How China is Sneakily Keeping Its Competitive Advantage in this World Recession
Eight, 10, 12% growth is not enough for China.
The Middle Kingdom is pulling out all the stops to keep the economy energized. It will grow at ONLY 9% this year.
China has a Y57 trillion (that’s a “t”) ($900+B) plan for a spending package and has lowered interest rates four times since September. Still, Beijing is sneakily (?) doing more.
In 2005, China changed from a fixed exchange rate for its currency to allow its currency to move. It since lost nearly 20% in value. It was a bit over Y8=$1, and is now Y6.8817 = $1.
The People’s Bank of China has generally guided the change by limiting the maximum amount of fluctuation that can take place in one day.
With the world economy doing the slow dance, China’s exports have taken a beating. So….for the past four days, China has allowed the yuan to depreciate against the dollar by the maximum allowable limit. What happens then is China’s exports become more competitive, eh? Sneaky, sneaky. And, likely to keep on going till China is able to keep its economy chugging along above 10% while the rest of the world’s economy stops or goes backward.
So, who’s going to tell China to stop?
November 9, 2009
“In 2005, China changed from a fixed exchange rate for its currency to allow its currency to move. It since lost nearly 20% in value. It was a bit over Y8=$1, and is now Y6.8817 = $1.”
Ok.. about exchange rates, by saying “it” lost 20% in value you are talking about China’s currency right? Actually China’s currency has appreciated about 20% in that example. The USD is the one that has lost 20% of it’s value (or purchasing power) relative to the RMB.
As per your data, before it cost Chinese people 8+ RMB for $1 USD, now it costs them LESS money (only 6.8 RMB) for $1 USD. That means the ratio went down, but the RMB appreciated compared to the dollar. It costs them 20% less for American dollars, which means it costs them less for American goods (hence appreciation of their currency). Likewise, it costs Americans 20% more for Chinese goods or Chinese services (aka depreciation of the USD in relation to the RMB.)
Your ending is very valid and has a great point, if you don’t have the numbers backwards again. You didn’t include the numbers though so.. I just hope the RMB actually depreciated or lost value compared to the USD in the opposite way as it did in your above example where you said it lost value but were wrong.
December 5, 2008
yellow type against grey background is totally illegible!
why don’t you change the color to black type?
December 5, 2008
Sneaky? This is standard operating procedure for any country (including Canada when its dollar soared against the USD).
Nothing sneaky here: it’s the name of the game. The US is to blame too, by propping the USD up artificially, they are making it easier to buy imports (consume), but making it that much harder to export (produce).
December 5, 2008
Why should they stop? Seems like they have a sound strategy.
December 5, 2008
Right, but for China 8% economic growth would be as devastating as a recession is to the U.S. and Japan.
You can’t just go from 11% economic growth to 0% and be ok. The entire economic system would be destroyed.
While I don’t agree with their methods of currency control, you can’t condemn the country for trying to avoid a large drop in its growth rate.
December 5, 2008
Who’s to stop China? They will stop themselves when they lower that value down so much. It’s a race to the bottom. And this isn’t the only country trying to devalue their currency to save themselves — the world is doing that now. It’s a race to the bottom, just like the Great Depression.