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The renminbi’s fall against the dollar during the past few days is the result of a weakening trade surplus and shows that the currency is market-based rather than being manipulated by the government, Chinese officials said yesterday.
Calling the fall a “good thing”, Chong Quan, China’s deputy international trade representative, said at a Ministry of Commerce press briefing in Beijing that the decline proved its critics wrong. Xinhua News agreed, saying in a news analysis that the falling renminbi is a normal market response to the change in China’s balance of trade.
The trade surplus of the world’s biggest exporter dropped 36% in October year-on-year. The broader current account surplus accounted for 2.8% of GDP in the middle of this year, compared with 10% before the 2008 global financial crisis, it said.
China’s premier Wen Jiabao has said previously that China will allow the renminbi to be more flexible “in both directions”.
Some investors are reducing their exposure to China based on fears of trouble in the property market and expectations that the country’s economy will slow down in the coming year. To add to the worries, analysts have raised concerns about the country’s financial system. Credit rating agency Fitch Ratings released several reports this week addressing issues such as the danger of a liquidity crisis in China’s banking industry and the solvency pressure on the country’s life insurers.
The renminbi was quoted at Rmb6.364 to the dollar yesterday, compared to Rmb6.359 last Friday. The currency has advanced against the US dollar by 3.7% this year and 30% since July 2005, since China started to reform its currency mechanism.
China’s trade surplus will narrow dramatically from 10.1% of GDP in 2007 to 2.9% this year, according to Nomura, and its contribution to GDP will almost disappear by 2013.
However, neither the stronger currency nor the shrinking surplus has stopped the US from complaining that the Chinese government artificially kept the renminbi weak to gain trade competitiveness.
Officials at the Ministry of Commerce said yesterday that China’s exports will face “severe challenges” due to economic difficulties in key Western markets. Sales to Europe and the US, which consist of 40% of total exports, are unlikely to recover any time soon. Export data for November due to be released on Saturday may show a steep slowdown, the ministry said.
China will instead focus on developing markets and target exports to Asia and Latin America. It will also boost imports from the West to balance out the nation’s trade surplus.
China’s Information Office of the State Council issued a white paper on foreign trade yesterday, analysing the country’s surplus.
“It is the country’s different level and status of participation in the international division of labour in manufacturing and the services industry that leads to China’s big surplus in goods trade but a long-term deficit in services trade,” the paper stated.
With the transfer of large numbers of labour-intensive processing and assembling sectors to China from Japan, Singapore and other nations and regions, their surpluses with the US and Europe were also transferred to China, it said.
This explains why China runs trade surpluses with the US and Europe, but has long-term deficits with Japan, Korea, Asean and other intermediate producers.
