Cheaper yuan has so far failed to boost China’s exports

It’s been a year since Beijing’s surprise one-off depreciation of the yuan and Chinese exports are still falling, raising the question: did the move really help the world’s second largest economy?

China’s total exports by value fell 6.25 per cent to US$180.3 billion in June, down from US$192.01 billion in the same month last year, while exports in the first six months are down 2.1 per cent year on year.

Amid a weak global and mainland Chinese economy, the falling export numbers only go to show that a weaker yuan won’t necessarily help exporters sell more. That’s especially true of the textile sector, which has seen its exports decline 3.7 per cent year on year in the first half.

The People’s Bank of China shocked financial markets on August 11, 2015 when it devalued the yuan by lowering its daily reference rate by 1.87 per cent against the US dollar.

One year later, the central bank’s fixing rate is down by 8.6 per cent, or 5,222 basis points, from 6.1162 to 6.6406. The yuan is not yet fully convertible so the PBOC sets a daily reference point for the yuan, with traders allowed to trade up to 2 per cent either side of the mid-point. Consequently, currency traders closely monitor the reference rate to see what guidance the central bank wants to give the market.

Onshore yuan traded in Shanghai has weakened 7.14 per cent against the US dollar from August 10 last year up until Friday while offshore yuan traded in Hong Kong is down 7.36 per cent against the dollar over the same period.

The devaluation is viewed by analysts as a bid to boost the competitiveness of China’s exports.