Q&A: China’s yuan devaluation explained

What did China do?

China rattled global markets this week by devaluing its currency – the yuan. It adjusted the value of its currency downward compared to other currencies. The country cut the currency’s value against the dollar by 1.9 per cent, the biggest move in a decade.

Why did China devalue its currency?

The yuan has been rising in value, when it should have been falling due to slowing economic growth and lower exports. The yuan has risen by 11 per cent against the euro since January. Furthermore, the currencies of other developing countries have fallen. This has hurt Chinese exporters by making their goods more expensive abroad. Chinese exports are already falling. They plunged by 8.3 per cent in July.

What is China hoping for?

China will be hoping that the devaluation will improve the country’s economic growth and stimulate the declining export industry. Falling exports means China runs of the risk of large-scale job losses in manufacturing industries. It won’t want that to occur.

What will the devaluation mean for China?

The devaluation means Chinese products (e.g. Huawei smartphones or Lenovo laptops) are more competitive overseas. Chinese goods will be cheaper for overseas buyers. Thus the devaluation was welcomed by factory owners in China.

On the flipside, imports will be more expensive. This will impact overseas companies such as Apple and Procter & Gamble, as Greater China (including Hong Kong and Taiwan) is one of their biggest markets.

What will the devaluation mean for Ireland?

The devaluation will hurt Irish companies that want to export to China by making Irish goods more expensive. The Chinese market is worth billions to Irish companies – last year, Ireland exported goods worth €2.1 billion and services worth €2.6 billion to China.

Food companies such as Glanbia and Kerry which export infant formula and dairy ingredients to China will find it more expensive.

However, it will be cheaper for us to import goods. Ireland imported more than €2 billion worth of goods from China last year, many which were used in the manufacturing sector.