Jeff Ng of SMBC discusses his outlook for the yuan, and the impact of its recent strength on the country's export competitiveness. He says China has more positive fundamentals compared to its Asian peers.

Shanghai

Analysts expect the Chinese yuan to strengthen slightly against the U.S. dollar by the end of the year, with forecasts placing the exchange rate around 6.75. Despite concerns that a stronger currency could make exports more expensive, demand for AI-related and technological products is projected to keep export performance resilient, supported by a large trade surplus.

China's economy continues to show uneven, K-shaped growth, with strong exports but a weaker property market. Policymakers are anticipated to maintain a neutral monetary policy, with only minimal interest rate cuts, and to focus on quality growth rather than aggressive stimulus, as the country targets around 5% economic growth in the coming year.

How will strong Yuan affect the competitiveness of China's exports?

I'm looking for the currency to trade around 6.75 by the end of the year. I think what we are looking at is that the current account surplus will continue to be relatively positive. I think that will be both supported by the trade surplus as well as services which includes tourism. I think at the same time the PBOC is likely to allow a slight strengthening of the currency against the U.S. dollar and at the same time perhaps only cut interest rate modestly perhaps 10 or 20 basis point at most which means that the monetary policy is more neutral in terms of the interest rates. And I think that positivity on the external balances will help to support the dollar CNY or dollar CNH closer to 6.75 by the end of the year. Now we saw the latest data data set that came through from China showing a resilient Chinese economy. So managing to hit 5 percent growth for the year 2025. But it is a K shaped economy. So exports very strong. But it is the property market that is a drag. And I want to ask you about this exports as we have this trade surplus to the amount of one point two trillion dollars with a stronger Chinese currency that makes exports more expensive. So do you think that in terms of policy there's been any thinking behind this and the impact on exports. Well when we look into the export front I think the outlook remains quite positive due to the demand for AI related products and technological electronic exports. I believe that the prices will not be so elastic. The demand will still remain despite perhaps a slightly strengthening CNY compared to other currencies. And I don't think it will be excessive to break the balance. Meanwhile I think of course the economy continues to grow at an uneven pace. A K shaped growth trajectory as you mentioned. But also I think this is a trajectory that we are seeing not just in China but in the U.S. in Europe in the rest of Asia as well. And I think you know China does have a relatively more positive fundamentals compared to maybe many of the other Asian peers to weather this unevenness in the global fundamentals. I'd like to know and get your take because it's that time of the year and I'm speaking about the Lunar New Year or the Chinese New Year. Is there any seasonality in terms of how the currency behaves as we approach a very important time in the Chinese monthly calendars or like historically what has the period around Chinese New Year what has that demonstrated. I think usually during this period there could be some dollar firmness. Usually during the last quarter of the year the dollar weakens due to some positivity about the next year. But there's always some disappointments at the start of the year that may derail and cause some dollar rebound. And I think we have seen that unevenness heading into the first half of January. But nonetheless I think with current geopolitical news uncertainty about the U.S. policies I think the dollar may continue to soften against selected currencies in the next few months. So it may mean that while traditionally the dollar may be quite firm during this period of time. But this this year around we may not see the same trend. We are watching and keeping an eye out for any developments coming through from the NDRC as they are holding a press conference discussing the 15 five year plan. So some more detail could be trickling out. I want to get your expectation for policy easing because there has been albeit minimal there is expected cuts to the interest rates as well as to the triple R. What are you looking out for. Sure. I think given that China has managed to achieve the 5 percent growth target and expectations for this year's growth could be similar around 5 percent or perhaps slightly lower in terms of the target setting. It means that policymakers are not in an urgent need to aggressively stimulate the policy the economy at this stage because if you do so there could be other imbalances that may creep in as we have seen from the past few decades and also from perhaps other economies historical trends. So it means that I think there could be more policy continuity from this 15 five year plan. I'm looking at more emphasis on quality growth rather than just on the numbers because China has become quite developed over the past few decades. So no need to chase the 7 or 8 percent growth going forward. And at the same time I think there will be perhaps targeted policies to help with some of those that really need support in this case shape growth trajectory which not just applies to China but also to other parts of the world.

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Nuuk

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Jerusalem

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Breakdown