Snippet from a very bearish FT article.
The sudden fall in China’s currency last week spurred a lively debate about whether the move was a victory for market reform or a competitive devaluation designed to shore up flagging exports.
But even those who believe the 3 per cent drop was aimed at exporters acknowledge that a weaker renminbi by itself is radically insufficient to cope with the challenges facing China’s economy.
“Currency depreciation to stimulate export growth is neither useful nor necessary,” said Qu Hongbin, HSBC chief China economist. He notes that while China’s exports have fallen this year, “exporters across Asia faced the same challenge, suggesting that the underlying problem is sluggish demand in developed markets.”
China’s economy officially grew at an annual rate of 7 per cent during the first half of this year, neatly in line with the government’s full-year target. However, some doubt that figure and all agree that further stimulus will be needed to prevent a slowdown.
Yet an export revival would boost growth only marginally. Contrary to received wisdom, China has not pursued so-called “export-led growth” for the past decade. Net exports subtracted 3 per cent from annual growth in Chinese gross domestic product on average from 2004 to 2014. Meanwhile, investment contributed an average of 52 per cent of growth each year.
