FOCUS; China's Corporate Gloom Drives Yuan Down in FX-Swaps
Chinese companies appear to be more pessimistic about the prospects for the world's second-largest economy and its currency, local derivatives markets suggest.</br></br>Companies hoarding dollars earned overseas, instead of selling them to the central bank, are depressing onshore dollar interest rates, and purchases of forward contracts for the U.S. currency paint an increasingly gloomy picture for the weakening yuan.</br></br>This heightened corporate appetite for the dollar, after years of sharp yuan rises, may also serve as a reality check for economists, who mostly predict the Chinese economy will rebound in the second half of the year, thanks to the government's stimulus measures, buoying the yuan. China's economic growth slowed to 7.6% on year in the second quarter from 8.1% in the first quarter, its lowest level since early 2009.</br></br>"The old custom was to sell the dollar in advance and buy it back as late as you can" to pay for needed imports, said a Shanghai trader at a foreign bank. "But that's not the case anymore."</br></br>In the spot market, the yuan has fallen 1.3% against the dollar so far this year, but that understates the picture as the People's Bank of China has recently had to fight the market to keep the tightly controlled currency stable. The dollar climbed by its 1% daily limit Friday, for the first time since the widened the trading range in April, to hit CNY6.4743.