WHAT'S BEHIND CHINA'S

CURRENCY DEVALUATION?
Presenters: Poonam, Imran & Azhar.

Our work is about to describe the Chinese

Currency Devaluation:
We divide the text in four parts:
First part is an introduction: well talk about Chinese Economy & its
structure,
In the second part we will discuss Chinese currency & its role in world
economy,
In the third part we discuss Chinese currency Devaluation & its
impact on India,
In the last part well see whats Actual Scenario of Chinese currency
devaluation.

Chinese Economy:
Since 20 years the Chinese economy has a very important role in the
international scene, and also continues to be subject of contrasting
reviews.
The importance of China in the XXI century is reflected in its role as
second largest economy to GDP after United States.
China is also member of the many important institutions: United
Nations, WTO, APEC,ASEAN &
G20

The Economic Reform:

With the introduction of economic reform based on capitalism, in 1978

China became the country with the fastest economic development
in the world: is the second largest exporter and third largest importer
of goods.
There were reforms in industry and agriculture
Also there were important and decisive initiatives to encourage
foreign investment: opening up to foreign countries and the
introduction of the free market is so central to the reform.
The reforms implemented have led to a "socialist market economy",

An Incredible Growth:

Over the last 20 years China has got an extremely high savings
rate, averaging around 40 %, Chinese economy has enjoyed
one of the highest growth rates in the world.
At the beginning of the nineties there was an incredible increase
in GDP, from 4% in 1990 to 10.6% in 2010.
In the ranking of GDP, in 2010 China surpassed Japan and reached
at third place
In 2014, China scored a gross domestic product amounted to
10,360,10 Million dollars, while the U.S. is at 17,419,000 Million
dollars(As per World Bank), of course the gap is still very large.

Economical Structure:
Agriculture(13 %)
Industrial(46.8%)
Service(40.2%)
% of GDP

Evolution of Chinese Currency:

Yun literally means a "round object" or "round coin".

Issued in 1948

A new yuan was introduced in 1955 , known as the Renminbi yuan. It

is the currency of the People's Republic of China to this day.

The currency of China is Renminbi and its unit is Yuan

Fixed to the rate of 2.56 RMB per 100 cents; dollar.

1 Chinese Yuan equals = 10.34 Indian Rupee

1 Chinese Yuan equals = 6.37 USD (as on 09/20/2015)

Chinas FX :
On 11 August Peoples Bank of China(PBC ) announced changes to
daily fixing arrangement of yuan, in practical terms new policy
represents further liberalization of FX regimes.
Under the previous policy regimes yuan was more tightly controlled
render it one of the least volatile major currency globally
Under the most recent framework PBC would set daily reference rate
each morning, permitted to trade each day within a +/- 2 % band.
The reference rate is now set at the previous days closing prices,
while the trading band remains unchanged at +/- 2 % .
The new arrangements led initially to 1.9 % fall in Yuan

Why China devalued the YUAN ?

To boost consumption and rebalance growth engines from

exports and investment

Inclusion in the Special Drawing Rights (SDR) basket.

Internationalising the Renminbi

While currency and equity markets are likely to remain volatile

for some time, and policy intentions remain ambiguous, it might
be a useful to look at impact channels of both a slowdown in
China and the policy responses.

IMPACT ON WORLD

 Chinas role in the global

economy has increased rapidly
and disproportionately in trade.
Its share of world gross domestic
product was over 10% in 2014.
In exports, its share is over 15%
and in importsalthough a bit
lower than in 2014is over 11%.
China accounts for close to half
of the global consumption of
copper, aluminium and steel, and
more than 10% of crude oil.

YUAN IMPACT ON INDIAN

ECONOMY

The first, and an overwhelmingly positive, impact therefore of a

slowdown in Chinas commodities demand on India is through lower
commodity prices.
However, there is a flip side to falling commodities pricesthe
effects on companies in India operating in the minerals space,
including steel, mining, selected chemicals, and some trading
companies.
Many large companies in the production space are quite leveraged,
with debt-funded production capacities built up in the high-growth
years.
Stress on debt servicing ability is already high, and a further drop in
commodities prices and a slowdown in exports will add to this.

Indian manufacturers have already complained of non-market prices

maybe even dumping below costof Chinas exports to India,
and a further drop in Chinas capacity utilisation in segments like
iron and steel, bulk drugs and chemicals will lead to a further drop in
prices.
Besides imports, Indias exporters will also lose out on currency
competitiveness to China in segments it competes directly with
Chinaparticularly textiles and apparelsas well as chemicals and
project exports.
Indias trade deficit with China has almost doubled from $25 billion
in 2008-09 to $50 billion in 2014-15. And Chinas share of Indias
total trade deficit is up from just under 20% in 2009-10 to 35% in
2014-15.

Five Indian sectors that will be impacted

by China's yuan devaluation:
Textiles
Chemicals
Metals
Consumables
E-commerce

1)Rupee volatility
2)Pressure on exports
3)Dumping of Chinese goods

What Dragon is Showing to

World

#1 What did China do?

#2 Why did China do it?
#3 What does this mean for the rest of the world?
#4 What does this mean for markets?
#5 Whats next?

Thank
You !!!