Investors are piling up bets to profit from a fall in the Chinese currency with a variety of creative strategies, raising the risk of a fresh bout of yuan volatility that churned global markets just a few months ago.
Rising expectations that the US central bank will raise interest rates in June or July have already put many other currencies under pressure. The yuan fell 1.5 percent in May, its sharpest monthly drop, excluding August when the currency was devalued, leaving it near levels last trade in 2011.
Investors expecting the currency to keep falling are adopting tactics to stay beyond the clutches of China's central bank. The People's Bank of China (PBOC) intervened heavily in onshore and offshore markets last year and early this year to try to force speculators out of the yuan market.
The strategies include fake invoicing of imports and exports to build up dollars offshore, buying the cyber currency Bitcoin and taking up short positions in Hong Kong stocks , which are closely correlated to the dollar/yuan exchange rate.
A yuan slide would offer some respite to China's exporters but would also raise uncomfortable memories for investors and policymakers alike of last year, when a stock market crash and a fall in the yuan prompted a wave of capital outflows from China and unprecedented intervention by authorities.
Since China devalued the yuan in August and permitted a further sharp slide in January, the currency has largely held steady.
It found some support from data suggesting the economy, which grew at a 25-year low in 2015, was picking up at the end of the first quarter. But subsequent data indicated growth was slipping again.
That combined with signs the US Fed is gearing up to raise rates again has put renewed pressure on the yuan and sent investors scurrying for ways to profit from its slide.
The price of the web-based digital currency bitcoin, a popular way to move cash across borders, rose to its highest level in almost two years this week and trading volumes surged. Around 95 percent of bitcoin trading is on Chinese exchanges, industry sources say.
"Continued weakness in the yuan is prompting more adventurous Chinese speculators to see the bitcoin trade as a 'risky' flight to safety," said Charles Hayter, CEO of London-based digital currency analysis website CryptoCompare.
China's State Administration of Foreign Exchange (SAFE) is conducting "a rather intensive campaign" to verify the authenticity of crude oil trade, said Zhang Xinyuan, the Shanghai branch manager of trade finance at the Bank of China.
SAFE "has found many trades to be fake," Zhang said. SAFE declined immediate comment.
Fake invoicing has been a popular way for Chinese to skirt capital controls and shift money offshore.
Trading volumes in non-deliverable yuan forwards (NDFs), which offshore investors use to speculate on the yuan, have rebounded in recent weeks to their highest levels since December, Thomson Reuters data shows, although spreads against the spot rate are stable.
"The recent increase of volumes in NDFs reflect the changes in anticipation related to a potential Fed rate hike," says Karine Hirn, a Hong Kong based partner at the asset manager East Capital.
The NDF market sprang back into life this year after the offshore yuan market dried up following China's intervention.
Portfolio manager Shen Weizheng at Ivy Capital is shorting Hong Kong equities, which he says are highly correlated with the yuan's trend.
"A U.S rate rise would certainly put renewed pressure on the yuan, and have a huge impact on capital markets as well," he said.
An estimated $674 billion flowed out of China last year, the Institute of International Finance, a global financial industry association, said in April. Although outflows have slowed down this year, they could accelerate again if fears emerge of a "disorderly" drop in the yuan, it said.
Some analysts have said the easing of capital outflows this year was less a reflection of the central bank's victory over speculators - the dominant view - and more that market pressure had eased after the Federal Reserve decided not to raise rates late last year.