Devaluation of the yuan: the "tightening" of the Chinese development model

In full tariff dispute with United States, China pressed this week the red devaluation button and, with that, he showed the imbalances that trade war can cause to one of the pillars of his productive model: interdependence with the international market. The depreciation of the yuan seeks to improve the competitiveness of exporters affected by Donald Trump sanctions and aims to give continuity to the Chinese development strategy. Even when the fall of the currency exposes China to financial and domestic risks, this is one of the letters that the government of Xi Jinping's hand to stay on course economic reform.

For the first time in more than a decade, the dollar overcame this week the psychological barrier of seven yuan, which has been interpreted by the Western media, and especially the Americans, "Hardening" of the Chinese government strategy in the dispute with the Trump administration.

"I do not think it expresses a harder line than what was done," says the sinologist Eduardo Oviedo, researcher at Conicet and professor at UNR. "Xi Jinping seeks to defend Chinese interests against the success of sanctions and other adverse conditions for international trade. A further retaliatory action on tariffs would lead to a new response from the United States and the ongoing escalation of the conflict. China is trying to solve this problem peacefully because, according to the Chinese, the conditions necessary to face the United States are not yet ripe. "

Since the unleashed commercial war, Beijing has always evolved under two premises: strategic rivalry is the "new normal" of the relationship with the United States, and it is not yet time to move forward. In the alternative bin, the exchange rate adjustment appears as a manual response to the effects of the tariff dispute on the Chinese external sector, even if it is not free from certain dangers for the Chinese economy.

According to Oviedo, the confrontation of two production models is facing in the trade dispute and the export / production model of China depends much more on the international market than that of the United States. "Trump has a partial success in its strategy: companies exporting from China to the US market travel to Southeast Asia to avoid cost overruns related to Trump tariffs," he says. PROFILE. "What we are observing is a" tightening "of the Chinese model, which is being addressed by devaluation in order to make exports more competitive and to maintain the neo-commercial model developed since the beginning of the reform, in 1978."

Driven by the fall of the yuan, the country risk has again exceeded 900 points

The effects Xi urges Communist Party and the Chinese people to follow him in an approach to today 's defeat tomorrow' s defeat. And he is ready to act, even at the risk of opening the door to complex economic problems. In a context of economic slowdown, the devaluation of the yuan can be dangerous if, in the meantime, a heavy dollar debt without growth – at its lowest level in the past three decades and with signs that the situation may still worsen – justifies it.

In Search of Activities and Generating Jobs, Beijing Enables Chinese Provincial and Local Governments finance major infrastructure worksresulting in a record debt and deficit for these governments. The central government does not have much strength to help them because tax cuts to promote growth also limit their resources. On the other hand, Chinese and private state companies with dollar debts are under pressure from devaluation. Not to mention that the depreciation of the yuan stimulates the flight of capital, increases the import of advanced technologies and complicates the Chinese government's plans to internationalize its currency.

At the same time, the devaluation has an inflationary effect that could irritate Chinese consumers, who are also beginning to perceive the difficulties. In recent months, families in large cities have had to deal with a significant increase in their consumption of staple foods, such as pork and fruit.

There are those who see the falling of the coin a shot on the table by Xi in his hand in hand with Trump. he New York TimesFor example, this week he attributed a "nationalist" and a "hard line" attitude and highlighted his growing approach towards the Minister of Commerce, Zhong Shan, described as uncompromising.

But Xi has no reason to precipitate the conflict. It will probably last longer in power than Trump. In the meantime, it will be necessary to ensure that the United States modifies their projects as little as possible in China.

From fixation to signage: how the Chinese regime controls the yuan

Wall Street closed in red

Wall Street He closed yesterday with his three indicators in red, after a week of high volatility that began Monday with the biggest losses of the year, after China stepped up the trade war with the United States by devaluing his currency. At the end of the session on the NYSE, share prices Dow Jones, S & P and Nasdaq, where the major technology groups are measured.

Last week, Donald Trump announced the imposition of new 10% tariffs on imports from China, valued at $ 300 billion as of September 1st.

In retaliation, Beijing halted the purchase of US agricultural products and granted the dollar seven yuan for the first time since the crisis that shook the major economies in 2008.