China devaluation: A storm in a teacup

By Mike Sell, head of Asian investments at Alquity

This week’s yuan fall has generated headlines, but pails into comparison with other emerging market currencies.

The Brazilian Real is down 31% against the dollar since the start of the year, Indonesia’s Rupiah is down 11%, and the Malaysian Ringgit down 15%. The Euro itself is down 9% since January.

We do not see this as either the start of a “currency war” or a concerted policy to boost exports. The Chinese government is perfectly aware it will not be able to devalue its way to competitiveness with the likes of Vietnam and Cambodia, where labour costs are half those in China.

Instead, China’s actions are motivated as much by politics as economics. The government resisted devaluating the Yuan during the Asian Financial Crisis in 1998, in large part due to their desire to be seen as Asia’s regional leader. Similar concerns are at play today.

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