Yuan weakness key to China export growth
Beijing needs to regain its competitive edge in global markets through currency depreciation as domestic demand softens in a slowing economy
China needs a still weaker yuan to help counter disinflationary pressures and the loss of competitive advantage in global markets that can only increase as other countries depreciate their currencies in pursuit of their own economic objectives.
A rash of recent data releases point to a slowdown in the Chinese economy and a degree of softness in domestic demand. One solution would be to expand exports. A weaker yuan would help.
Industrial output expanded 6.8 per cent in the first two months of the year, compared with a year earlier, the National Bureau of Statistics said. That is the weakest growth since the global financial crisis. While retail sales gained 10.7 per cent, that was the slowest rate of increase in a decade.
Given that the drift of people into cities looking for employment continues apace, if domestic demand is not as buoyant as might be hoped, it would be logical to pin some hopes for job creation on increasing exports.
But China's export competitiveness rests to some degree on the yuan's value compared to its competitors' currencies.
There is always a trade-off in any country, as China is, that imports a lot of food and energy. A weaker local currency helps exporters but it also encourages imported inflation. A stronger currency does the opposite.