8 ms·

China Moves to Devalue Yuan

82 points by ethanhunt_ 11y ago

milkywayz 11y ago
Paywall
iscrewyou 11y ago
Non Paywalled: https://www.google.com/#q=http:%2F%2Fwww.wsj.com%2Farticles%2Fchina-moves-to-devalue-the-yuan-1439258401 https://www.google.com/#q=http:%2F%2Fwww.wsj.com%2Farticles%...
jakozaur 11y ago
China is devaluing yuan for quite a while, but usually more smoothly. Will this that do the trick or there is problem in fundamentals? Like debt is growing too fast comparing to rest of the economy. Moreover, will China start making transition from cheap labour, efficiency based economy to innovation based one. Does government is aware of that challenge or they try to execute strategy for old model, that used to work, but may not help to make that transition?
- sdrothrock 11y ago
  > China is devaluing yen Typo? If China's devaluing yen, could you link me to a source?
  - maaku 11y ago
    I assume he meant yuan.
- somerandomone 11y ago
  As long as the government doesn't allow unobstructed access to foreign websites that aren't even remotely related to politics I don't see that transition any time soon. </rant>
  - Xophmeister 11y ago
    I'm the last person to be an apologist for the Great Firewall, but how does it preclude the OP's point? The Chinese-language web and Chinese Internet users represent a pretty sizeable chuck, to the point that it's self-sustainable and innovation definitely occurs within this space. The Great Firewall just results in a walled garden; access to Facebook isn't going to magically spur innovation! (Don't get me wrong: The Great Firewall is not a good thing, but I don't see it being wholly relevant here.)
    - somerandomone 11y ago
      First of all, that comment is mixed with a bit of rant. But seriously, the issue is so much more than mere access to Facebook. The connection to GitHub, Google Code, or anything via ssh or HTTPS in general is slow, flaky and frustrating. This poses a cost on acquiring latest news and technology, collaborating and deploying. AS for the walled garden, there's a Chinese saying of 闭门造车, which says if you build a cart with a closed door without any exchange of ideas, you can't make much progress. (Though that's not what the phrase originally meant, but the meaning when the phrase evolved)
- deleted 11y ago
  [deleted]
- rm_-rf_slash 11y ago
  >Moreover, will China start making transition from cheap labour, efficiency based economy to innovation based one. This is my biggest skepticism towards China. They are simply not an aspirational brand. Who says "I buy Vietnamese so someday I can buy Chinese"? No, they say "I buy Chinese so someday I can buy European." It doesn't matter how much of my dad's semiconductor research they steal (>10,000 hacking attempts from China EVERY DAY at an IVY LEAGUE INSTITUTION), China will never be sexy. That's why Titans like Renren and Weibo are huge in China while almost nobody outside the Middle Kingdom could give a damn. Name one luxury product that says "Made in China" without being accompanied by "Designed in California." If the Chinese government let go of their iron grip of culture, maybe something remotely approaching cool will come out of China, but that's a can of worms they would rather keep shut. It should be no surprise that even Hong Kongers are openly racist towards mainlanders: China has no brand.
  - droopyEyelids 11y ago
    Precisely the same thing was said about Japan. I know Japanese products don't have special cache now, but there was a time when the phrase "Jap crap" was in common circulation, and then a time afterwards where Sony took over the world. It seems entirely plausible to me that China is working through the same historical process. Consider the possibilities of Foxcon- they already manufacture the most desirable consumer devices in the world.
    - rm_-rf_slash 11y ago
      I'm not entirely convinced. Japan didn't only invade America with electronics, it came with a widely appealing culture as well. Sushi, anime, jpop, all of these things made Japan more interesting than the gadgets it made. Foxconn does indeed produce excellent electronics, but they're largely designed elsewhere. Most Chinese-designed consumer products lack appeal outside of China. The reason I harp on about culture is because it drives fashion. The Chinese government is so adamant about dictating culture that it stamps out the possibility for subcultures to grow and, most crucially, become popular outside the country. Just look at China's film industry. Actually, don't. I've seen what passes for Chinese film media and it could have been written