Yuan causes worry among Asian neighbors

Chinese exports are gaining further competitiveness through the dollar weakening.  Apart from the already cheap products the Chinese send out to the world, the fact that the yuan is pegged to the greenback and that the latter has already declined significantly against Asian currencies is making the exports of other Asian countries look more expensive.

[F]or Asian countries shepherding fragile export recoveries, it is hard to take the world’s advice and allow their currencies to rise with the Chinese yuan falling along with the dollar.

“China has a fixed exchange rate that helps the Chinese companies a lot, and hurts us,” says Sung Jin Lee, president of the consumer-products arm of Bukang Sems Co., an Incheon, South Korea, manufacturer. Bukang makes everything from auto parts to antimicrobial mattress cleaners. Mr. Lee supports Korean intervention in currency markets, saying his profits will be squeezed if the won rises more than it already has.

Since its March high, the dollar — and by extension the yuan — has fallen 24.3% against the South Korean won, 10.4% against the Singapore dollar, 7.7% against the Thai baht, and 9.3% against the Malaysian ringgit.

Here’s a chart from WSJ:


What this does is delay or slowdown the recovery of the countries whose currencies are hurt. But eventually, when the dollar rises, so would the yuan.  Its exports therefore, would also be more expensive relative to the other countries.  So the other Asian countries can catch up and make up for the loss. Only then, China would already be even bigger.

Source: WSJ


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