Trump misses target with China onslaught: Experts
BEIJING: US President-elect Donald Trump accuses China of keeping its yuan currency artificially low and slapping unfair taxes on American exports. However, analysts say Beijing is in fact struggling to prop up the yuan as capital flows out of Chinaís flagging economy in search of better investments in the United States. ‘Did China ask us if it was OK to devalue their currency (making it hard for our companies to compete), heavily tax our products going into their country (the US doesnít tax them)?’ Trump wrote Sunday in a Twitter outburst. ‘I donít think so!’
China keeps close controls on its currency, allowing it to fluctuate within a two percent margin from a point fixed by the central bank each day. And its value has been steadily dropping for over a year. The yuan, also known as the renminbi, is currently at an eight-year low of 6.89 to the dollar. Yet the evidence suggests the currency is over, not under, valued. On August 2015, the Peopleís Bank of China announced a surprise five percent devaluation of the yuan. Since then, the currency has fallen another six percent. The initial devaluation, Beijing said, was intended to make the yuan trade closer to its market value as the country lobbied to have the unit join the International Monetary Fundís elite basket of currenciesónot help exporters, as Trump claims.
But downward pressure proved to be stronger than expected, and since that time the PBoC has been scrambling to prop it up. China is hemorrhaging foreign currency reserves. Data released on Wednesday show they plunged by $69 billion in November alone. China has spent that money on buying back its own currency, analysts say, in an effort to keep the yuanís value artificially higher.
China prefers to see ‘the yuan strengthen, or at least be stable’, to avoid volatility that compromises the currencyís evolving internationalisation, Credit Agricole analyst Dariusz Kowalczyk said.
Meanwhile, the US dollar is soaring on expectations Trump will embark on an infrastructure spending spree that would fan inflation and force the Federal Reserve to hike interest rates. That expectation is fuelling demand for US assetsócausing capital to flee China and other emerging markets.