by a machine, or one of those folks from 1984 who release the same book every few years with different character names. Dissent gives rise to new culture: American blacks playing blues becomes classic rock, which becomes punk rock, and so on. A government focused on dictating culture in an age of information is like going to high school and still being dressed by your mom. Meanwhile, peripheral - and far poorer - countries are having cultural booms as their popularity spreads around the globe. Singapore, Vietnam, Thailand, heck, not to mention India, all have widely appealing cultural products. If China can't become cool, then they'll remain a factory, subject to the whims of global finance and technology.
- MichaelCrawford 11y ago
  I understand that Chinese parents are sending their parents to school in the US specifically so Chinese kids can learn to innovate. At some point this will pay off, but I expect that we have not yet educated enough Chinese students to make a real difference to their economy.
seanmcdirmid 11y ago
It was expected, let's hope they don't slip much further.
jvm 11y ago
The PRC has had a historical policy of linking the RMB to the dollar. That made sense when they were primarily reliant on exports to the US, but now that their exports are diversified and they have massive domestic demand, a float and inflation peg like we have in the US is a much more sensible policy. The US dollar has an absurdly high valuation, so the sensible thing for the RMB (and most other currencies) is to devalue with respect to USD. Tyler Cowen has a broader and more pessimistic view, my point is captured in his point 6: http://marginalrevolution.com/marginalrevolution/2015/08/six-thoughts-about-the-yuan-devaluation.html http://marginalrevolution.com/marginalrevolution/2015/08/six...
- pjc50 11y ago
  I prefer ftalphaville's take: http://ftalphaville.ft.com/2015/08/11/2137067/this-one-time-at-band-camp-the-pboc-did-this-thing/ http://ftalphaville.ft.com/2015/08/11/2137067/this-one-time-... There is a massive but officially not permitted capital outflow from China that's pushing up real estate markets around the Western world. To some extent we're paying for our imported manufactured goods from China by exporting house ownership and rent payments.
  - Zach_the_Lizard 11y ago
    I think the Chinese billionaire effect might be real, but really the chief reason housing prices are so high is because we make it difficult to build housing. This is especially true in the most economically productive metro areas, such as New York and the Bay Area. Even smaller cities such as DC are facing housing affordability crises. DC gained ~90K residents from 2005 to the present, but only gained ~12.5k new housing units in that time. If DC continues to grow, in the next 30 years DC will actually reach full buildout as allowed under current zoning and height restrictions. No additional units will be allowed.
    - go1979 11y ago
      Consider Toronto as a counter example. That city tore down parks to build condos. That didn't rein in prices. Now, the affluent foreigners have 3-4 condos to go along with that Maserati.
eitally 11y ago
I wonder if they'll actually let it float this time. I thought when they previously devalued it to 6.20 a few years ago they claimed they'd float it but instead kept it statically pegged. Given macro-conditions, floating would probably make a lot more sense (if you agree with Tyler Cowen's perspective).
- achamayou 11y ago
  But politically, that would be relinquishing a degree of control, something they've been loath to do in general, especially in areas that are of strategic importance.
adventured 11y ago
Some likely effects from this: 1) US consumers just got a small standard of living boost. The same things they were buying before, will now cost less. It'll have little to no effect on US domestic manufacturing. 2) This will put some downward pressure on US consumer prices. Giving the Fed even less inflation concern (at least from the CPI angle). 3) The Fed is very, very unlikely to raise interest rates in September. It's practically guaranteed not to happen. Investors are likely to bet on this today, and stocks will probably climb significantly over the next few months in response to the Fed not hiking. The bet will shift from expecting a hike, to not expecting one for the remainder of 2015. 4) This will add fuel to the currency wars. The Eurozone, Japan and others will probably respond. It'll also put pressure on emerging market competitors, from Brazil to Vietnam. 5) It's going to squeeze some Chinese companies carrying debt in other currencies (Bloomberg reports that Chinese companies have $529 billion in dollar and euro based bonds and loans outstanding). 6) The dramatic capital flight out of China over the course of 2015 ($300+ billion so far), will increase.
