By Paola Loyola
China has had some changes to its market operations due to what authority terms as an economy slumping faster than the government and officials had anticipated (Wei, 2015). Despite China having an enormous trade surplus that can support its economy, it seems this was a plot to improve its competitive position globally. Its exports levels had deteriorated, and by 2016, there was a prediction that domestic product growth will slow from 6.9 percent in 2015 to 6.5 percent (Bloomberg, 2016a). To lift export growth by 10 percent in 2016, China would require a 13 percent drop in their Yuan on a trade-weighted basis to restore their standard ratings (Bloomberg, 2016a).
The nation’s foreign exchange reserves slid more than forecast in December 2015, capping their first ever annual decline (Bloomberg, 2016b). China’s stock market had experienced volatility of the highest level in 2016 with fluctuating market prices known as great China’s turbulence. According to Geraci (2016), a writer of The Conversation, China’s market started at a value of 3,350 in January 2015, rising to a peak of 5,178 in June, then falling to a low of 2,850 in August. It then rose again to 3,650 and has now retracted to 3,290. Devaluing their currency causes exports to be cheap and imports to be expensive. Other countries would face difficulties in exporting goods like Oil to China. (China is a significant Oil Consumer).
Such a high degree of turbulence would hurt emerging-market economies like Chile and Brazil who depend on China to buy copper and oil from their minefields. Since China is a major global economic game-changer, their weaker currency could lead to a possible recession since their economy worsens with every devaluation (Sabha, 2016). The Price of Crude Oil is likely to upsurge (Girard, 2019). Since China is a powerful country, there is nothing much that can be done on the issue. Naming China as a market manipulator will not encourage positive reforms. Therefore, I would facilitate economic communications between the US and China to restore equal competition.
By Carlos Pelayo
The changing circumstances of economic markets has resulted in varying performances in currencies for different nations. The following assessment seeks to provide a better understanding on the performance of the yuan in present economic markets that had a notable decrease in value. The devaluation of the yuan is as a result of the decreasing performance of the economy that resulted in weak factory input, slumping demand from both local and international sources, and the falling prices. The onset of these economic situations resulted in the overall decrease in performance for the state-owned companies that had accrued debt in the market.
In January 2016, the nation was noted to have a rise in stock performance in the nation. The depreciation of local currency leads to the creation of a more competitive environment for industries, resulting to an overall increase in the exports made. This change in value leads to the overall rise in the stock prices in the region.
The depreciation of the value of the Yuan, was carried out as part of the economic reform to increase market viability in the region. The onset of the depreciation results in an overall increase in the competitiveness of local products. On the other hand, it results in the increase in value for importation from other nations, making them rather expensive to acquire. A case example of this deficit is the effect on the exportation capacity for Australia. Strained by the slow infrastructure growth in the region, the devaluation of the yuan has resulted in a lower performance record of the nation, resulting in lower exportation value (Christensen, 2021). The use of devaluation allows for the effector to have an overall increase in the value of local industries at the expense of importers in the region. As a result of this disparity, it necessitated the use of economic policies to find a possible balance of measure in the region.
If I were a US policy maker, I would seek to balance the disparity that is caused as a result of the devaluation of the yuan in the market. A probable measure that can be used in the balancing of this deficit is the use of quotas and tariffs on imported goods from the region. The following adjustment will cause a rise in the value of local products, allowing for the creation of an ideal environment for action by resident governments. The move will also seek to balance the trade deficit that has occurred as a result of the devaluation of the yuan. The lower dependence on imports from China will allow for the effected measures to serve a corrective feature, boosting overall performance of the market. Through these techniques, it will allow for the development of a balance in the economy.
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