An­a­lysts say weaker yuan is a dou­ble-edged sword

China Daily (Hong Kong) - - BUSINESS - By LI XIANG and ZHONG NAN

A weaker Chi­nese cur­rency could help ease pres­sure on the coun­try’s ex­porters, but will mean higher in­vest­ment costs for com­pa­nies that in­tend to ex­pand over­seas, an­a­lysts said on Thurs­day.

Cit­ing false bid­ding prices from the Bloomberg for­eign ex­change sys­tem, me­dia re­ported on Wed­nes­day that the value of the on­shore ren­minbi against the US dol­lar dropped be­low 7 yuan, spark­ing a fresh round of con­cerns over a po­ten­tial ac­cel­er­a­tion in the cur­rency’s de­pre­ci­a­tion.

The Peo­ple’s Bank of China, the cen­tral bank, im­me­di­ately re­sponded to the re­ports in a late night state­ment, con­demn­ing them for “be­ing ir­re­spon­si­ble” and con­firm­ing that the ex­change rate of the ren­minbi has re­mained sta­ble at be­tween 6.9500 to 6.9666.

The over­all ex­pec­ta­tion by an­a­lysts is that a weaker yuan could help boost ex­port-ori­ented sec­tors such as com­modi­ties, tex­tiles, ship­ping and chem­i­cals.

Yu Jian­long, sec­re­tary-gen­eral of the China Cham­ber of In­ter­na­tional Com­merce, said the de­pre­ci­a­tion of the ren­minbi will en­able com­pa­nies to have their ex­port vol­umes on a firmer foot­ing.

But some ar­gued that the ef­fect on boost­ing ex­ports could be lim­ited as the real ex­change rate of the ren­minbi against a bas­ket of cur­ren­cies has not de­pre­ci­ated as much as the value against the dol­lar

Xiao Lisheng, a se­nior fi­nance re­searcher at the Chi­nese Acad­emy of So­cial Sciences, said that a weaker cur­rency would mean greater risk-hedg­ing costs for com­pa­nies which plan to bor­row dol­lar-de­nom­i­nated debt and seek to make out­bound in­vest­ments.

“The PBOC’s prompt re­sponse high­lighted the frag­ile mar­ket sen­ti­ment to­ward the value of the ren­minbi,” Xiao said.

“The pres­sure will likely be greater next year for China’s pol­i­cy­mak­ers as they are fac­ing a tough op­tion of ei­ther main­tain­ing cur­rency sta­bil­ity with tighter mone­tary pol­icy or main­tain­ing growth with a more ac­com­moda­tive pol­icy,” he added.

The value of the Chi­nese cur­rency has de­pre­ci­ated against the dol­lar by more than 7 per­cent this year, hit­ting a record low in eight years. Some economists be­lieve that it is only a mat­ter of time for the cur­rency to fall be­low 7 yuan per dol­lar given the tight­en­ing cy­cle of the US Fed­eral Reserve and the de­creas­ing in­vest­ment re­turns at home.

“The de­pre­ci­a­tion of the ren­minbi means greater costs for cur­rency con­ver­sion,” said Xie Delong, vice-gen­eral man­ager of Sichuan Dawn Ma­chin­ery Co.

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