Insights on China’s Economic Challenges: Yuan Depreciation, Falsified Data, and US-China Decoupling

Chinese yuan and U.S. dollar banknotes are seen behind an illuminated stock graph in this illustration taken Feb. 10, 2020. Dado Ruvic/Illustration/ Reuters

News Analysis 

After entering 2024, the exchange rate of the Chinese yuan against the U.S. dollar has been gradually declining. On March 22, the yuan suffered its worst day in two months as China continued its loose monetary policy, seeking to stimulate investments and spending in the stagnant Chinese economy.

NTD, an independent Chinese television network based in the United States, broadcasted “Pinnacle View,“ a panel discussion on March 28 on the effects of China’s loose monetary policy. The host of the show, Shi Shan, and three panelists discussed China’s current economic situation. The three panelists were Li Jun, an independent Chinese television producer, Guo Jun, editor-in-chief of the Hong Kong edition of The Epoch Times, and Cai Shenkun, a veteran Chinese journalist and commentator living in exile in the United States.

Falsified Data

Mr. Cai said on the show that the National Bureau of Statistics of China released economic data for the first two months of this year in March, and these figures are questionable. For example, the Bureau boasted that fixed asset investment from January to February was 5.0847 trillion yuan ($753.9 billion), an increase of 4.2 percent over the previous year. However, the figures for the same period last year were 5.3577 trillion yuan, which indicates a decrease of 5.1 percent, not an increase. This shows that there is a huge discrepancy in the Bureau’s figures.

When it comes to real estate investments, he pointed out that the Bureau claimed it only dropped by 9 percent, but the actual decline was 13.7 percent if compared to the previous year’s data. In terms of real estate sales, the Bureau announced a 20.5 percent decrease, but compared with last year’s data, the decrease has reached 29 percent.

“What does this data mean?” asked Mr. Cai rhetorically. “It indicates that the Bureau is following the [Chinese] regime’s tone on a ‘bright economic outlook’ when releasing data, which is fundamentally biased and deviates from reality.”

The Chinese Communist Party (CCP) State Council’s government work report set a goal of creating 12 million jobs this year. However, the actual unemployment rate among young people in China reached around 50 percent last year. Currently, tens of millions of people in China are in a state of total unemployment. Adding 12 million new jobs this year is completely insufficient to solve the current unemployment crisis.

Falling Real Estate Prices

Mr. Li said on the show that in January and February, real estate sales in China dropped by about 50 percent, and prices continue to decline, with no bottom in sight.

Beijing’s property prices have always been among the highest, especially in areas like Haidian District. Housing in the Zhongguancun school district used to cost 220,000 yuan ($30,960) per square meter, with a 100-square-meter (1076 square feet) house costing over ten million yuan ($1.4 million). However, according to Mr. Li, prices have plummeted in the millions recently.

In addition, according to data from last year, the number of foreclosed properties in China increased by 40 percent compared to the previous year, with a 35 percent increase in the first half and a 45 percent increase in the second half. “This trend is likely to continue to 2024,” he said.

A worker walks past a housing complex under construction by Chinese property developer Evergrande in Wuhan, in China's central Hubei Province, on Sept. 28, 2023. STR/AFP via Getty Images

Yuan Depreciation

Mr. Shi, the host of “Pinnacle View,” said that the offshore price of the Chinese yuan against the U.S. dollar experienced a significant drop again a week ago. It is now around 7.25 yuan to 1 dollar.

In the first quarter of this year, China’s M2 broad money supply has already exceeded 300 trillion yuan ($42.2 trillion), with an increase of 1.7 trillion yuan ($240 billion) per month. China’s total broad money supply has surpassed the United States and the European Union combined.

“Theoretically, the increased money supply should lead to price increases or inflation, but China has not experienced this at all,” said Mr. Shi. “80 percent [of the newly issued money supply] is actually absorbed by the elites within the regime, financial institutions, and state-owned enterprises.”

Mr. Cai said that the future of the Chinese yuan against the U.S. dollar is of great concern domestically and internationally.

“The current total money supply of the U.S. dollar is about $20.78 trillion, while China’s total money supply has actually reached the equivalent to $42 trillion, which is twice as much as the United States,” he said. “The Chinese yuan’s exchange rate against the U.S. dollar is unsustainable. The current exchange rate is entirely dependent on strong foreign exchange controls by the [Chinese] regime. If it loosens capital controls and allows the yuan to be fully convertible and capital to flow freely, there is no prospect for the yuan’s exchange rate. When I was still in Beijing a few years ago, I once discussed this topic with Li Yang, the former head of the Monetary Policy Commission of the People’s Bank of China. He blurted out to me that conservatively, the exchange rate should be 1:15 [for the dollar to yuan].”

Mr. Cai explained that the CCP will do everything it can to maintain the current exchange rate since the Chinese yuan’s depreciation would lead to a decline in China’s total GDP and GDP per capita.

US-China Decoupling

Ms. Guo said that the increased confrontation between China and the United States is affecting foreign investments in China. This is the growing trend of “U.S-China decoupling.”

“For more than a decade, Wall Street has played a huge role in mainland China, but now Wall Street is facing many obstacles due to the CCP’s internal politics,” she said. “The CCP is now doing everything it can to block the rise of foreign capital [in China], implementing the new States Secrets Law and Anti-Espionage Law [in China], the National Security Law and the recently announced Basic Law Article 23 [in Hong Kong], all of which are aimed at foreign influence and foreign enterprises.”

According to Ms. Guo, China’s tech companies and foreign tech companies are now both in very difficult situations, given the recent departure of foreign capital. The Chinese regime claims that foreign capital is still entering China, but analysts in Hong Kong have found that most of the capital recently entering China is actually from Chinese companies abroad.

“We can see that the decoupling between China and the United States is a long-term process, but I’m afraid it has just begun,” she said.

Michael Zhuang has contributed to this report.