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Weak yuan 'not a sign of wider slowdown': analysts

Publication Date : 07-05-2014

 

The Chinese yuan has fallen more than 5 per cent against the Singapore dollar since the start of the year, but the currency's weakness is likely to be short-lived.

Despite a recent slew of downbeat economic data coming out of China, the currency's fall is not a sign of a wider slowdown, analysts say.

Instead, it reflects Beijing's determination to have a more market-driven exchange rate - and is unlikely to affect China's trade or long-term growth.

The yuan has also fallen against other currencies. For example, it is down 3 per cent against the US dollar since the start of the year.

One Singdollar bought about 4.7 yuan in January. However, that had climbed to 4.99 yuan yesterday.

The world's second-largest economy is facing persistent concerns about its health, as it undergoes a massive restructuring exercise to transition to more sustainable growth.

China's economy expanded 7.4 per cent between January and March, its slowest pace in 18 months, and well below the double-digit growth rates that it often experienced in the past.

The latest disappointing figures showed China's manufacturing sector contracted for a fourth month running in April, according to a private survey.

The weakening yuan is part of the Chinese central bank's bid to counter the rise in speculative activity among investors expecting the currency to continuously appreciate against the US dollar, said OCBC economist Tommy Xie.

"China wants to push forward current account and currency reform, and wants to increase two-way volatility of the currency... Investors have been used to the one-way appreciation story," he said.

The currency's weakness is likely short-lived and the yuan is expected to strengthen in the second half of the year, said UOB economist Suan Teck Kin.

The depreciation is not a bid to shore up China's exports or boost economic growth, and the yuan is hence unlikely to remain weak in the long term.

"China can no longer compete on the same basis as other developing countries in Asia like Indonesia, Cambodia and Vietnam... Their goal is greater than that," said Suan.

Singapore companies The Straits Times spoke to said the weaker yuan has not had a significant impact.

Allen Ang, the group managing director of Aldon Technologies, said that the company has not been affected by foreign exchange fluctuations as its trades in China are carried out using US dollars.

The company, which refurbishes process kits and parts for flat panel and semiconductor manufacturers, has a sales office in China.

Market researcher Audrey Tsen, 24, a Singaporean working in the Shanghai office of a British firm, said the weaker yuan has not made a significant difference.

"I don't feel there is a big difference because things in China are so affordable compared to Singapore to begin with," she said.

 

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