China devalues yuan by 2%, sends global markets into a tizzy
China's central bank on Tuesday announced a sharply lower daily reference rate for the yuan against the US dollar, saying it was part of steps to make its exchange rate regime more market-oriented.Updated: Aug 12, 2015 01:52 IST
China on Tuesday devalued its currency by nearly 2%, sending stock and currency markets into a tizzy, amid creeping anxiety among policy makers and exporters in India over its likely impact on the global trade flows.
“It should have some impact on our exports. Exports from China would be cheaper,” finance secretary Rajiv Mehrishi said.
Struggling to claw out of its worst slowdown in more than a decade hit by shrinking exports — the edifice of its growth story — China’s central bank on Tuesday devalued the yuan by 1.9% to 6.23 to a dollar, the lowest in nearly three years. This is aimed at making its manufactured products cheaper and help exports race ahead of competitors in a wobbly world market.
This could hurt shipment orders from India, threatening prospects of thousands of Indian craftsmen, businessmen and traders who are already reeling under the slowdown in the world economy, a strengthening dollar and a slump in commodity prices.
“The devaluation will affect India’s exports not only to China but to other countries also with increasing competitiveness of Chinese exports,” said SC Ralhan, president of Fieo, an exporters’ association.
There are fears that a weaker yuan have raised concerns of dumping—when goods are exported at prices far below what it charges in its home market, or its cost of production.
Imports from China have jumped by one-fifth to $60 billion in 2014-15, compared with a year ago, while exports have plunged to $12 billion, resulting in a huge trade gap between the two countries.
There are worries that the yuan devaluation will tilt the balance further in China’s favour.
“This may swell the trade deficit further, which is already touching $50 billion, as imports from China may increase particularly as China has excessive capacity in diverse sectors of manufacturing,” Ralhan said.
Analysts are also worried that China’s move could trigger a string of devaluations by other central banks to help exporters.
“A weaker yuan may encourage other central banks to devalue their currencies to stay competitive,” Devendra Kumar Pant, chief economist, India Ratings.
Experts are keenly watching the impact on Indian companies in China.
Around 36 Indian companies have subsidiaries or representative offices for doing business in China. These include Reliance, Tata, Infosys, Satyam, Lupin, Ranbaxy, Aurobindo, SBI, Essel Packaging, Jindal Strips.