Effect of RMB Depreciation on Tungsten Products Exportation

As the exchange rate quotation showed on November 17, the central parity rate of the yuan against the U.S. dollar stood at 6.8700, a six-year low, and implied a depreciation of 10 percent over the past one year or so, considering the parity rate of 6.1162 on August 10, 2015.

On October 1, the Chinese currency formally joined the International Monetary Fund’s special drawing rights (SDR) basket. Before the move, there were concerns that being added to the basket of IMF reserve currencies would trigger a sharp appreciation of the yuan. The reality is, however, going against expectations. The yuan, instead of scrambling out of its downward tendency since last August, is depreciating more sharply. Is this a result of the Chinese Government manipulating its currency? Definitely not. Since the exchange rate reform conducted in 2005, the yuan has gradually adopted a market-oriented, freely floating exchange rate mechanism. One of the reasons for the yuan being included into the SDR basket was the marketization of its exchange rate.

RMB depreciation should be good news for the country’s exports, which have played a big role in China’s soaring economic growth over the past three decades. The nation was showering the world with products made in China, valued billions of yuan, but that was before the 2008 global financial crisis. In the aftermath of the financial turmoil, demands from the international market shrank tremendously, which led to a cliff-like drop in Chinese exports and even negative growth rates.

Today, Chinese exports are still trapped in a plight. Customs statistics show that in the first three quarters of this year, China’s exports were registered at 10.06 trillion yuan($1.5 trillion), a drop of 1.6 percent from the same period last year. RMB depreciation has not propped up Chinese export growth, and this sector is still playing a minimal role in boosting the national economy. Regards of tungsten products exportation, it will stimulate the trade amount which embodies in competitive price, higher profit and larger sales volume.

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