China's currency fell on Monday to an 11-year low amid concern over an escalating trade war and the potential for a  global recession.

The onshore yuan that circulates on the mainland slid to around 7.1425 to the US dollar in early Asian trading — its lowest level since 2008.  In the offshore market, the yuan dropped to 7.1850 against the greenback, the weakest level since the external currency began trading in 2010.

Read more: Currency wars: Lose-lose the only certain outcome

China said Friday it would impose retaliatory tariffs on an additional $75 billion in US goods. In response, President Donald Trump ratcheted up additional levies on Chinese imports and called on US companies to leave.

The People's Bank of China has allowed the yuan to depreciate to offset US tariffs and keep its export engine running amid a domestic and global economic slowdown. A lower yuan makes Chinese exports relatively cheaper.

"The gloves are coming off on both sides and as such yuan depreciation is an obvious cushion against US tariffs," Mitul Kotecha, a senior emerging markets economist at Toronto-Dominion Bank told Bloomberg news.

"As long as China can ensure that yuan weakness is well controlled, i.e. it does not provoke strong outflows, expect to see further depreciation in the currency."

China allowed the yuan to break the 7.0 threshold against the dollar earlier in August in response to US plans to impose new tariffs on Chinese goods.

Washington responded by labeling Beijing a "currency manipulator."

The trade showdown comes as nearly three months of protests in Hong Kong has sapped business confidence and raised concerns over any possible Chinese military intervention.

The Hang Sang Index in Hong Kong was down 2.95% in afternoon trading. The index is down nearly 12% from mid-July levels. 

Read more: Hong Kong crisis — What you need to know

cw/rc (AFP, Reuters)

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