, reportedly triggered a stock sell-off that wiped out billions of dollars of Chinese super-rich wealth.
China’s yuan has depreciated 7% since late August
The Chinese currency’s exchange rate against the U.S. dollar hit a new record low of ¥7.33 to the dollar, falling 1.5 percent, 24 hours after the conclusion of the Chinese Communist Party (CCP) congress. According to a Bloomberg article, the currency slipped because the CCP congress, which approved President Xi Jinping’s bid to lead the country for a third term, did not assuage investors’ concerns about the economy of the world’s second-largest economy.
The yuan’s fall to its lowest level in more than a decade also came as the People’s Bank of China (PBOC) reportedly ended its policy of fixing the yuan. In addition, the yuan lost ground against the greenback in local markets, falling 0.6% on October 24 to CN¥7.2648. Since the end of August 2022, when the exchange rate was about CN¥6.86 per dollar, the yuan has depreciated nearly 7% against the dollar.
Like other global currencies that lost ground against the U.S. dollar in 2022, the yuan depreciated each time the U.S. Federal Reserve raised interest rates. Although these hikes are intended to control the rising U.S. inflation rate, each cycle seems to strengthen the dollar. As a result, many currencies, including the pound, euro, yen and Swiss franc, have since reached record highs against the greenback.
With analysts predicting another Fed hike in November, the yuan is expected to depreciate further against the greenback. This sentiment is supported by a recent Bloomberg survey, which found that half of the 30 yuan traders surveyed thought the yuan would eventually fall to CN¥7.5 to the dollar.
Decline in stocks erodes wealth of China’s richest
Meanwhile, another article showed that President Xi Jinping’s growing grip on the government, which was confirmed by the just-concluded congress, helped trigger a stock sell-off that saw China’s super-rich lose about $9 billion. Commenting on the billionaires’ losses, Kenny Wen, head of investment strategy at KGI Asia, said:
Today’s drop reflects the fragility of investor sentiment. People are just trying to hang on and look for new implications for the Chinese after the shakeout.
According to the article, even before the Oct. 24 sale, President Xi’s policies of “Zero Covid” had already assured that 2022 would be the worst year for China’s richest.