China’s Trillion-Dollar Yuan Defense Puts Growth at Risk – By Lingling Wei April 13, 2017 2:12 p.m. ET

Beijing’s aggressive approach threatens to keep other important initiatives on the back burner

For years, China seemed to defy the “trilemma,” an economic theory that a country can’t at the same time have a controlled exchange rate, free flow of capital and an independent monetary policy. Now Beijing is betting big on defending the yuan. Photo: Qilai Shen/Bloomberg News

BEIJING—President Xi Jinping gathered with his economic mandarins in December for their annual strategy meeting at a heavily guarded government hotel. In closed-door sessions, say people familiar with the confab, he made clear what their mandate was for 2017: He would tolerate no wobbliness in the economy.

The communiqué coming out of the session singled out one policy objective in particular—keep the yuan stable.

What followed has been the marked acceleration of a shift in priorities at the People’s Bank of China, the central bank, toward preventing the currency from cratering above all else.

The yuan’s value is a global hot button, and Beijing’s handling of it has played prominently in President Donald Trump’s rhetoric. In a Wall Street Journal interview Wednesday, Mr. Trump said his administration in a report due this week won’t label China a currency manipulator, something he threatened to do during his campaign. On Thursday, China’s central bank guided the yuan to its biggest one-day gain against the dollar in nearly three months, putting it at the strongest level against the dollar since Feb. 17. The yuan has gained 1% this year against the dollar.

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