Skeptics don't believe China's claim that its weakening currency won't hurt trade

Reuters/Tyrone Siu

Fluctuations in the yuan within 10 per cent in either direction would not significantly impact China’s trade, and consumption in the world’s second-largest economy would continue to grow quickly this year, Commerce Minister Gao Hucheng said yesterday.

In the latest dismissal of claims that China is trying to help its ailing exports by weakening its currency, Gao insisted that such depreciation or appreciation would have little effect.

His remarks came just days before a meeting of G20 central bankers and finance ministers in Shanghai.

They also came amid global market jitters, as British sterling fell sharply against the US dollar following the London mayor Boris Johnson’s declaration of support for Britain’s exit from the European Union.

“Theoretically, given the deep economic integration among countries, the impacts on trade by an appreciation or depreciation of a currency, if less than 10 per cent, would be a trifle,” Gao said.

“Therefore, I don’t think the recent volatility of the yuan in the wake of changes to set its central parity will greatly affect trade.”

China’s exports fell for the seventh month in a row in January, while the yuan weakened nearly 5 per cent against the dollar in the onshore market last year. However, consumption became the biggest driver for growth last year.

Gao said spending on health care, tourism and entertainment increased last year and China’s middle- to high-level income group, with an estimated population of at least 90 million, was growing. He expected consumption would continue to grow at a quick pace in 2016.

“Gao’s comment [on exchanges] indicated China does not intend to weaken the currency to boost exports, while the change in the yuan’s rate was the result of investors’ adjustment in response to China’s economic situation,” said Lu Zhengwei, chief economist with Industrial Bank.

Reuters/Tyrone SiuHowever, an economist in Guangdong province dismissed Gao’s words as political rhetoric, saying a 5 per cent appreciation of the yuan against the greenback would be strong enough to wipe out exporters’ profits.

US President Barack Obama said on Monday China realised it could not rely on exports to drive growth and that China should refrain from short-term measures such as dumping cheaper goods on the US market, Reuters reported.

He also called for Congress to approve the Trans-Pacific Partnership trade pact to boost US exports and restrict the influence of China – which he described as “the 800-pound gorilla” in the region.

But Gao said yesterday it would take time to assess the impact of the TPP, and that “we don’t think the TPP targets China."

Gao said the TPP and the China-backed Regional Comprehensive Economic Partnership were not opposed to each other and China would continue to promote negotiations of RCEP, a free-trade pact covering the Association of Southeast Asian Nations, Australia, India, South Korea, New Zealand, Japan and China.

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