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.
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