On September 16, the onshore Yuan/USD exchange rate fell below the seven mark against the U.S. dollar to 7.0057, hitting a new low in more than two years. 

Theoretically, a devaluation of the yuan would benefit China’s exporters, but that’s not the case.

Bai Wenxi is vice chairman of the China Enterprise Capital Alliance and chief economist of IPG China. He said it would significantly impact overseas consumption, study abroad, and tourism with ordinary people. In addition, it would lead to inflationary pressures on domestic prices.

In terms of foreign trade, it would help promote exports and suppress imports.

In theory, the devaluation of the yuan will help export companies increase their sales revenue and improve their competitiveness and profitability.

However, Bai Ming, deputy director of the Market Research Institute of the Chinese Ministry of Commerce Research Institute, believed that export companies rely on the yuan’s devaluation to increase their income. But if they used too many imported raw materials and components, it was likely that the depreciation of the yuan would also increase their expenditures.

According to Bai Ming, there was still difficulty with transferring the additional wealth brought on by the yuan’s devaluation. For example, would upstream raw materials and components producers force export industries to raise their prices? Will international clients take the chance to ask for discounts? How much pricing authority do exporters have?

In Shantou, Guangdong, Mr. Zhang, who exports stainless steel kitchen utensils, stated on August 30 that despite the RMB’s depreciation, he was not particularly excited about it because there were fewer orders. Orders in his industry have dropped 40% over the past month compared to last year, and exports and domestic demand are substantially worse.

According to Tan Yaling, president and chief economist of the China Foreign Exchange Investment Research Institute, the yuan’s depreciation is insufficient to help foreign trade export businesses overcome their challenges.

Orders fell dramatically in 2018, which was particularly challenging for small and medium-sized businesses due to rising labor expenses, transportation costs, and raw material prices for bulk commodities.

Sun Xiao is the China Council for the Promotion of International Trade (CCPIT) spokesperson and Secretary-General of the China Chamber of International Commerce. He stated at a press conference on August 29 that a recent questionnaire survey conducted on more than 500 businesses revealed the main challenges. 

There are few orders, hefty costs, and delayed logistics, and 56% of businesses reported high expenses for logistics and raw materials. In addition, 62.5% of the organizations said orders were unstable, with more short and minor orders and fewer long and large orders.

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