BEIJING: A number of analysts billed China’s move to weaken the renminbi last week as an attempt to boost exports by making its products more competitive. Data a few days earlier had shown Chinese exports sinking more than 8 per cent in July, while the real effective exchange rate of the renminbi had just hit a record high.
However, China’s export problem is not simply one of increased international competition — it is also a case of lacklustre global demand. Despite improving economic activity in the US and Europe, exports from across Asia have yet to see a long-awaited lift, leaving policymakers with scant tools to respond.
China and its neighbours share many of the same challenges. Japan’s poor second-quarter gross domestic product figures were partly due to weak trade, while South Korean exports have been shrinking for the past five months. Shipments from Thailand, Taiwan, the Philippines and Malaysia have all been disappointing this year.
“The argument that China is trying to spur growth by weakening its currency to spur exports does not strike us as very convincing,” said Paul Gruenwald, Standard & Poor’s chief economist for Asia-Pacific, in a report. “Exports are more a function of foreign demand.”
China itself is partly to blame. Imports into the country have been falling for much of this year, a sign of declining domestic demand as the economy slows. Car sales growth in China has dropped sharply this year, weighing on earnings of global automakers.
The slowdown in China’s economy has also helped push down global commodity prices, especially those used in heavy industry such as iron ore, copper and oil. That, in turn, has undermined growth in the resource-rich emerging markets that export to China, including Brazil and Russia, both of which are now in recession.
The knock-on effects of the commodity slide have been felt in Asia’s high-end manufacturing economies, notably South Korea and Japan, where cuts to investment by miners and energy producers have hit the large engineering companies that supply drilling platforms and gas storage units used in resource extraction.
