Yuan devaluation more likely to boost than hurt China commodity imports

Shares in exporters such as Caterpillar and General Electric fell in the market rout this week, though many economists say the yuan’s drop so far isn’t significant enough to do much damage. It dropped another 1.6 percent on Wednesday.

A decision by Chinese authorities to allow the yuan to drop for a second straight day sent shockwaves through Asian markets yesterday.

This week’s devaluation comes after years in which the yuan appreciated 8 percent against the dollar, 61 percent against the yen and 24 percent against the euro.

John Frisbie, president of the US-China Business Council, which advocates for American businesses, said its membership is typically more concerned about the impact of China’s economic slowdown, rising costs, regulatory restrictions and intellectual property theft than currency.

The yuan traded in China hit a low of 6.4510 per US dollar, its lowest since August 2011, and the currency fared worse in worldwide trade, touching 6.59 to the dollar.

The result became clear when Chinese government reports showed export growth falling in July and industrial production slowing.

Overall, the Chinese economy is struggling to grow at 7 percent, off its expected pace.

Other metals have continued to be sold down and that continued to put pressure on mining stocks listed in London.

The threat that a cheaper yuan poses to exports and economic growth in other countries.

U.S. stocks initially declined, but recovered most of their losses by the end of Wednesday trading.

Still, even GM believes its exposure to the Chinese devaluation is “limited and manageable”. He said the change also improves the chances China’s currency will play a larger role in global commerce. He said such currencies must be driven by market forces.

The devaluation will mean that GM’s China profits will amount to less in dollar terms.

This has been one of the causes of deflation in many economies, “and we would expect this deflationary/profit-sapping cycle to continue now China has entered the game”.

“When China doesn’t play by the rules it costs Pennsylvania jobs”, said Democratic Sen. “That’s a positive for Apple”. The move could now encourage other emerging markets to lower their currencies, perhaps an opening volley to global currency wars.

The worldwide Monetary Fund said China’s move to make the yuan more responsive to market forces appeared to be a welcome step and that Beijing should aim for an effectively floating exchange rate within two to three years.

Time will tell. One sign to watch, said Faucher, is the pace at which China allows its currency to further depreciate.

This week’s action clearly was taken in part as an effort to stimulate a sagging Chinese economy.

The risk-averse mood after China’s moves this week heightened the appeal of safe-haven government debt, which has pushed down U.S. Treasury yields and pressured the U.S. dollar.

It could help partially explain the sharp recovery in the Australian dollar.

The central bank said that starting Tuesday, the daily target will be based on the yuan’s closing the previous day and information from traders about currency supply and demand.

The devaluation sparked fears of a global “currency war” and accusations that Beijing was unfairly supporting its exporters, but the central bank on Wednesday sought to reassure financial markets that it was not embarking on a steady depreciation.

China, he said in a blog Tuesday, “may well be concerned about an economic slowdown accompanied by a slump in exports, but its motivation for this move is nearly certainly tied to another objective”.