China's RMB devaluation will aid the world economy
- By John Ross
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E-mail China.org.cn, August 13, 2015
Without this, the next best solution is for China to act by itself. Although China's 7.0 percent GDP growth in the year is far above the others, nevertheless signs of economic slowdown have appeared. By July China's industrial growth fell to 6.0 percent from 9.0 percent a year earlier.
This impacts not just China but the global economy, particularly by lowering Chinese imports. By July 2015 China's exports were down 3 percent compared to the year before but its imports had fallen 11 percent - as Figure 3 shows.
Figure 3
With China experiencing difficulties, the result was a dramatic fall in world commodity prices. This has extremely negative consequences for developing economies, most of which rely on commodity exports. By August 11, the day before RMB devaluation, the Bloomberg world commodity price index had fallen 27 percent compared to a year previously and by 51 percent compared to its post-international financial crisis peak.
Due to their stance against State investment, the advanced economies cannot lead a recovery of the world economy. However, China has been stimulating its economy with interest rate cuts, bank reserve requirement ratio reductions, and targeted infrastructure investment. Yet, even it could not overcome the overall 16 percent Euro devaluation, and 36 percent yen devaluation. Therefore China has now supplemented its domestic stimulus programme with a modest RMB devaluation.
For China itself evidently the consequences of measures to maintain steady growth are beneficial. But for the reasons outlined China's position as the main engine of world growth means they are also positive for the world economy.
The writer is a columnist with China.org.cn. For more information please visit:
http://www.china.org.cn/opinion/johnross.htm
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