- mistermann 11y ago
  I've had this theory for a very long time that the massive number of extremely low paid workers in China is what enables the US's ZIRP and printing of money. You used to always read about the "bond vigilantes" who would drive interest rates up when too much currency was printed, but I can't even recall the last time I heard the phrase "bond vigilante" used in an article. It's a common truism that governments can't (in the long term) set the price of money (eventually it will collapse as the market asserts reality upon the situation), but as I understand it, for quite some time now, the US Treasury is the bond market - as the largest buyer, they set the real interest rates, and the workers in China churning out cheap goods for $2/hr control the consumer price index inflation that would otherwise show up. I've never thought this through at all though (and am probably not smart enough to), but have always wondered if there's some meat to this theory.
- chatmasta 11y ago
  I keep hearing about the Fed raising interest rates, or not raising interest rates, but I'm unclear what the pros vs. cons are for the Fed to raise them at a given time. Would someone mind explaining that? Why does China devaluing the Yen have any impact on US raising interest rates or not?
vegabook 11y ago
CNYEUR (euro per cny) exchange rate past 60 months: ++-------+------+-------+------+-------+------+--+ 0.15 + ** + | * | | *** | | ** | 0.14 + + | | | | | * | 0.13 + ** + | * * | | *** * * | | * ** * * * | | * ** *** * * | 0.12 + * ** * * ** + | * * *** | | * | | ** * | 0.11 + * * * + | * * *** | | * | ++-------+------+-------+------+-------+------+--+ 0 10 20 30 40 50 60 Against the euro, the CNY has appreciated by about 20% in the past 12 months, so any deval is as much about dollar strength (against which the CNY is semi-pegged). Europe has been devaluing through it's own QE and it buys about 20% of Chinese exports roughly. The same picture is more or less true of all the emerging markets that China exports to. Thus it's pretty much a rebalancing than anything else, and let's not forget it's only 2% (so far). Perhaps the most interesting chart is China's fiercest competitor, Japan. The yen is down more than 50% against the yuan in the past 2 years: CNYJPY past 60 months: +-+------+-------+-------+------+-------+-------+--+ 20 + * * + | * * | | * ** | | * | | * | 18 + * + | * | | * | | * ** * | 16 + ***** *** + | * | | * | | * | | * | 14 + * + | | | * * | | * * * * | | ** ****** *** **** | 12 + * ** * + +-+------+-------+-------+------+-------+-------+--+ 0 10 20 30 40 50 60
astrocyte 11y ago
I've asked this question many times to people deeply educated and versed in economics and never got a a good answer... In a world of currency pairing (ratios) A:B:C:D:E Assuming parity among A:B:C:D, if each country prints 1 Trillion in their respective currency, what is the net effect aside from inflation 'potential'? 100:100, 1000:1000 .. It's still 1:1. Assuming there are deflationary forces countering the inflationary force of printing, nothing changes beyond maintenance of status quo. The more and more I look at this picture, the more it appears to be global maintenance of status quo to, in the face of destabilizing systemic forces, keep things stable via countering forces (printing) The only thing I can see suffering here are the variables outside of the clown show : > Natural resources > Environment ^ (Economic system becomes disentangled with underlying condition of resources/environment) I guess this is where the eventual selling of 'global control' of these variable comes.... A system headed to centralized control.
- floatrock 11y ago
  > Assuming there are deflationary forces countering the inflationary force of printing, nothing changes beyond maintenance of status quo. In the net, yes, but another way of looking at this is as a wealth transfer inside each country. In the net, the pies remain the same size, but each individual slice is worth less and less. The result is that as each government is playing the devaluation game to keep up, the organizations with early access to the newly printed trillions in respective currencies increase their relative percentage of the pie. It's the status quo at the inter-country level, but it's a huge wealth transfer to the politically and financially connected at the local level.

