Blog: Dave LeggettChinese currency devaluation: is it significant?

Dave Leggett | 12 August 2015

In the last two days, the Chinese yuan has lost around 3% of its value and that has made headlines. Is it really very significant? In itself, no. It won't impact most companies' international operations - importers or exporters - all that much. Foreign car makers who sell in China mainly source locally via JVs. The Germans are very adept at being hedged anyway. High value premium brand importers have plenty of margin to play with.

Beijing, it seems, is keen to encourage exports (the latest figures were heavily down). If that is the case, then further devaluation may be needed. This could be just the start of a bigger downward movement for the yuan. It's something for carmakers to keep an eye on, but they have more pressing concerns in the Chinese automotive market right now - mainly the underlying strength of demand and danger of overcapacity. If China's economy gets a stimulus from rising exports over the next six months, that may be no bad thing for flagging domestic demand. But 3% isn't something  to get that excited about. Ten or 15% over the next month would be.

The latest devaluation is perhaps another sign that China's economy is not having the gentle 'soft landing' that most hoped it would have this year. The next few months will tell us more about the position of the Chinese economy and prospects for 2016. On the upside, LMC says a short-term downward correction to vehicle production is coming, but the Chinese appetite for cars remains very strong, especially in the smaller cities. It is confident the market can grow faster in 2016. For that to happen, the economy needs to settle down with confidence gradually returning.    


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