Xi Jinping, the Winnie Pooh-ish look alike running the People’s Republic of China, isn’t going to be happy with the performance of his country’s currency this morning. It could throw a bit of a wrench in his plans to conquer the world’s markets – and, by extension, the world itself – by encouraging the switch from the dollar to the Chinese yuan.

Might have to hold off for a while, as the renminbi (the official name for the Chinese currency, which the yuan is a unit of) is having a rough go of it against the greenback, regardless of whatever manipulative measures the Chinese have taken so far to prop it up.

China’s currency has fallen to its lowest point against the dollar since 2007 after exports shrank for a fourth straight month in August, showing how the manufacturing sector in the world’s second-largest economy is struggling to regain momentum.

The renminbi edged down 0.1 per cent to a low of Rmb7.3259 per dollar on Thursday, lower than the levels recorded during nationwide pandemic lockdowns last year, after an official release showed China’s exports dropped 8.8 per cent in August compared with a year ago.

The August exports contraction was less severe than a forecast fall of 9.2 per cent, according to analysts polled by Reuters, and was better than July’s 14.5 per cent decline, the worst since the start of the pandemic.

…The Chinese currency, meanwhile, has fallen almost 6 per cent against the dollar this year as disappointing economic data and a strengthening US dollar piled pressure on the exchange rate, despite a number of direct and indirect measures by Chinese authorities to discourage bets against the currency.

“Pessimism” reigns as far as future expansion for China at the moment.

Another reason to be on the side of inflation and economic pessimism, China and CNY.

After fighting the Euro$ for more than two months, the PBOC has had to give up. Yuan finally fell below its last year low and now sits at the worst exchange value in 15 and a half years. pic.twitter.com/2ZS8dMAneh

— Jeffrey P. Snider (@JeffSnider_AIP) September 7, 2023

PBOC or PBC is the People’s Bank of China. It works very hard at keeping the yuan where Xi thinks it needs to be for his plans, although the official U.S. policy ebbs and flows about officially designating the Chinese as “currency manipulators” as relations heat up or chill out. There are also two different yuan metrics heard when discussing valuations: “offshore” for Chinese currency used abroad in foreign trade and “onshore” which is kept home as Chinese domestic spending.

Just last week, the PBC made some moves again intended to prop up their ailing currency amid efforts to goose their sinking economy…

China rolled out new measures designed to prop up the struggling yuan Friday as Beijing made its latest attempt to give the country’s economy a much-needed boost.

The People’s Bank of China said that on September 15, it will slash the amount of foreign currency deposits financial institutions are required to hold from 6% to 4%.

The move is likely to increase the supply of foreign currencies in local markets, making the yuan more appealing as an investment for Chinese traders.

…Beijing is also grappling with a property-market crisis – and hours before Friday’s announcement on the yuan, policymakers cut down payment minimums and mortgage rates in a bid to shore up the beleaguered sector.

…but the renminbi traded flatly immediately afterward, and then sank like a stone today. You can see the onshore/offshore delineation in this report.

China’s onshore yuan, whose trade is regulated by Beijing, sank Thursday to the lowest dollar level since 2007 as sliding Chinese exports revived fear of an economic slowdown.

At about 0925 GMT, the onshore yuan fell 0.13 percent to 7.3279 yuan to the US dollar, moments after hitting 7.3284 yuan — which was the lowest level since December 2007.

The offshore yuan — which is circulated outside mainland China and is more freely traded than currency in the domestic market — fell 0.19 percent to 7.3350 to the dollar.

While this helps the U.S. stave off the Chinese assault on the dollar, on the other hand Japan is having a really difficult time “decoupling” from China in the face of Chinese economic weakness, their own stagnant economy, and now tensions over the release of treated radioactive Fukushima waters. A wounded China is a dangerous and unreasonable China, and the Japanese know it.

The “pessimism” word arises again, along with a pretty gloomy assessment of China’s outlook going forward.

…China’s downturn would leave Japan’s export-reliant economy with little external support as aggressive Federal Reserve interest rate hikes cool growth in the United States, another key driver of global activity.

…”What’s happening in China is worrying and could deal a huge blow to Japan’s economy,” said one of the sources, who spoke on condition of anonymity due to the sensitivity of the matter.

“A downturn in China may diminish the chance of Japan achieving sustained wage growth,” which is a crucial condition for phasing out monetary stimulus, another source said.

In a sign of growing pessimism over China, the government also said its monthly economic report for August that “concern over China’s outlook” was among risks to Japan’s recovery.

“China is over,” a senior Japanese government official told Reuters on condition of anonymity because of sensitivity of the issue. “I think China will never return to 5% growth.”

An indication of how dangerous interdependency is?

…China is Japan’s largest trading partner, accounting for 20% of its exports, having replaced the United States in 2020. Exports to China fell 8.6% in the first half of this year as demand for cars, steel and electronics wilted.

Economists believe China’s downturn could knock 1-2 percentage points off Japan’s annual growth, fuelling fears of a prolonged slowdown in Asia’s two biggest economies, which combined account for about a fifth of global gross domestic product.

That’s a wallop to your own economy.

As with many European and U.S. firms, Japanese companies are also leaving China, so another source of tension is added to the mix.

Globally, inflation is affecting orders everywhere, exacerbating the export situation of all these countries, but the Chinese particularly.

Chairman Xi has quite a money crunch developing on his hands at the very moment he wants to be seen as the leader of the world’s alternative to the United States with the goal of usurping our position. Even with the dementia riddled vegetable we have in the White House at the moment, it still takes tremendous resources to pull that off.

WSJ: “China’s 40 year boom is over”

The Chinese people are losing faith in their government as the economy hits the skids. The yuan just hit a 16-year low, and Chinese stocks have gone nowhere for close to two decades.

China was supposed to pass the US, instead it’s fallen to… pic.twitter.com/yzeGtSq3gM

— Peter St Onge, Ph.D. (@profstonge) August 30, 2023

As of right now, Xi’s purse has worn a hole in the bottom, and is leaking like a sieve.

The question is what does he do when he reaches in and pulls fuzz out, because the yuan is figuratively gone?