The mismatch between their foreign currency liabilities and yuan-denominated revenues means interest expenses and principal payments of these loans and bonds will increase in yuan terms when the Chinese currency depreciates.
Advertisement
Finally, even more new data debunks another major argument against strong currency manipulation actions – the contention that China is shifting dramatically from an export-led growth model to a demand-led blueprint.
Ortiz-Luis welcomed the moves of the BSP of not automatically defending the peso.
Last month, the government said it would raise import tariffs to encourage domestic purchases across more than 1,000 different items such as clothes, food and cars. Many banks have revised down their forecasts for yuan performance following the unexpected move.
Analysts cite the fact that the yuan (the Chinese currency) has been devaluated. The Chinese economy is still very strong and is only going through a process of readjustment. Less exports or a negative trade balance has a multiplying negative impact on the economy.
Figures reported by Journal correspondent Greg Ip show that, when the export sector is properly defined, its contribution to China’s growth is down since 2010, but ” still remarkable amid slower growth in its trading partners and a higher yuan”. WEEK IN REVIEW: * The worldwide Monetary Fund (IMF) said on Wednesday it will freeze its benchmark currency basket until October 2016, giving markets more time to adjust to the possible addition of China’s yuan as part of a review of global reserve currencies.
The currency devaluation has also rippled across the local housing market, which has kept surging after the financial crisis amid the low interest rate and limited supply.
Barclays this morning moved their yuan forecast to 6.80 per dollar by this year-end and to 6.90 by June, 2016. China during the last week only devalued its currency.
Being anxious about the flight of capital that followed the stock market crash and the devaluation of the Chinese national currency, the People’s Bank of China made a major short-term financial injection estimate at 19 billion dollars. The devaluation, however, ended by Thursday. But recent events remind us of the underlying tension between free markets and unfree politics – and offer a warning that China’s straddling of these opposing views can’t continue forever.
In mainland China, like in most of the autocratic nations of the developing world, the public consensus of the past decades was that a brutal political regime delivers a moderate economic prosperity, higher-paid jobs, better individual incomes and abundance of consumer goods.
Advertisement
In a situation where the US dollar, the Japanese yen, the Russian rouble, the Korean won, the Indian rupee, the Brazilian real, the pound sterling, and eventually the euro, took it in turns to devalue, the Chinese yuan remained stable. In response to this, Chinese authorities have allowed the yuan to appreciate gradually.
