Filipino consumers ‘to benefit’ from weak Chinese currency

CHINA’s devaluation of its yuan as retaliation for the tariff hike plans of its trade war opponent, the United States, will mean cheaper Chinese goods for Filipino buyers.

Philippine Exporters Confederation Inc. (Philexport) Cebu executive director Fred Escalona said China’s weak currency “will make Chinese goods cheaper, thus attracting more demand for these goods.”

But while it could mean cheaper Chinese products, Escalona also pointed out its possible impact on other currencies, including the Philippine peso.

“This has dire effects on the regional economies as it adds pressure on the currencies of countries around China, including the Philippines, to also devalue their currencies,” the export official told SunStar Cebu on Tuesday, Aug. 6, 2019.

Philexport is a group of exporters based in Cebu.

The yuan fell below seven to the dollar on Monday, Aug. 5, days after US President Donald Trump announced plans to raise tariffs on another US$300 billion in Chinese imports amid the escalating trade war between the world’s economic superpowers.

Escalona thought that China was willing to see its currency fall further, after it breached the seven-mark, its weakest level in almost a decade.

“However, letting one’s currency devalue further is also counterproductive in the near term. It can result in inflation that could blunt economic development. What is scary is the prospect of what the US and maybe other countries might do to counter this sort of Chinese strategy,” he said.

The Department of Finance (DOF) said that as of July 2019, the Philippine peso ranked second among the top currencies in Southeast Asia gaining strength against the US dollar. Year-to-date, the peso appreciated by 2.82 percent, ranking next to Thailand, which appreciated by 4.27 percent.

The peso-dollar exchange rate also remains stable throughout the period, its coefficient of variation at 0.82 percent, ranking sixth among 12 regional currencies and lower than the 0.93 percent Asian average.

“The main reasons for the peso’s growing strength and stability are the country’s strong balance-of-payments (BOP) position and rising Gross International Reserves. Strong foreign exchange inflows from exports of services, remittances, income from investments abroad, direct foreign investments and foreign borrowing all contributed to the strong BOP position. These in turn boosted the confidence in the Philippine peso,” said the DOF.

Cebuano economics professor Fernando Fajardo said China’s weaker currency will also mean it will pay more for Philippine exports.

“But if our exports are not valuable, they may just forgo buying from us now. On the other hand, Chinese goods are now cheaper for us to buy. That may increase our imports from China,” he said.

In a highly globalized economy like China, he noted devaluation is double-edged.

For one, devaluation would make a country’s exports cheaper and therefore attractive to foreign buyers.

“If the devaluing country has the ready supply of exports, it can sell more in quantity though not necessarily monetarily. It also depends which has moved faster, the fall in export price or the rise in quantity exported. If export price has fallen faster than the quantity exported, then less will be earned by the devaluing country, he said.

The economist also explained that in an increasingly globalized economy, capital movement is much greater in value than movement of goods.

“When a country devalues its currency, it also diminishes the value of its capital and its asset. In the end, when you devalue your currency, you only make your country and your people poorer in relation to the rest of the world,” the professor said. (With KOC)

Trending

No stories found.

Just in

No stories found.

Branded Content

No stories found.
SunStar Publishing Inc.
www.sunstar.com.ph