Foreign investors including hedge funds, banks and wealthy families have piled into a $130bn carry trade that takes the other side of China’s attempt to support its currency.

It works like this. First, foreign investors lend US dollars to Chinese counterparties via currency swaps, receiving the equivalent in renminbi. They can usually earn a positive carry from the difference between the current exchange rate and the one year forward exchange rate, when the swap is unwound.

Then they use the RMB to buy interbank negotiable certificates of deposit - a type of short-dated government note. The combined yield from loaning the dollars and investing in bonds in a one year tenor can be up to 6 per cent, easily beating the sub-4 per cent yield available on a US treasury bond.