China’s cash outflows could end up supporting the yuan

The Chinese yuan is on track to reach 6.85 against the US dollar by the first three months of 2026, according to investment analysts at Morgan Stanley. The projection comes as the nation changes how it invests globally and as money flows improve.

For years, money coming into China from foreign companies was a major building block of the economy after the country began welcoming outside business. Billions poured in, helping turn China into a manufacturing powerhouse. However, over the last 20 years, Chinese money going out to other countries has grown rapidly, making the nation a significant source of investment worldwide. Now, more money leaves China for foreign ventures than comes in, placing the country among the top three spots for global investment.

Shift in growth strategy behind the forecast

Morgan Stanley’s outlook indicates a more optimistic view of the yuan than what is currently held by traders. Recently, the currency has encountered difficulties stemming from problems in the housing market and a lack of robust domestic expenditure. The bank’s team indicates that the yuan will strengthen as China shifts away from its previous strategy of rapid growth and heavy expenditure. The emphasis is shifting to the growth of better quality and increased investment in foreign enterprises.

This change should create a more even balance in how money moves in and out of the country. Through direct investment in foreign operations, Chinese companies are expanding their global presence to more locations. Although the number of foreign firms investing in China has decreased, the growth of Chinese investments abroad demonstrates the country’s increasing economic strength and the growing international status of its currency.

What could push the yuan higher

The bank believes the currency could strengthen as the gap between US and Chinese interest rates narrows, a shift that would likely work in the yuan’s favor. In order to relieve some of the strain, many experts anticipate that the US central bank will start lowering interest rates. At the same time, Chinese policymakers are taking steps to steady the economy and tackle ongoing issues in the property sector, moves that could help restore investor confidence in the yuan.

China’s currency is expected to become more significant in international finance as a result of its constant changes to its investment strategy. The yuan would mark a substantial recovery from its current multi-year low if it were to reach 6.85 per dollar by early 2026. According to the report, the yuan’s performance hinges on China’s ability to navigate this economic transition effectively while maintaining a steady flow of funds for overseas investments. The currency’s long-term worth and its role as a reserve asset for nations seem to benefit from the new investment pattern.

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