What is 'Pochi' (破七)?

[Asia Economy Reporter Park So-yeon] The offshore dollar-yuan exchange rate is threatening to exceed 7 yuan per dollar for the first time since July 2020. While there are forecasts that the 'Po-chi' (破七), meaning the 1 dollar = 7 yuan level, will be broken, analysis suggests that even if this materializes, the market shock will not be significant.

According to FN Guide on the 10th, Hanwha Investment & Securities stated in a report on Chinese stocks that even if the Po-chi situation occurs, it is not a problem inherent to China itself, and since the market is aware of this, there is no need for major concern.

Jung Jung-young, a researcher at Hanwha Investment & Securities, explained, "This Po-chi is different from 2019 when the US-China tariff war broke out," adding, "There is a high possibility that China's economic recovery will continue due to accommodative policies."

Researcher Jung mentioned, "Market movements betting on Po-chi are not prominent, and as the People's Bank of China chooses direct intervention and the Chinese government's actions to respond to extreme volatility become more concrete, excessive concerns about economic fundamentals are unnecessary."

He said it is a time to increase trust in the government's willingness to stimulate the economy and the rebound trend rather than worrying about downward pressure. He also urged maintaining a portfolio preference centered on structurally growing stocks (electric vehicles, renewables, semiconductors, big tech).

Comparing with past cases, in August 2019 when the People's Bank of China announced the official exchange rate above 7, it was the peak of the US-China tariff war. China aggressively depreciated the yuan to maintain price competitiveness. Researcher Jung analyzed, "This year, the result is caused more by the sharp rise in the US dollar index rather than artificial confrontation between the two countries."

He also said, "Accommodative monetary policy is likely to be interpreted as accelerating economic recovery." Recently, CEOs of major Chinese real estate developers evaluated that "the Chinese real estate market is passing through its worst phase." The yield on China's 10-year government bonds is 2.61%, attempting to confirm a bottom since late August. The spread between long-term and short-term interest rates widened from 34bp to 44bp.

Meanwhile, amid expanding import price burdens in major global countries, China paradoxically remained free by experiencing a recession-type surplus. Conversely, as the domestic economy recovery becomes visible, imports are expected to improve, and it is judged that the Chinese government is likely to adjust the yuan's directional policy accordingly.

Researcher Jung Jung-young explained, "Although the gap between the offshore yuan exchange rate closing price and the official exchange rate temporarily widened in late August, the range is not large compared to April," adding, "This means the market does not view the yuan exchange rate trend as more unstable than in April."

This content was produced with the assistance of AI translation services.