YUAN-TWO HIT HAS US ON ROPES Australia hurt by China currency fall
CHINESE investors in everything from Australian property to wine and beef have been hit by the sudden devaluation of the yuan, raising fears our biggest trading partner is heading into more economic turbulence.
China cut the yuan’s value against the US dollar for a second day yesterday, adding to concern the world’s secondbiggest economy is on shaky ground amid slowing economic growth and a slump in its stock market.
The devaluation sparked the biggest two-day sell-off in regional currencies since 1998.
The Australian dollar slipped to a six-year low yesterday of US72.16 on the China jitters while the ASX 200 slumped 1.7 per cent.
Commsec economist Savanth Sebastian said the devaluation would have a negative impact on Australia, which has been riding a Chinese investment boom.
“It will mean the Chinese have less to spend,” Mr Sebastian said.
China’s Government said the devaluation was part of reforms meant to make its exchange rate more marketoriented. But some analysts said it could spark a currency war as other countries devalue to make their exports more competitive against China.
“It will start a vicious cycle by different countries trying to depreciate their currencies,” said Wee-Ming Ting, the head of Asian fixed income at Pictet Asset Management in Singapore.
QUT economist Dr Mark McGovern said it was unclear whether the devaluation signalled serious trouble for the Chinese economy or was a strategy to revalue the yuan.
He said if there were further sustained devaluations it would start to have wider im-
plications for economies such as Australia, which have relied on Chinese investment.
China is now Australia’s largest two-way trading partner in goods and services, valued at almost $A160 billion in 2013-14.
“The Chinese will have less to spend on things such as property in Australia,” Dr McGovern said. “It is not a game changer but if it is part of a sustained devaluation it will start to make an impact.”
He said at the moment the effect of the devaluation would be muted because the Australian dollar had fallen faster than the yuan over the past year.
Sirromet Winery owner Terry Morris said he was not overly concerned about the devaluation even though the Mt Cotton-based business ex- ports about 20 per cent of its product to China.
“It is just a matter of waiting at this stage as the situation is volatile,” Mr Morris said.
He said the winery mainly sold to high-end customers.