Hot on the heels of the widely criticised US move to embark on a further round of Quantitative Easing (QE), the Chinese have announced a $27 billion trade surplus, based on strong export performance.
QE is widely predicted to cause a devaluation of the US dollar and therefore make its exports cheaper in importing markets. Many nations have accused the Chinese of deliberately undervaluing their currency (by pegging it to a falling dollar) in order to give their exporters a commercial advantage, so both America and China stand accused of doing the same thing, albeit by different mechanisms. Both nations deny that they are interfering in the markets to depreciate their currencies.
The G20 leaders will meet later this week in Seoul, South Korea and the top items on the agenda will be currency exchange and trade imbalances when leaders meet on Thursday and Friday. The IMF has already made dire warnings that a “currency war” would harm everybody and the main protagonists have issued statements of intent that are designed to calm fears. Japan is suffering from a disproportionately high value yen, which is hurting its exporters.
Analysts claim that the Chinese yuan is undervalued by between 20 and 40% (an astoundingly wide margin of disagreement), but the Chinese have made it clear that any appreciation will be gradual.
China’s exports rose by 22.9% year-on-year in October whilst imports rose by 25.3% over the same period. The surplus came in at $27.1 billion, despite evidence that the Chinese recovery is “slowing” – not a description any other nation posting 9.6% growth figures for Q3 would use.
Disclosure: No positions