4% Yuan Devaluation in 2 days - Impact on India

China has devalued yuan 4% in the last 2 days. How does this impact Indian manufacturing, currency, economy. What if China devalues by 10%. Will India still be competitive. Why should anyone come to India. What steps can India take other than devaluing our currency which we shouldn't?

China stuns financial markets by devaluing yuan for second day running

China stunned the world’s financial markets on Wednesday by devaluing the yuan for the second day running, sparking fears that the world’s second largest economy is in worse shape than investors believed.

The currency hit a four-year low on Wednesday after the People’s Bank of China set the yuan’s daily midpoint even weaker than in Tuesday’s devaluation.

With the bank having said that Tuesday’s move was a “one-off depreciation”, the rapid drop in the value of China’s currency – around 4% in the last two days – dealt a blow to appetite for risky assets, and markets across the region plunged amid concerns that Beijing has embarked on a damaging currency war.

Stocks, currencies and commodities came under heavy pressure as money managers feared it could ignite a currency war that would destabilise the global economy.

The Nikkei stock market index in Japan was down more than 1% while the Hang Seng in Hong Kong was down 1.64%.

The Australian dollar, often seen as a proxy for the Chinese economy, fell again to a fresh six-year low of US$72.25c, having been sold off heavily on Tuesday. The US dollar, on the other hand, rose strongly again against all Asian currencies.

Oil was hit, too, with Brent futures were down 31c at $48.87 per barrel at 0251 GMT. US crude was trading at $43.02 per barrel, down 6 cents from Tuesday when it marked its lowest settlement since March 2009. Key industrial and construction materials nickel, copper and aluminium also hit six-year lows.

“China’s currency moves will hurt appetite for risky assets such as equities and commodities,” said Rajeev De Mello, head of Asian fixed income at Schroders in Singapore.

“While it is too early to say whether this is the beginning of a sustained devaluation of the yuan, other central banks may be forced to follow suit and that may trigger a fresh round of currency weakening around the emerging world.”

Wall Street was already reeling from Tuesday’s devaluation, with the Dow falling 1.2% and the S&P 500 a similar amount. More selling is expected when European and US markets open later on Wednesday.

Spot yuan fell to 6.43 per dollar, its weakest point since August 2011, after the central bank set its daily midpoint reference even weaker than Tuesday’s devaluation. The currency fared worse in offshore trade, touching 6.57.

The central bank, which had described the devaluation as a one-off step to make the yuan more responsive to market forces, sought to reassure financial markets on Wednesday that it was not embarking on a steady depreciation.

“Looking at the international and domestic economic situation, currently there is no basis for a sustained depreciation trend for the yuan,” the PBoC said on Wednesday.

Tuesday’s devaluation followed a run of poor economic data and raised market suspicions that China was embarking on a longer-term slide in the exchange rate. It was the biggest one-day fall in the yuan since a massive devaluation in 1994.

Analysis Why has China devalued its currency now and what impact will it have?
Beijing devalues yuan by nearly 2% against dollar, which will make Chinese goods cheaper after figures showed 8.3% fall in exports in July
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A cheaper yuan will help Chinese exports by making them less expensive on overseas markets. Last weekend, data showed an 8.3% drop in exports in July and that producer prices were well into their fourth year of deflation.

More indicators due on Wednesday for factory output, retail sales and fixed-asset investment are expected to underline sluggish growth in the world’s second-largest economy.

The International Monetary Fund said China’s move to make the yuan more responsive to market forces appeared to be a welcome step and that Beijing should aim to achieve an effectively floating exchange rate within two to three years.

Beijing has been lobbying the IMF to include the yuan in its basket of reserve currencies known as Special Drawing Rights, which it uses to lend to sovereign borrowers. This would mark a major step in terms of international use of the yuan.

“Greater exchange rate flexibility is important for China as it strives to give market forces a decisive role in the economy and is rapidly integrating into global financial markets,” an IMF spokesperson said in an emailed statemeny more  

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China was always competing with their low cost low quality product flooding international market including Indian Market. But indian market sustained due to quality product and can match on cost of production. Indian Rupee is strong enough which cannot be weakened due to falling chinese currency. In fact it is an opportunity to grab and market the products and capture the world market. Our economy is more sustainable than the other asian currencies. more  
A weak oil will also surely save the Rupee more  
More than devaluation of Yuan, it is the Chinese resistance to India's entry into UNSC , is a more painful stab in the belly. We can even throw a snide question at the US " U 2 Obama ?'' Our opposition parties will be gleefully watching the slide of the Rupee, they would not even hesitate to accuse the Govt for not bringing achche din in this predicament.
Perseverance is the remedy. we can reduce rate of bank interest to industries, so that we can make in India competitively. Our people will walk with the Govt if Food items , edible oils, vegetables are made available at low prices . Spanish Armada was destroyed B caus "God sent the Winds". We can pray God 2 send good monsoons. more  
Quality and reliability matter more than price. Let India beat China in these areas. Secondly China does not make everything. Devaluation also increases cost of imports. more  
The only way is to reduce imports from China. One way is to see whether we can prove Chins is subsidizing production costs, resorting to unfair means to control labour costs by using communist policy based on coercing controls, not allowing labour unions, protests etc and following other undemocratic methods. etc and take up the case with WTO. The other ways- arrange imports from China in order of decreasing payouts from India, see whether those items can be manufactured in India at the same cost or lower- if higher analyse item by item and seek measures to control costs in India, consider changes in labour laws in this perspective, other laws, taxation etc; also see whether we can manufacture in India some products which China exports to other countries and see whether we can make the same at competitive prices and export. One such item is garments- in western countries clothing is almost FMCG as they discard clothes after very little use. Indian garments are much less seen in US and other countries compared with even those from Nepal, Srilanka, Thailand, Indonesia, Kenya to name a few. Intensive efforts to develop fashionable designs and keep on updating them; Institutes of Fashion Design should concentrate on this. Deep analysis of this industry in India to be undertaken to identify factors for reducing production costs, lessen the selling price , get profits through volume- in this case labour laws also need to be examined to identify amendments required to make reduction of labour costs possible. Another product worth examining is toys; toys are large selling items all over the world- like Institute of Fashion Design we should have Institute of Toy How far will our Communist parties holier than Chinese communism will allow this. Appeal to Indians on patriotic basis to shun Chinese products especially toys and electrical items which are of poor quality. May be expert working groups should be formed for identified items to find methods to reduce costs and improve quality. See what role can the Bureau of Indian Standards can play in laying down standards for products imported from China and make BIS Certification mandatory. Some comparative quality tests of products from China and the same made in India should be done. Many goods like toys, electrical items from China are of poor quality. CII, FICCI, ASSOCHAM etc should hold a Seminar urgently to brainstorm solutions, actions more  
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