Experts agree it was sluggish domestic economic growth that led
Chinese officials to devalue their currency this week—the yuan
has dropped 3 percent, hitting a four-year low.
China's government reported that its GDP expanded 7 percent in
the second quarter, conveniently reaching the official target.
But most economists believe the true figure is much
lower—perhaps 3 to 4 percent.
They note China's National Energy Administration reported that
the nation's energy consumption rose just 0.7 percent in the
first half of 2015 from a year earlier. That's hardly consistent
with 7 percent growth.
“To be honest, no one has a clue where the economy is, and I
don’t think that it’s properly measured,” Viktor Szabo, a senior
investment manager at esteemed Aberdeen Asset Management, told
The New York Times.
“Definitely there is a slowdown. You can have an argument about
what level it is, but it’s not 7 percent.”
On the currency front, the dollar traded at 6.3982 yuan
Thursday, up from the pre-devaluation level of 6.2097 yuan
Monday.
The move could hurt the United States in several ways. First, it
will likely put a damper on our exports to China, because a
weaker yuan makes U.S. products more expensive for the Chinese
in yuan terms.
U.S. exports to China totaled $120 billion last year, making it
our third-largest export market after Canada and Mexico. To be
sure, that's not a very large amount compared to our total GDP
of $17.8 trillion.
Of course, it is individual companies' exports that will get
hit. And the revenue they earn in China will be worth less when
converted to dollars. Among U.S. companies that may suffer are
Apple, Yum Brands and Johnson & Johnson,
The Wall Street Journal reports.
Greater China accounts for 27 percent of Apple's iPhone sales.
And in terms of Apple's spending in China, it pays its
contractors in dollars, so the yuan's drop won't help it there.
Yum, which owns KFC and Pizza Hut, generates 50 percent of its
sales in China, and Johnson & Johnson calls China one of its
most significant markets.