The renminbi’s internationalization is expected to continue to slow down in 2017. This is due to the continued depreciation of China’s renminbi amid slowing GDP growth.

“Renminbi internationalization is actually facing a temporary setback from a slowdown of GDP growth,” says Mo Ji, Amundi’s chief economist Asia ex-Japan, in an interview with The Asset, “but the way to view it, is not to treat it as a crisis, or meticulous control over the pace of depreciation. The right way to view it, is that the depreciation is in line with the economic growth slowdown. In other words, a stabilized economic growth can result in a more stabilized currency,” says Ji.

On January 5, China’s renminbi saw a surprising appreciation from 6.9255 to 6.8869 yuan against the US dollar. Undoubtedly, once again, it was due to direct intervention in the CNY/CNH market by the Chinese central bank, defending its currency.

In addition to the recent intervention, the People’s Bank of China also tightened forex regulations in early January, in a bid to curb capital outflow.

“It (the PBoC) should limit outflows, but only temporarily, as Chinese people will find other ways to move their savings out. Furthermore, this regulation does not affect corporates, but households, so corporate related outflows (such as repayment of debt and outward foreign direct investment) could still be massive,” says Alicia Garcia Herrero, chief economist of Asia Pacific at Natixis.

Despite a general consensus over the renminbi depreciation, the future depreciation will not be very significant. “The depreciating trend of the renminbi is normalizing. Only a large crisis in China can cause another significant drop in. We do not see any hard landing risks in the near term," says Ji.

Economic growth has always been regarded as fundamental to a country’s currency. In the face of a slower growth, the Chinese yuan is not likely to see a long lasting rebound in 2017.

“They (monetary policy and forex policy) will need to continue to be lax as corporates’ health is really weak, and they cannot afford an increase in rates with the corresponding impact on their interest rate burden,” says Herrero.

“When you think about a less sophisticated financial system and the institutional sector in China, you will agree that it is not appropriate to bolster renminbi internationalization too quickly,” says Ji.