China Will Challenge Strong Dollar With Weaker Yuan As Economy Slows
Forbes - Mar 24, 2015
China’s economic data see-saw continues with its highs and lows. On Tuesday, the HSBC Flash PMI indicator dropped to an 11-month low.
The yuan’s appreciation against most global currencies since mid-2014 coupled with China’s rapid wage growth have dealt a one-two punch to export-oriented manufacturers. The weak HSBC PMI numbers is just the usual on-again off-again evidence that growth momentum in China is on the wane.
China’s Shanghai composite declined on Tuesday, with the Deutsche X-Tracker China (ASHR) exchange traded fund down 0.4% in the mid-morning on the NYSE. The iShares FTSE China (FXI) is going in the same direction. Both are underperforming the MSCI Emerging Markets Index. But China has many weapons in its tool kit to protect manufacturers in the near-term. Investors seem relatively confident.
“The People’s Bank of China will probably guide the yuan weaker against the U.S. dollar this year, and China’s anti-corruption drive may be reframed to be less inhibitive of capital investment,†says PNC Financial Services economist Bill Adams in Pittsburgh.
The HSBC manufacturing PMI index fell to 49.2 from 50.7 in February. March’s 49.2 was an 11-month low for the index. Manufacturers accustomed to exports are still struggling in the domestic market due to lackluster local demand, oversupply and some deflationary headwinds.
