Weak Yuan Pushes China Exports

· Overseas shipments fell 4.8 percent from a year earlier, imports dropped 8.4 percent

The yuan posted a fifth straight drop last week, the longest losing streak this year, signaling policy makers are more tolerant of further weakening. With tepid global demand and businesses proving reluctant to invest, the government has been stepping up spending to keep its growth target of at least 6.5 percent this year in sight. (The hopes of Yuan as a reserve currency and choice of invoicing to replace dependence on the dollar are fading)

· China sees “obvious” obstacles in foreign trade amid a severe and complex environment, the customs administration said in a statement accompanying the data.

· Exports face downward pressure in the third quarter, a customs administration official said at a briefing in Beijing. Trade will remain sluggish, exporters face increasing labor costs while other countries are competing with cheaper wages.

· Exports to U.S. fell 10.4 percent, while those to Brazil plunged 21.5 percent.

· Imports from Canada slumped 44.6 percent, and from U.S. dropped 12.7 percent.

CNY weakened by 6.5% against the currency basket so far this year. However, there has been little improvement in China’s exports so far. Trade data clearly suggest a fast CNY depreciation will have very limited impact on boosting exports. This could well be why Chinese authorities have allowed the yuan to drift lower in recent weeks. The inability to boost exports is likely to increase the pressure on the yuan in the short term, which in turn could well see it decline further towards 6.80 against the US dollar.

China’s domestic economy is not growing fast enough for domestic consumption of imports to rise by more than the foreign consumption of Chinese goods. China’s manufacturing regime is going strong (more or less), revealing that the nation continues to generate a large percentage of the goods that the world consumes. The economy has not, in fact, restructured sufficiently toward a consumption-based economy, even though domestic consumption is slowly rising. This suggests that as commodity prices rise again, Chinese export growth will expand.