August 19, 2012

NOTHING COSTS MORE THAN IT USED TO:

China's currency under pressure as growth slows (AFP, 8/19/12)

The yuan has dropped just one percent this year, but the fall has come after years of gains amid foreign pressure by China's trading partners, especially the United States, who claimed it was undervalued.

The China Securities Journal, a state newspaper, carried a front-page commentary this month saying markets have now accepted that the currency is on a weakening track, calling that a potential boon for the economy.

A weaker yuan could spur positive effects such as boosting exports, it added.

Broader trends are also pressuring the yuan as the dollar has started to strengthen this year against other Asian currencies, said Bill Belchere, chief emerging markets economist at Mirae Asset Securities in Hong Kong.

Analysts say that the decline so far in the yuan, also known as the renminbi, would be far larger if authorities were not providing a floor by selling some of China's trove of $3 trillion in foreign reserves.

"If it were freely traded today the RMB would be 10 percent below where it is," said Shanghai-based independent economist Andy Xie. "That's what the real economy is trying to get."

Xie added, however, that authorities cannot let that happen as they are dealing with a serious property slump which, if mishandled, could lead to a loss of confidence.

"If the currency drops significantly, the property market will collapse," he said. "They are trying to achieve some sort of soft landing."

Posted by at August 19, 2012 8:22 AM
  

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