[China’s abrupt devaluation is the clearest sign yet of mounting concern in Beijing that the country could fall short of its goal of roughly 7 percent economic growth this year. Growth is faltering despite heavy pressure on state-owned banks to lend money readily to companies willing to invest in new factories and equipment, and despite a stepped-up tempo of government spending on high-speed rail lines and other infrastructure projects.]
By Neil Gough and Keith Bradsher
Counting renminbi in
the value of its currency nearly 2 percent weaker against the dollar.
The central bank set the official value of the renminbi nearly 2 percent weaker against the dollar. The devaluation is the largest since
’s modern exchange-rate system was introduced
at the start of 1994. China
China’s abrupt devaluation is the clearest sign yet of mounting concern in Beijing that the country could fall short of its goal of roughly 7 percent economic growth this year. Growth is faltering despite heavy pressure on state-owned banks to lend money readily to companies willing to invest in new factories and equipment, and despite a stepped-up tempo of government spending on high-speed rail lines and other infrastructure projects.
A steep drop in the
and Shenzhen stock markets in late June and
early July, only halted by aggressive government actions, appears to have
dented consumer demand within Shanghai . The China Association of Automobile
Manufacturers announced on Tuesday that nationwide car sales fell 7 percent
last month compared with a year ago. Excluding months distorted by the timing
of Chinese New Year, it was the steepest drop in sales since December 2008, at
the depths of the global financial crisis. China
In a seeming nod to such concerns, the central bank said that it would begin to use the market closing, not the previous morning’s official setting, to calculate the renminbi’s official daily fixing against the dollar. But
’s economic weakness now means that further
opening up of the currency to market forces could mean a weaker renminbi, not a
stronger one. That, in turn, would make Chinese goods even more competitive in
The Chinese currency has been a global point of contention for nearly a decade.
officially ended the renminbi’s fixed peg to
the dollar in 2005. Since then, it has risen in two long, slow climbs. The
first was from July 2005 to August 2008, when it was interrupted by the global
financial crisis. The renminbi then resumed its rise from June 2010 to early
last year, when it dipped slightly, then stabilized. China
The overall increase since 2005 has been more than 25 percent against the dollar. It has strengthened even more against other major currencies, like the euro and the yen.
But the Chinese currency is not freely tradable, and its movements are tightly controlled by the government.
Each morning in
’s central bank sets a midpoint for the
renminbi’s value against the dollar and other major currencies. This can be as
much as 2 percent higher or lower than the previous day’s value, although the
change is almost always a tiny fraction of 1 percent. Shanghai, China
But on Tuesday, the central bank fixed the value of the renminbi at 6.2298 per dollar, down 1.9 percent from Monday’s official fixing. In a statement on its website, the central bank said it was seeking “to perfect” the renminbi’s exchange rate against the dollar.
The bank, the People’s Bank of China, said it was reacting to trends in the market, where traders in recent months had been betting on a weaker renminbi. In trading in mainland
on Tuesday, the renminbi weakened further to
close at 6.3231 per dollar, a drop of 1.8 percent from the close on Monday. By
the end of the Asian business day, it had fallen even further in offshore
trading to around 6.36 renminbi per dollar, a drop of about 2.7 percent, signaling
overseas investors expected further weakening. China
The move also jolted the currencies of countries that depend heavily on
as a market for exports. The Australian
dollar fell 1.1 percent against the China dollar on Tuesday, and the South Korean won
declined 1.4 percent. United States
’s policy makers have long suggested that
foreign exchange reforms would happen, the abrupt nature of today’s
announcement has injected considerable volatility into the renminbi and other
Asian currencies,” analysts at HSBC wrote Tuesday in a research note. China
The central bank also said it would seek to prevent what it described as “abnormal” capital flows. Weaker economic growth has prompted sizable outflows from
in recent months, which have most likely
been exacerbated by the country’s stock market volatility. A falling renminbi
generally increases the risk of more outflows. China
grew at a 7 percent rate in the first half
of the year, that was made possible mainly because of a boost from the
financial services industry, which benefited from the country’s stock market
boom. With the downturn in the nation’s markets over the past two months, growth
is slowing more evidently. China
This is despite an all-out effort by the government to prop up share prices. The measures included extraordinary support from state-run banks, which in July made new loans worth 1.5 trillion renminbi, or about $240 billion at the time, according to data released Tuesday. The last time Chinese banks approached that amount of lending was 2009, when
was deploying 4 trillion renminbi in stimulus to stem the
damage from the global financial crisis. Beijing
A depreciating renminbi also has implications for
’s pledges to open its economy and financial
markets wider, including efforts in recent years to lift the currency’s global
The central bank has been lobbying the International Monetary Fund to include the renminbi among freely traded benchmarks like the dollar, euro and yen, so that other countries can include it as an official reserve currency.
While acknowledging these efforts, the fund issued a report last week saying that “significant work remains outstanding” before it could decide whether to include the renminbi as a global benchmark, adding that no changes were likely to be made before September of next year.
The fund also singled out
’s official daily fixing of the renminbi’s
exchange rate, saying this “is not based on actual market trades.” China
Tuesday’s devaluation “is likely intended to improve the ‘market-driven’ quality” of the exchange rate to appeal to the I.M.F., Wang Tao, the chief China economist at
UBS, wrote Tuesday in a research note.
“However, we think it unlikely that the Chinese government will let only market momentum drive the renminbi exchange rate from now on,” Ms. Wang added, “as that can be quite destabilizing.”