82 points by ethanhunt_ 11y ago

Paywall

Non Paywalled: https://www.google.com/#q=http:%2F%2Fwww.wsj.com%2Farticles%2Fchina-moves-to-devalue-the-yuan-1439258401 https://www.google.com/#q=http:%2F%2Fwww.wsj.com%2Farticles%...

jakozaur 11y ago

China is devaluing yuan for quite a while, but usually more smoothly. Will this that do the trick or there is problem in fundamentals? Like debt is growing too fast comparing to rest of the economy. Moreover, will China start making transition from cheap labour, efficiency based economy to innovation based one. Does government is aware of that challenge or they try to execute strategy for old model, that used to work, but may not help to make that transition?

sdrothrock 11y ago
> China is devaluing yen Typo? If China's devaluing yen, could you link me to a source?
- maaku 11y ago
  I assume he meant yuan.
somerandomone 11y ago
As long as the government doesn't allow unobstructed access to foreign websites that aren't even remotely related to politics I don't see that transition any time soon. </rant>
- Xophmeister 11y ago
  I'm the last person to be an apologist for the Great Firewall, but how does it preclude the OP's point? The Chinese-language web and Chinese Internet users represent a pretty sizeable chuck, to the point that it's self-sustainable and innovation definitely occurs within this space. The Great Firewall just results in a walled garden; access to Facebook isn't going to magically spur innovation! (Don't get me wrong: The Great Firewall is not a good thing, but I don't see it being wholly relevant here.)
  - somerandomone 11y ago
    First of all, that comment is mixed with a bit of rant. But seriously, the issue is so much more than mere access to Facebook. The connection to GitHub, Google Code, or anything via ssh or HTTPS in general is slow, flaky and frustrating. This poses a cost on acquiring latest news and technology, collaborating and deploying. AS for the walled garden, there's a Chinese saying of 闭门造车, which says if you build a cart with a closed door without any exchange of ideas, you can't make much progress. (Though that's not what the phrase originally meant, but the meaning when the phrase evolved)
deleted 11y ago
[deleted]
rm_-rf_slash 11y ago
>Moreover, will China start making transition from cheap labour, efficiency based economy to innovation based one. This is my biggest skepticism towards China. They are simply not an aspirational brand. Who says "I buy Vietnamese so someday I can buy Chinese"? No, they say "I buy Chinese so someday I can buy European." It doesn't matter how much of my dad's semiconductor research they steal (>10,000 hacking attempts from China EVERY DAY at an IVY LEAGUE INSTITUTION), China will never be sexy. That's why Titans like Renren and Weibo are huge in China while almost nobody outside the Middle Kingdom could give a damn. Name one luxury product that says "Made in China" without being accompanied by "Designed in California." If the Chinese government let go of their iron grip of culture, maybe something remotely approaching cool will come out of China, but that's a can of worms they would rather keep shut. It should be no surprise that even Hong Kongers are openly racist towards mainlanders: China has no brand.
- droopyEyelids 11y ago
  Precisely the same thing was said about Japan. I know Japanese products don't have special cache now, but there was a time when the phrase "Jap crap" was in common circulation, and then a time afterwards where Sony took over the world. It seems entirely plausible to me that China is working through the same historical process. Consider the possibilities of Foxcon- they already manufacture the most desirable consumer devices in the world.
  - rm_-rf_slash 11y ago
    I'm not entirely convinced. Japan didn't only invade America with electronics, it came with a widely appealing culture as well. Sushi, anime, jpop, all of these things made Japan more interesting than the gadgets it made. Foxconn does indeed produce excellent electronics, but they're largely designed elsewhere. Most Chinese-designed consumer products lack appeal outside of China. The reason I harp on about culture is because it drives fashion. The Chinese government is so adamant about dictating culture that it stamps out the possibility for subcultures to grow and, most crucially, become popular outside the country. Just look at China's film industry. Actually, don't. I've seen what passes for Chinese film media and it could have been written by a machine, or one of those folks from 1984 who release the same book every few years with different character names. Dissent gives rise to new culture: American blacks playing blues becomes classic rock, which becomes punk rock, and so on. A government focused on dictating culture in an age of information is like going to high school and still being dressed by your mom. Meanwhile, peripheral - and far poorer - countries are having cultural booms as their popularity spreads around the globe. Singapore, Vietnam, Thailand, heck, not to mention India, all have widely appealing cultural products. If China can't become cool, then they'll remain a factory, subject to the whims of global finance and technology.
MichaelCrawford 11y ago
I understand that Chinese parents are sending their parents to school in the US specifically so Chinese kids can learn to innovate. At some point this will pay off, but I expect that we have not yet educated enough Chinese students to make a real difference to their economy.

