China’s yuan fell to a record low in international markets on Tuesday as investors dumped Chinese assets amid fears over Xi Jinping’s shock move to tighten his grip on power in a major leadership shakeup.
In trade outside mainland China, the yuan briefly tumbled to around 7.36 per dollar early Tuesday, the lowest level on record, according to Refinitiv, which has data going back to 2010. It then pared losses, trading at 7.33 at 1 pm Hong Kong time. .
In the strictly managed domestic market, the yuan also fell sharply on Tuesday, hitting the lowest level in nearly 15 years.
The declines came alongside a historic market rout for Chinese assets around the world. On Monday, Chinese stocks plunged in Hong Kong and New York, wiping billions of dollars off their market value. Hong Kong’s benchmark Hang Seng Index (HSI) closed down 6.4%. The Nasdaq Golden Dragon China Index also sank more than 14%. On Tuesday, the Hang Seng (HSI) recovered slightly, 0.8% by midday.
The huge liquidations came just days after the ruling Communist Party revealed its new leadership for the next five years. In addition to securing an unprecedented third term as party chief, Xi packed his new leadership team with loyal loyalists.
Several top officials who have backed market reforms and opening up the economy were not on the new top team, raising concerns about the future direction of the country and its relations with the United States.
International investors spooked by the outcome of the Communist Party leadership shakeup dumped Chinese assets despite the release of better-than-expected GDP data. They worry that Xi’s tightening grip on power will lead to a continuation of Beijing’s existing policies and a further dent in the economy.
China’s leadership reshuffle “raised concerns about the continuation of market-unfavorable policies and the increased risk of policy errors under the sway of President Xi’s power for years to come,” said Ken Cheung, chief currency strategist for China. Asia at Mizuho Bank.
“Foreign investors took steps to reduce their exposure to Chinese assets,” he said, adding that the Chinese currency was facing mounting capital outflow pressure.
The Chinese yuan, along with other major global currencies, has been rapidly weakening against the dollar in recent months. The dollar rose to the highest level in two decades against a basket of major counterparts, buoyed by a hawkish Fed trying to contain runaway inflation.
So far this year, the yuan has tumbled more than 15% against the dollar, on track for its worst year since 1994, when China devalued its currency by 33% overnight as part of market reforms.