Even as the US-China trade war intensifies, with the yuan plunging to 11-year low, experts say that Indian exports could take a hit in markets where the two compete.
Even as the US-China trade war intensifies, with the yuan plunging to 11-year low, experts say that Indian exports could take a hit in markets where the two compete. The weakening of yuan would increase volatility in the forex space and will result in further weakness among the emerging market currencies including the Indian rupee, noted Ajit Mishra Vice President, Research, Religare Broking. “On the global front where Indian and Chinese exports compete, such weakness in yuan would give an upper hand to Chinese exports as they would become cheaper as compared to Indian exports making Indian exports comparatively less attractive,” Ajit Mishra told Financial Express Online.
Earlier, the yuan had breached the crucial 7-mark against the US dollar threshold against on Monday after the US had announced plans to impose tariffs on Chinese imports from September 1. According to Pritam Kumar Patnaik of Reliance Commodities, China’s stance going forward, will be crucial as it had committed to refrain from competitive devaluation in latest G20 meeting. Further, the country will also have to prepare for fresh risk of sanctions that could be imposed by US if it continues to devalue. “US-China now in a situation where both sides are trying to hurt one another and it won’t turn around until one side hits a breaking point,” Pritam Kumar Patnaik, Head Commodities, Reliance Commodities told Financial Express Online.
Taking stock of China’s latest move, VK Sharma, Head PCG & Capital Markets Strategy said that demand for dollars surged around the globe, including in India. “Rupee plunged to a two-year low against the dollar. Foreigners sold Indian bonds and had an impact on the sentiment on Indian fixed income markets,” VK Sharma told Financial Express Online, adding that in the context of a weaker Yuan and slowing demand in China, a more competitive rupee is unlikely to offset weaker demand going forward.
“A weaker Yuan meant more competition and lower margins for Indian exporters. Chinese producers could dump goods into the Indian market thereby undercutting domestic manufacturers,” Sharma noted. According to the expert, given China’s dominance as the world’s largest exporter and its second-largest economy, any change it makes significantly impacts others around the globe. Competitive currency devaluation, will be net lose-lose for all, he noted.