seanmcdirmid 11y ago

It was expected, let's hope they don't slip much further.

jvm 11y ago

The PRC has had a historical policy of linking the RMB to the dollar. That made sense when they were primarily reliant on exports to the US, but now that their exports are diversified and they have massive domestic demand, a float and inflation peg like we have in the US is a much more sensible policy. The US dollar has an absurdly high valuation, so the sensible thing for the RMB (and most other currencies) is to devalue with respect to USD. Tyler Cowen has a broader and more pessimistic view, my point is captured in his point 6: http://marginalrevolution.com/marginalrevolution/2015/08/six-thoughts-about-the-yuan-devaluation.html http://marginalrevolution.com/marginalrevolution/2015/08/six...

pjc50 11y ago
I prefer ftalphaville's take: http://ftalphaville.ft.com/2015/08/11/2137067/this-one-time-at-band-camp-the-pboc-did-this-thing/ http://ftalphaville.ft.com/2015/08/11/2137067/this-one-time-... There is a massive but officially not permitted capital outflow from China that's pushing up real estate markets around the Western world. To some extent we're paying for our imported manufactured goods from China by exporting house ownership and rent payments.
- Zach_the_Lizard 11y ago
  I think the Chinese billionaire effect might be real, but really the chief reason housing prices are so high is because we make it difficult to build housing. This is especially true in the most economically productive metro areas, such as New York and the Bay Area. Even smaller cities such as DC are facing housing affordability crises. DC gained ~90K residents from 2005 to the present, but only gained ~12.5k new housing units in that time. If DC continues to grow, in the next 30 years DC will actually reach full buildout as allowed under current zoning and height restrictions. No additional units will be allowed.
  - go1979 11y ago
    Consider Toronto as a counter example. That city tore down parks to build condos. That didn't rein in prices. Now, the affluent foreigners have 3-4 condos to go along with that Maserati.

eitally 11y ago

I wonder if they'll actually let it float this time. I thought when they previously devalued it to 6.20 a few years ago they claimed they'd float it but instead kept it statically pegged. Given macro-conditions, floating would probably make a lot more sense (if you agree with Tyler Cowen's perspective).

achamayou 11y ago
But politically, that would be relinquishing a degree of control, something they've been loath to do in general, especially in areas that are of strategic importance.

adventured 11y ago

Some likely effects from this: 1) US consumers just got a small standard of living boost. The same things they were buying before, will now cost less. It'll have little to no effect on US domestic manufacturing. 2) This will put some downward pressure on US consumer prices. Giving the Fed even less inflation concern (at least from the CPI angle). 3) The Fed is very, very unlikely to raise interest rates in September. It's practically guaranteed not to happen. Investors are likely to bet on this today, and stocks will probably climb significantly over the next few months in response to the Fed not hiking. The bet will shift from expecting a hike, to not expecting one for the remainder of 2015. 4) This will add fuel to the currency wars. The Eurozone, Japan and others will probably respond. It'll also put pressure on emerging market competitors, from Brazil to Vietnam. 5) It's going to squeeze some Chinese companies carrying debt in other currencies (Bloomberg reports that Chinese companies have $529 billion in dollar and euro based bonds and loans outstanding). 6) The dramatic capital flight out of China over the course of 2015 ($300+ billion so far), will increase.

