Yuan Strength Softens Chinese Demand for For eign Currency

Demand for foreign exchange in China fell to its lowest level in more than two years in August， government data show， as capital outflows eased due to tightened scrutiny and expectations for continued strengthening of the yuan diminished the appeal of other currencies.Banks in China sold $3.8 billion more foreign exchange than they bought last month， according to data released by the State Administration of Foreign Exchange （SAFE）. Although that was the 26th straight month of net sales， the figure was down from $15.5 billion in July and $9.5 billion a year earlier. Smaller net sales of foreign exchange by banks indicate a recovery in demand for yuan among Chinese individuals and companies. After depreciating 6.5% against the U.S. dollar last year， the yuan has unexpectedly strengthened this year， with a strong rally of around 2% in August that took its appreciation in the first eight months of the year to around 5.7%. The yuan has benefited from the weakness of the dollar amid concerns over the economic policies of President Donald Trump， and from moves by the Chinese government to support the currency through measures such as tightened scrutiny of capital outflows and a crackdown on capital flight disguised as outbound investment. However， policymakers have moved to contain the yuans recent strength due to concerns over the negative impact it might have on the countrys exports and in a bid to discourage investors from making one-way bets that the Chinese currency will keep appreciating.

China En Route to Driverless-Car Road Testing

The government is considering giving the green light to driverless car companies to conduct tests on public roadways， a move that is expected to help ambitious Chinese firms pull ahead in autonomous driving. The Ministry of Industry and Information Technology （MIIT）， the Ministry of Public Security and the Ministry of Transport are working on the draft regulations， and a source close to the MIIT said that an outline of road testing rules for unmanned vehicles has been completed. The regulators are considering issuing licenses to qualified car manufacturers， auto parts makers， internet companies， universities and other applicants， the source said. In order to qualify for road testing， a vehicle must have already been test-driven for at least 5，000 kilometers（3，100 miles） in a closed environment and， it must pass an assessment by a third-party technology institution authorized by the government， among other conditions. Driverless cars are banned from public roadways under Chinas existing laws. A July video of Robin Li， chief executive officer of Chinese internet giant Baidu， testing an autonomous vehicle on Beijings Fifth Ring Road —with his hands off the wheel — set off a debate about whether the excursion was legal. Road testing is crucial to the development of self-driving technology because computers must become familiar with a variety of road conditions， to improve their “sensing” and “decisionmaking” programs – two of the three key aspects of the autonomous driving technology that also include “execution.”endprint

Google has estimated that a computer needs to “drive” for 1 billion miles to become sufficiently familiar with most road conditions. The U.S. search engines autonomous cars had run for three million miles by May， the highest self-driving mileage in the world. Chinese companies are keen to ride the international autonomous driving wave for new growth. Baidu announced last month a plan to roll out a partially selfdriving car by the second half of 2019， in partnership with a state-owned car maker. Tencent， the Shenzhen-headquartered owner of popular messaging app WeChat， has agreed to collaborate with Shanghai International Automobile City on autonomous driving， highdefinition mapping and setting industry standards for smart cars.

Chinese Battery-Maker Might Win Huge Volkswagen Contract

Chinese battery-maker Contemporary Amperex Technology Co. Ltd.（CATL） is among the front-runners in a race for billions of dollars worth of contracts expected to be awarded by Volkswagen as the German automaker boosts electric vehicle output. CATL is one of three to five battery-makers now competing for contracts tied to Volkswagens evolving MEB program for all-electric vehicle production， CATLs European region chief Matthias Zentgraf said at the Frankfurt Auto Show in Germany. The automaker is expected to announce battery supplier decisions early next year， he added. The MEB project could generate $60 billion worth of battery contracts， according to Volkswagen. CATL is one of several Chinese companies now gaining ground in the market for vehicle batteries in China， where Volkswagen and its units such as Audi sell millions of vehicles every year. Chinese battery makers have been winning market share from South Korean and Japanese players in recent years. And they got a boost in July 2016 when the Chinese government started excluding foreign players from a list of licensed battery suppliers from which automakers must choose to qualify for new energy subsidy programs. The subsidies are part of a government drive to control carbon emissions and clean up the nations polluted air. Unlike some competitors， Volkswagen has been relatively slow to ramp up batterypowered car production. MEB is designed to change that as part of a company strategy to rebuild consumer trust damaged by a diesel emissions scandal. Volkswagen said it plans to invest up to$24 billion to produce more than 3 million electric vehicles per year by 2026. Meeting the companys annual electric vehicle production target will require purchasing about 150 gigawatt-hours worth of lithium batteries， Volkswagen said. CATL is already cooperating with German automakers BMW and Daimler， the maker of Mercedes-Benz. Mercedes-Benz recently announced CATL had been chosen as one of its electric vehicle battery suppliers.endprint

Government Curbs Sink Overseas Investment in Property， Sports， Entertainment

Chinese companies have made no investments overseas in the property， sports or entertainment sectors this year， amid government curbs on “irra-tional” spending， official data show. No new deals were completed in the first eight months of this year， Gao Feng， a spokesman for the Ministry of Commerce， said at a regular briefing. “Irrational outward investment was contained further，” Gao said. The crackdown， which started late last year， hit overall outbound direct investment （ODI） in nonfinancial sectors， contributing to a 41.8% year-on-year slump over the period to $68.7 billion， the ministrys figures showed， narrowing from a 44.3% drop in the first seven months. The ministry does not provide figures for monthly changes in ODI. Chinas nonfinancial outbound investment has plummeted this year after a clampdown by the government on an overseas shopping spree that led to a 44.1% jump in ODI， which hit a record $170.1 billion in 2016， outpacing inbound foreign investment for the first time on record. The deals， which included retail giant Suning Commerce Groups 270-million euro （$322 million） acquisition of football club Inter Milan， contributed to record net capital outflows last year of $725 billion， according to estimates from the Institute of International Finance， a global financial industry association. The outflows， which helped push the yuan 6.5% weaker against the dollar in 2016， unnerved regulators and prompted the government late last year to step up scrutiny of Chinese companies overseas mergers and acquisitions. Policymakers were also concerned about debt risks linked to such deals because they were often funded by credit from both within and outside the formal banking system. In December， four government agencies， including the State Administration of Foreign Exchange， indicated they would strengthen measures to prevent risks from overseas investments. They warned of “irrational outbound investment trends” in some sectors， including property， hotels， cinemas， entertainment and sports clubs， which are not seen as furthering Chinas goals of upgrading its industrial sector and improving technological innovation. The State Council， Chinas cabinet， released rules last month that put the official government seal on those measures. Most companies have followed the governments directive. Wanda Group， owned by one of Chinas richest men， Wang Jianlin， last month announced it had scrapped plans to buy Nine Elms Square， a high-end apartment project in southwest London. That followed the companys decision in March to abandon its $1 billion offer to purchase U.S. TV production company Dick Clark Productions.endprint