China's Commerce Ministry defends devaluation, sees 'limited' impact

August 29, 2015

Beijing (Aug 29)  China on Saturday defended the recent revamp of its foreign exchange regime that led to a sharp devaluation of the yuan, calling it a "normal adjustment".

State news agency Xinhua quoted an unnamed Commerce Ministry spokesman as saying the devaluation will have "limited impact" on the country's foreign trade.

On Aug. 11, in a move that stunned markets, China devalued the yuan by nearly 2 percent.

The devaluation was meant to correct a "relatively large deviation" between the yuan's spot rate in the market and the daily midpoint fixing by the central bank, the spokesman said.

China allows the yuan to rise or fall a maximum of 2 percent from a day's midpoint.

The ministry spokesman said a country's exchange rate hinges on its competitiveness and China's economic reforms will help ensure the yuan can remain "basically stable" within a "reasonable" and "balanced" level.

The remarks come on the heels of state media commentaries defending China's policymaking, showing Beijing's sensitivity to suggestions it may have fumbled economic policy.

China has billed its currency devaluation as a free-market reform measure, and denies allegations that it has started a round of competitive currency devaluations between governments to help exporters.

The ruling Communist Party has drawn much of its legitimacy in past decades from fostering economic growth and raising incomes, and wants to be seen as a responsible player in the global economy.

On Thursday, Yao Yudong, head of the central bank's Research Institute of Finance and Banking, told Reuters the past week's global stock market rout was sparked by concerns over a possible interest rate rise by the U.S. Federal Reserve and not by the yuan's devaluation.

He urged the Fed to delay any rate hike to give fragile emerging market economies time to prepare.

China had said the revamp in its foreign exchange regime was an effort to let market forces play a greater role in setting the currency's value.

Officials in Washington, who had long pressed Beijing to move toward a more market-determined exchange rate, greeted the shift with some scepticism and indicated they would watch to make sure it was not meant simply to prop up China's exports.

Chinese exports tumbled 8.3 percent in July, their biggest drop in four months and far worse than expected.

Source: YahooFinace

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