mistermann 11y ago
I've had this theory for a very long time that the massive number of extremely low paid workers in China is what enables the US's ZIRP and printing of money. You used to always read about the "bond vigilantes" who would drive interest rates up when too much currency was printed, but I can't even recall the last time I heard the phrase "bond vigilante" used in an article. It's a common truism that governments can't (in the long term) set the price of money (eventually it will collapse as the market asserts reality upon the situation), but as I understand it, for quite some time now, the US Treasury is the bond market - as the largest buyer, they set the real interest rates, and the workers in China churning out cheap goods for $2/hr control the consumer price index inflation that would otherwise show up. I've never thought this through at all though (and am probably not smart enough to), but have always wondered if there's some meat to this theory.
chatmasta 11y ago
I keep hearing about the Fed raising interest rates, or not raising interest rates, but I'm unclear what the pros vs. cons are for the Fed to raise them at a given time. Would someone mind explaining that? Why does China devaluing the Yen have any impact on US raising interest rates or not?

vegabook 11y ago

CNYEUR (euro per cny) exchange rate past 60 months: ++-------+------+-------+------+-------+------+--+ 0.15 + ** + | * | | *** | | ** | 0.14 + + | | | | | * | 0.13 + ** + | * * | | *** * * | | * ** * * * | | * ** *** * * | 0.12 + * ** * * ** + | * * *** | | * | | ** * | 0.11 + * * * + | * * *** | | * | ++-------+------+-------+------+-------+------+--+ 0 10 20 30 40 50 60 Against the euro, the CNY has appreciated by about 20% in the past 12 months, so any deval is as much about dollar strength (against which the CNY is semi-pegged). Europe has been devaluing through it's own QE and it buys about 20% of Chinese exports roughly. The same picture is more or less true of all the emerging markets that China exports to. Thus it's pretty much a rebalancing than anything else, and let's not forget it's only 2% (so far). Perhaps the most interesting chart is China's fiercest competitor, Japan. The yen is down more than 50% against the yuan in the past 2 years: CNYJPY past 60 months: +-+------+-------+-------+------+-------+-------+--+ 20 + * * + | * * | | * ** | | * | | * | 18 + * + | * | | * | | * ** * | 16 + ***** *** + | * | | * | | * | | * | 14 + * + | | | * * | | * * * * | | ** ****** *** **** | 12 + * ** * + +-+------+-------+-------+------+-------+-------+--+ 0 10 20 30 40 50 60

astrocyte 11y ago

I've asked this question many times to people deeply educated and versed in economics and never got a a good answer... In a world of currency pairing (ratios) A:B:C:D:E Assuming parity among A:B:C:D, if each country prints 1 Trillion in their respective currency, what is the net effect aside from inflation 'potential'? 100:100, 1000:1000 .. It's still 1:1. Assuming there are deflationary forces countering the inflationary force of printing, nothing changes beyond maintenance of status quo. The more and more I look at this picture, the more it appears to be global maintenance of status quo to, in the face of destabilizing systemic forces, keep things stable via countering forces (printing) The only thing I can see suffering here are the variables outside of the clown show : > Natural resources > Environment ^ (Economic system becomes disentangled with underlying condition of resources/environment) I guess this is where the eventual selling of 'global control' of these variable comes.... A system headed to centralized control.

floatrock 11y ago
> Assuming there are deflationary forces countering the inflationary force of printing, nothing changes beyond maintenance of status quo. In the net, yes, but another way of looking at this is as a wealth transfer inside each country. In the net, the pies remain the same size, but each individual slice is worth less and less. The result is that as each government is playing the devaluation game to keep up, the organizations with early access to the newly printed trillions in respective currencies increase their relative percentage of the pie. It's the status quo at the inter-country level, but it's a huge wealth transfer to the politically and financially connected at the local level.