Devalued Yen a Threat to China's Foreign Trade

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Last updated at: (Beijing Time) Thursday, December 20, 2001

Devalued Yen a Threat to China's Foreign Trade

China's foreign trade is facing a threat from the effect of the drop in value of the Japanese yen against the US dollar. China's exports to Japan increased a mere 8.1 per cent to US$40.76 billion in the January-November period, down 0.3 percentage points from the first ten months of the year. The pressure on renminbi and neighboring Asian currencies is mounting as the yen slips against the US dollar.

Negative Effect of Devaluation

The negative effect of the devaluation on China's exports to Japan has already surfaced since November.

China's exports to Japan increased a mere 8.1 per cent to US$40.76 billion in the January-November period, down 0.3 percentage points from the first ten months of the year, according to Chinese customs statistics.

The figure had soared 28.5 per cent to US$41.65 billion last year.

And a trade expert forecast slow growth for Sino-Japanese trade next year.

Trend of Japanese Yen Under Watch

We are closely watching the trend of Japanese yen against US dollar: the pressure on renminbi and neighboring Asian currencies is mounting as the yen slips against the US dollar," said Li Guanghui, a senior researcher with the Chinese Academy of International Trade and Economic Co-operation, a think tank of the Ministry of Foreign Trade and Economic Co-operation.

The yen stood at 128.19 per dollar on Wednesday, after meeting a wall of profit-taking on the US dollar at 128.43, just short of Tuesday's three-year low of 128.45.

"Japanese goods will flood Asian markets and crowd out many made-in-China products if the yen is allowed to devalue to 130 or even 140," said the senior researcher.

But Li warned that although the devaluation of the yen will boost Japan's exports, it will also dwarf the amount of its gross domestic product (GDP) in terms of the US dollar and put pressure on the profitability and asset value of Japanese companies.

Li said he expected that the Japanese Government won't allow its yen to devalue to a degree that will prompt interference from the US and reactions from neighboring Asian countries.

Li said he had expected bilateral trade between China and Japan to rise to between US$90 billion and US$100 billion this year.

Result from Slack Economic Development

The expert attributed the growth slowdown to shrinking Japanese demand due to slack economic development.

Japan's GDP is expected to shrink 0.4 per cent this year and fall another 1.0 per cent in 2002, the International Monetary Fund said in its updated World Economic Outlook.

Li said Sino-Japanese trade will stand at around US$85 billion this year and rise slightly to US$90 billion in 2002.

"Sino-Japanese trade will continue to grow at a bit faster pace next year, pushed by increasing Japanese investments in China as the country is obliged to grant foreign investors larger access to its market after its entry to the World Trade Organization," said Li.

The yen's sharp appreciation, a threat to the world's second-biggest economy, which is already lurching towards recession, had frightened the Japanese authorities.

This had forced Japanese officials to try to limit the impact of a stronger yen on the economy. If the dollar weakened to the June low of 118.26 yen, "there is a strong risk that Ministry of Finance rhetoric will be backed up by foreign exchange intervention to weaken the yen."

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