Zhang said two key risks that could pressure the yuan are weaker-than-expected fiscal expansion and further contraction in the property market. A prolonged slump in the housing market could have a significant impact on consumption and trigger financial risks among the country’s small to medium-sized banks, Zhang added.

“Under a pessimistic situation, I think that, by the end of next year, the exchange rate of the yuan against the US dollar may still remain around 7.3 to 7.5,” Zhang said at a seminar arranged by Renmin University on Friday.

Meanwhile, China’s direct investment liabilities – a broad measure of foreign direct investment that includes foreign companies’ retained earnings in China – stood at a deficit of US$11.8 billion in the third quarter, according to data released by the State Administration of Foreign Exchange. This marked the first quarterly deficit since records started being kept in 1998, and it suggests that capital-outflow pressure has indeed weighed on the yuan.

Ding Shuang, chief Greater China economist at Standard Chartered Bank, said “de-risking” efforts among multinationals have also been a key factor driving away investments away from China.

And he said that many foreign firms are now pursuing a China-plus-one strategy – a policy of managing risk by locating plants and facilities in China and another nation.

“Based on our understanding from our multinational clients … their headquarters are beginning to repatriate the accumulated profits [from China]. Interest rates are low in China, so these funds are getting more returns overseas,” Ding said at the seminar.

In August, the People’s Bank of China tightened regulations on capital flow and set the yuan midpoint in a stronger range on a number of occasions. The yuan midpoint is a reference point for trading, and the yuan is allowed to trade 2 per cent above or below the fixing rate each trading day.

Wang Yongli, general manager of China International Futures and a former vice-president of the Bank of China, said the central bank is likely to refrain from direct intervention in the foreign-exchange market, despite the yuan’s weakened state. China has the world’s largest foreign-exchange reserves, totalling US$3.17 trillion as of the end of November, official data showed.

“I think the fluctuation [of the yuan] will not exceed 8 per cent, which is between 6.4 and 7.4 [to the dollar]. Basically, there is no need for too much intervention,” Wang said at the seminar. “Although there is a lot of debate on whether it’s reasonable to keep such a huge foreign-exchange reserve, if we didn’t have that, our international influence – including the importance that the United States may attach to us – would be greatly reduced.

“In this regard, we should still maintain that [we should not] use foreign-exchange reserves to intervene easily.”

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