♠ Posted by Emmanuel at 10/15/2013 09:37:00 AM
The currency moves came hot on the heels of official data showing Chinese exports slid in September  by 0.3 percent from a year earlier. The figures confounded expectations for a 6 percent rise and marked the worst performance in three month [...]With exports on the wane and economic growth slowing down, have PRC authorities let up on the pace of yuan appreciation? Actually, no. It appears China is really serious about rebalancing its economy this time by allowing its currency to appreciate to a semblance of a market-determined exchange rate. In so doing, the hope of course is to rebalance their economy towards a domestic consumption-led economy that is less vulnerable to external shocks despite the expected complaints from exporters:
In addition, the unexpected weakness in September's exports raised fresh concerns that economic growth - which has fallen in nine of the last 10 quarters - could stumble once again just as it has shown signs of picking up.
A stronger yuan is a key goal for policymakers trying to wean the economy off a heavy emphasis on exports more towards consumption-led growth. But they face complaints from Chinese exporters that the yuan's enduring strength is putting their products at a disadvantage in overseas markets even as foreign demand remains tepid.
The intraday record high of 6.1073 per dollar leaves the yuan up 2 percent in 2013, in marked contrast to slides posted by other Asian currencies, and more than 35 percent higher since a revaluation in 2005. "Domestic businesses hope there won't be more rises for the yuan, because exports are still really weak. If the yuan keeps rising, the results could be really ugly," said a currency trader at a European bank in Shanghai [...]
Some economists predicted the central bank would be forced to let the yuan slip back, at least symbolically. Instead, it held a firm line. The currency has also risen in trade-weighted terms every month since Sept 2012 until finally declining slightly in August, data from the Bank for International Settlements (BIS) shows. BIS data for September should be released later this week.What's interesting is that, absent Westerners haranguing China to revalue its currency, PRC authorities will actually do so on their own. There's a moral to the story about letting people figure out what they should do by themselves somewhere in here. Also, the article mentions public pressure to stop accumulating dollar-denominated (demoninated?) reserves given America's non-existent federal government as well as potential reductions in energy import costs. The price action is also in keeping with making the yuan attractive as a reserve currency, but in my case they are already preaching to the converted.
As an erstwhile marketing student, I am especially curious about how China's domestic-oriented strategy may involve producing innovative, higher-quality goods instead of competing solely on price:
Despite exporters' complaints Beijing's reformers see a stronger yuan as key to moving China to an economic model focused on producing higher-quality goods for domestic consumption, instead of churning out low-grade exports competing only on price.I am not sure if locals are more demanding quality-wise than foreign consumers, but one thing is certain: China's salad days relying solely on a strategy of pile 'em high and sell 'em cheap are numbered. So it's a "creaking export model," according to some, but it's probably by design. Alike the rest of us, the Chinese appear to have realized that it's time to move on.