China’s record dividend payout puts yuan under pressure amid US-China tensions

China’s ambitious campaign to revive its flagging stock market has made the yuan an unintended casualty, with record dividend payouts leading to outflows.

Interim dividends paid by Hong Kong-listed Chinese firms are set to reach US$12.9 billion between January and March, a record level for the first quarter, according to Bloomberg-compiled data. That comes as fourth quarter levels have already topped US$16.2 billion, the most ever for the period and up 47 per cent compared with a year ago.

The dividend bonanza is adding pressure on the Chinese yuan already weighed by a resurgent dollar and the prospect of growing US-China tensions. The firms mostly pay dividends in Hong Kong dollars but earn most their revenue in yuan, which requires conversion.

The looming outflows will test Beijing’s ability to achieve short-term market stability without compromising longer term goals in the world’s No 2 economy. That is especially important as policymakers also ramp up efforts to defend the currency currently hovering near one-year lows.

The higher client demand for foreign currency can mostly be pinned on dividend flows as many Hong Kong-listed firms introduce interim dividends, said Xing Zhaopeng, a senior strategist at Australia & New Zealand Banking Group. “The increase in both the frequency and the net amount of dividends will continue to weigh as firms convert to other currencies for payment.”