Business / Economy

Slide in exports as yuan depreciates confounds experts

By Shi Jing in Shanghai (China Daily) Updated: 2014-03-12 07:21

The contraction of China's exports in February coincided with a rapid depreciation of the yuan, making the contraction even harder to explain and the outlook of China's exports this year even more unpredictable.

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A reduction in a country's currency cuts the cost of goods it sends abroad.

The recent depreciation of the Chinese yuan, which has dropped 1.2 percent against the US dollar to 6.1247 since Feb 18, mainly reflects the Chinese central bank's intention to create two-way currency movements.

It took opportunity of a period of slowing growth, reduced inflows and emerging depreciation expectations to create two-way currency movements, said Jian Chang, chief China economist at Barclays.

Exports contracted by 18.1 percent year-on-year in February after stronger-than-expected 10.6 percent growth in January.

"Large volatilities in Chinese export growth have not been uncommon, especially during the Lunar New Year period. However, the February print was much lower than our forecast of a growth of 1 percent and consensus of 7.5 percent," said Chang.

Regarding the outlook for China's exports this year, Chang said Barclays remains cautious, with a conservative export growth forecast of 9.3 percent year-on-year.

Zhu Ye, manager of Alchemist, a trading company specializing in the export of chemical products based in Changshu, in East China's Jiangsu province, has seen the chemical export industry remain almost static in the past few years with hardly any sign of improvement shown so far. The depreciation of the yuan helps a little with his business, especially for orders settled on a monthly basis.

"It's almost like an unexpected fortune to see the money in the account receivables increase because of the depreciation of the yuan. But for the orders settled over a longer-term basis, there is no benefit. It is too early to understand the real impact," said Zhu.