Cheaper yuan has so far failed to boost China’s exports
It’s been a year since Beijing’s surprise one-off depreciation of the yuan and Chinese exports are still falling, raising the question: did the move really help the world’s second largest economy?
China’s total exports by value fell 6.25 per cent to US$180.3 billion in June, down from US$192.01 billion in the same month last year, while exports in the first six months are down 2.1 per cent year on year.
Amid a weak global and mainland Chinese economy, the falling export numbers only go to show that a weaker yuan won’t necessarily help exporters sell more. That’s especially true of the textile sector, which has seen its exports decline 3.7 per cent year on year in the first half.
The People’s Bank of China shocked financial markets on August 11, 2015 when it devalued the yuan by lowering its daily reference rate by 1.87 per cent against the US dollar.
One year later, the central bank’s fixing rate is down by 8.6 per cent, or 5,222 basis points, from 6.1162 to 6.6406. The yuan is not yet fully convertible so the PBOC sets a daily reference point for the yuan, with traders allowed to trade up to 2 per cent either side of the mid-point. Consequently, currency traders closely monitor the reference rate to see what guidance the central bank wants to give the market.
Onshore yuan traded in Shanghai has weakened 7.14 per cent against the US dollar from August 10 last year up until Friday while offshore yuan traded in Hong Kong is down 7.36 per cent against the dollar over the same period.
The devaluation is viewed by analysts as a bid to boost the competitiveness of China’s exports.
“There have been no clear signs that Chinese exports have benefited from a cheaper yuan, as shown by the recent [export] figures,”said Wen Bin, chief researcher at China Minsheng Bank, a privately-owned lender.
As the world’s biggest textiles exporter, China has seen its exports of textile products decline by 3.7 per cent in US dollar terms in the first six months compared to the same period last year, according to Ma Ying, director of the apparel department at the China Chamber of Commerce of Import & Export of Textiles and Apparel.
Not only is the absolute amount declining, but the market share of Chinese textile products in the overseas market is also shrinking.
“Although the official figure of the share of Chinese textile exports in the overseas market in 2015 has not been released yet, I expect it to be slightly lower,” said Ma.
According to data from Ma’s chamber, the share of mainland Chinese textile and apparel products in the US market from January to May this year is 33.8 per cent, down from 34.7 per cent for the whole of 2014.
“I would say the cheaper yuan still has some positive impact on exports. It would have dropped even more without the yuan’s depreciation,” said Ma. However, the impact of depreciation seems not significant enough to reverse the decline of exports.
“More importantly for exporters, overseas demand has been shrinking given the slowdown of major economies,”said Wen of Minsheng. “Meanwhile, China is in a stage where it is challenged by surging labour and other production factors, which a cheaper yuan has been able to offset to some extent,” he said.