The Devaluation Of The Chinese Yuan
This week, the Chinese government began devaluing the yuan, sending the markets into a tizzy. The yuan dipped to its lowest value in four years – devalued by as much as 2 percent – until the Chinese government took steps to prevent freefall.
Contact: Emily Gersema at (213) 740-0252 or gersema@usc.edu.
How will the yuan devaluation affect markets around the world?
Lawrence Harris is an expert in stock markets, investment, regulation and economic forecasting. He can discuss how the Chinese stock market is affecting markets across the globe.
Contact: (213) 740-6496 or lharris@usc.edu.
The intricate relationship of the yuan and the dollar
“With the relative weakening of the Chinese economy, a drop in the value of the yuan is natural. These are market forces at work, something people outside China have been calling for. At the same time, many of those calling for the Chinese authorities to let the value of the yuan float have assumed that its value would rise. They are no doubt disappointed.”
“The drop in the value of the Chinese yuan will be an obvious boon to Chinese exports and it will make American – and other countries’ – exports to China more expensive. Coming as this does on the eve of the American election cycle, there likely will be complaints from some candidates about Chinese machinations.”
“American exports to China rose steadily until late last year. At their current rate, they’ll be 5 to 10 percent lower than in 2014. This has been primarily because of the slowing economy. The diminished value of the yuan will probably exacerbate this trend.”
Clayton Dube is director of the USC US-China Institute, a program of USC Annenberg School for Journalism and Communication, which is dedicated to enhancing the understanding of U.S.-China ties. His research focuses on how economic and political change in China since 1900 affected the lives of people in small towns, on how Americans and Chinese see each other, and how governments work to influence those views.
Contact: (213) 821-3936, or (213) 821-4382, or cdube@usc.edu.
What is the yuan worth? Will this hurt the U.S. economy?
“In the last several years, the Chinese costs have gone up significantly. Chinese manufacturing products no longer command a noticeable cost advantage over American products, if they are selling to the U.S. consumer. The Chinese yuan was long regarded undervalued, but after some years of money injection into the Chinese economy, it is not so clear now that its currency is under- or over-valued.”
“Many – including the Chinese government – believe that the Chinese economy is facing some serious challenges. Consumption demand is still quite weak, investment is suffering diminishing returns, and the overseas market has not recovered for Chinese exports. By devaluing its currency, the Chinese government may hope that this can add a bit of stimulus to its export sector.”
“We have seen quite a lot of Chinese investment in the U.S. economy in recent years for many reasons. One reason is that U.S. assets are relatively cheap. Another reason is that Chinese firms were expecting that RMB (renmimbi) might one day go on the depreciation track.”
“How does the devaluation affect U.S. consumer or U.S. manufacturing? The short run effect is probably not that big. We need to see if this starts a long-term depreciation trend. If indeed it happens, this may bring back some competitiveness to the Chinese manufacturing, and make Chinese goods cheaper.”
Baizhu Chen is a professor of clinical finance and business economics at USC Marshall School of Business, and he is a senior researcher at the Institute of Finance and Banking at the Chinese Academy of Social Sciences, and chief economist of Sino-Century Capital, a venture capital firm in Shangha.
Contact: (213) 740-7558 or baizhu.chen@marshall.usc.edu.
