China's economic growth appears to have lost some steam in the second quarter, but the outlook for the yuan remains surprisingly steady, according to a new survey from Nikkei. The poll of economists puts April-June gross domestic product growth at 4.6% year over year, a step down from the 5% pace recorded in the first three months of the year.
The softer growth figure reflects a cautious consumer, hesitant businesses, and a more challenging export environment as global demand wobbles. Yet the same forecasters see the Chinese yuan trading at about 6.73 per US dollar by the end of 2025, stronger than the 6.82 predicted in Nikkei's March survey. By end-2027, they expect the yuan to reach 6.68.
Why Growth and Currency Are Diverging
Normally, a slowing economy tends to put downward pressure on a country's currency. Weaker growth can reduce foreign investment inflows and make exports cheaper, both of which typically lead to depreciation. But China's currency story is different because the yuan is not freely floating—it is tightly managed by the People's Bank of China.
The survey results suggest that economists believe Beijing will continue to guide the yuan within a controlled range, preventing any sharp sell-off even as the economy cools. The message is that China's slowdown is expected to be a gradual grind rather than a sudden break, reducing the risk of a currency crisis.
This stability is also supported by China's large trade surplus and its efforts to attract foreign capital through bond markets. Recent data showed that yuan strength and bond yields have lured foreign investors back to China markets, providing a buffer against depreciation pressures.
What It Means for Investors
For everyday investors, the key takeaway is that a stable yuan reduces one major source of uncertainty in global markets. When the yuan is expected to hold steady, the cost of hedging against a sudden drop—using financial instruments like currency forwards or options—can decline. That is good news for multinational companies with significant China exposure, as well as for lenders with large yuan-denominated assets or liabilities.
Exchange rate moves directly affect the reported US-dollar earnings of companies that do business in China. A stable yuan means fewer unpleasant surprises when those earnings are converted back into dollars. It also reduces the volatility in credit metrics for banks and corporations that borrow or lend across borders.
For investors holding Chinese stocks or bonds, a steady currency removes one layer of risk. However, the slower growth backdrop still warrants caution. Consumer spending remains subdued, and the property sector continues to weigh on sentiment. Some China-linked companies are facing specific challenges, such as Northern Minerals shares still held by China-linked investors after a divestment deadline, highlighting ongoing regulatory and geopolitical risks.
Broader Economic Context
China's growth slowdown is part of a broader global trend. Many major economies are seeing softer activity as high interest rates and inflation weigh on demand. In the US, services growth slowed in June, while in Japan, real wage growth slowed to 1.4% as inflation ate into gains. Central banks around the world are watching these data points closely for clues about the path of monetary policy.
The Bank of Canada recently noted that business inflation fears have eased, and the Federal Reserve's Christopher Waller has argued that forward guidance works best when the outlook is clear. For China, the outlook is for slower but still positive growth, with a currency that is unlikely to become a source of turmoil.
The Bottom Line
The Nikkei survey paints a picture of a Chinese economy that is cooling but not collapsing, with a currency that is expected to remain stable thanks to active management by policymakers. For investors, that means lower hedging costs and fewer exchange-rate shocks, even as the growth story loses some of its luster.
While the 4.6% growth rate is still respectable by global standards, it marks a clear deceleration from the first quarter. The key question going forward is whether Beijing will introduce additional stimulus to support the economy, or whether it will accept a slower pace of expansion as it focuses on longer-term structural reforms. Either way, the yuan's stability provides a measure of reassurance for those with exposure to China's markets.
