Wednesday, August 12, 2015

Economy: Much Ado About China

(Drivebycuriosity) - If we believe the media, China is in a deep mess. Reuters, MarketWatch and the usual experts are lamenting about China´s "weak economic numbers" and the devaluation of the Yuan. Is it really so bad?

Here the facts: This morning we learned that China`s industrial production growth slowed to 6% in July from 6.8% in June (wsj this link may be behind a pay wall but if you copy it into Google search it should function). But the July number was still better than the growth number from May (plus 5.9% foxnews). Retail sales grew 10.5% in July, slower than in June (10.6%) but still faster than in May (10.1%).  So, both numbers show just a fluctuation - no collapse. Last week we also learned that the Chinese services PMI rose to a 11-month high in July, a sign that the service sector is accelerating (cnbc). Why all this commotion?

China`s devaluation is unspectacular as well. Beijing, which had glued their currency to the US Dollar, let the Yuan drop 3% in 2 steps yesterday and this morning. So what? Before the devaluation the Chinese currency had followed the rally of the US Dollar, meaning that the Yuan got more expensive relative to the Euro and other currencies. Remember the US currency climbed around 20% against the European currency. Binding the Yuan to the US currency doesn`t make much sense because both countries are really big and have different economies. And the Dollar binding of the Yuan made the Chinese currency more expensive which didn´t make much sense either. Btw a devaluation of just 3% doesn`t make a big difference. The stock of Apple came under pressure on Wall Street because iPhones are now 3% more expensive in China. Really?

I think media, experts and markets are overreacting as usual.

No comments:

Post a Comment