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LEADERS TALK: How Will The Devaluation Of The Chinese Currency Impact Fiji?

China depreciated its renminbi suddenly the past week taking the world by surprise. The currency dropped by a cumulative 4.4 per cent against the US dollar. One may ask how
22 Aug 2015 10:35
LEADERS TALK: How Will The Devaluation Of The Chinese Currency Impact Fiji?
Aiyaz Sayed-Khaiyum, Justin Smirk and Kurt Tong.

China depreciated its renminbi suddenly the past week taking the world by surprise.

The currency dropped by a cumulative 4.4 per cent against the US dollar.

One may ask how does this make a difference to us in the Pacific or in Fiji? Remember, quite a large number of the products in the world are Chinese manufactured.

To illustrate our own trade with China, our bilateral trade with China increase by 133 per cent from $424.1million in 2012 to $989.6million in 2014.

The depreciated Chinese currency will make Chinese exports cheaper and imports into China more expensive by that amount.

This basically means what we import from China will become cheaper but what we export to China will become more expensive.

Therefore, when looking at it from a broad perspective, this can both work in our favour as well as work against.

China has been accepted as the world’s second largest economy.

As mentioned by our columnists, Dr TK Jayaraman, the past week, during the global economic downturn, China was the engine of growth.

It provided markets for raw materials, thereby softening the impact of the Great Recession.

This week we interviewed some interesting people to get their perspective on the Chinese currency devaluation.

 

Aiyaz Sayed-Khaiyum, Attorney-General, Minister for Finance and acting Prime Minister

Any country that has changes in their foreign currency rate has an impact in particular if you are borrowing from that country. So for example the goods become cheaper and will have a positive impact in terms of pricing of the goods. But we hope that businesses will pass on that price differential. One of the major issues we have is that a lot of business houses tend to hog those kinds of price advantages.

As we saw previously whenever we have reduced tariffs, they have not passed it onto the consumers – they have kept it for themselves. Again this goes back to the culture of greed and dishonesty that needs to be addressed because it is a very short term gain.

If they are able to look at the long term and pass that on, then the person instead of buying one unit will buy four or five. We need to be able to look at long-term prospective.

Tourism impact – we are yet to see. As far as the Chinese economy is concerned, they might be making some corrections to anomalies that existed. But we will wait and see.

 

Justin Smirk, Senior Economist with Westpac’s Economic Research team

China is moving from a rapidly growing economy to lots and lots of middle economy. Apart from the devaluation, I think that the Chinese will be here for quite a long time and will be engaged in the region wanting to invest.

They have a large sum of capital accumulating over the years of rapid growth and income and they need to invest in other source of income. So I think you’ll find that the Chinese demand for Fijian products and their interest in Fiji will remain quite solid.

 

Kurt Tong, Principal Deputy Assistant Secretary of State for the Bureau of Economic & Business Affairs

I think there is always some impact of exchange rates on trade patterns and some of those impacts can be predictable. Certainly the relative prices may adjust. This was not a huge one but worth for traders to keep an eye on. In a broader sense, it probably does not have much impact on trade or investment patterns which are quite well-established.

With respect to China’s decision to change how it manages the exchange rate, we are still looking at it closely to assess how much of it is liberalisation which is a welcome development and how much was based upon the opportunity through the Chinese economy. But certainly over the long run, we hope that China will continue move in the direction of flexible, market-determined exchange rate.

Feedback: rachnal@fijisun.com.fj

 

 

 

 

 

 

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