Devalues yuan as factories leave China
Devalues yuan as factories leave China
In an attempt to boost its slowing economy, China on Tuesday devalued its currency by two per cent, the biggest one-day fall since a massive devaluation in 1994 — a decision that could lead to currency wars in the world.
A cheaper yuan will make Chinese exports cheaper by boosting overseas sales, one of the key drivers of growth during the communist giant’s re-markable growth story over the past three decades. However, the growth appears to be tapering recently. The devaluation of yuan follows China’s exports tumbling 8.3 per cent in July.
Though the Chinese government claim it to be a one-off incident, analysts fear the current devaluation could be the beginning of a longer-term slide in the exchange rate.
A cheaper yuan could also temporarily arrest the flight of multinational companies from China in the wake of rising labour costs in the communist nation. Recently, some mobile handset makers have started considering the option of shifting a part of manufacturing to India to offset.
According to reports Foxconn’s decision to invest $5 billion in India has caused unease in China as it marks the first top international firm opting for India amid a slowdown in the Chinese economy.
“Foxconn chooses India over China for new plant,” read the headline in state-run china.org.cn, while carrying the news of the Taiwanese electronic giant signing up to set up a big plant in Maharashtra with an investment of $5 billion.
Foxconn converted China the leading base for manufacturing of all top brands of phones and computers including Apple, Samsung, Dell etc. Meanwhile, Indian exporters have raised concern about the impact of cheaper yuan on the country’s exports.
Few months back, RBI governor Raghu-ram Rajan had warned countries about the impending danger of competitive currency devaluations.
According to FIEO president S.C. Ralhan, the devaluation will affect India’s exports not only to China but also to other countries, as the country to compete with higher competitive Chinese products. “This may swell the trade deficit further, which is already touching $50 billion as China could dump its products in India,” said Mr Ralhan..
