Experts say that devaluation of the yuan won’t have significant impact on the Russian market and the ruble. ©TASS
Experts say that devaluation of the yuan won’t have significant impact on the Russian market and the ruble. ©TASS

On Tuesday, People’s Bank of China (Chinese Central Bank) changed its way of calculation of the yuan-dollar exchange rate. The yuan official rate was lowered by 1.9% (a record high drop in the last 20 years) to 6.2 yuan per dollar. The regulator said that the decision to optimize the calculation method was made considering the positive balance of China’s foreign trade and the strong position of the yuan against the currencies of other countries.

“It is unlikely that the decision of the Chinese authorities will have a strong impact on the Russian market, because the volume of mutual settlements in yuans is only 7%, and we compete with China in almost none of the product groups. Roughly speaking our trade with China is our raw materials in exchange for Chinese cars and other finished products. I do not see any big threat to us,”- Alexander Gabuev, head of Russia in the Asia-Pacific region program at the Moscow Carnegie Center, said.

According to him, the countries that occupy a similar niches and have a much greater volume of trade with China /South Korea and ASEAN countries/ have much more to worry about.

“The devaluation of the yuan won’t affect Russia directly, because the Russian market is not directly connected with the yuan. The main mechanism, as we saw it during the fall of the stock market in China, works through global concerns about the Chinese growth,” – Vladimir Pantyushin, senior strategist at Sberbank CIB, said.

Since mid-July, China’s stock market has fallen more than 30%, while the index of business activity in that country in July was the lowest in two years.

The slowdown of the Chinese economy raises concerns of market participants. Amid the slowdown on the Chinese market the price of Brent oil declined by almost 5% in one day, dropping below $50 for the first time since January.

According to Vladimir Pantyushin, devaluation of the yuan may even be a positive factor for the ruble and the Russian market – via the oil price. According to the expert, if the devaluation of the yuan supports the Chinese economy, it will positively affect the oil prices.

“So far we don’t see such an effect, financial processes are going on fast. It will take a quarter or even two or three quarters before the devaluation gives an effect for the economic growth,” – he said.

China’s decision to devalue the yuan is an internal one and is aimed at boosting promoting exports, Alexander Gabuev said.

“The People’s Bank of China is trying to boost exports after a rather alarming data on exports over the past two quarters,” – he said.

In the first seven months of 2015, China’s foreign trade in annual terms decreased by 7.3% to 13.63 trillion yuan (about $2.19 trillion). The volume of exports in the first seven months of the year decreased by 0.9% to 7.75 trillion yuan (about $1.24 trillion), while imports fell by 14.6% to 5.88 trillion yuan (about $947 billion).

“Peg to the expensive dollar has become costly to the Chinese economy – data on trade in July showed a sharp drop in exports in annual terms, while total volume of exports since the beginning of the year was lower than the corresponding value ··of the previous year. In this regard, a small devaluation can be considered as the authorities’ response to a worsened performance in international trade and is aimed to improve the competitiveness of products on foreign markets,” – Stanislav Kleshchev, chief analyst at the investment department of VTB24, said.


Big move for China, moderate one for Russia


The reaction of the Chinese yuan to the decision of the Central Bank should be seen in the context of the Chinese market, as it turned to be moderate on a global scale, experts say.

“It’s a very big move for China, but for us it is moderate in comparison with the volatility of the ruble, considering the recent developments. The ruble rate can easily change by several percent per day,” – Oleg Kuzmin, chief economist for Russia and CIS countries department at Renaissance Capital, said.

The fall of the yuan by 1.9% looks sharp only in the context of the previous behavior of this currency, which looked stable from several points of view, Pantyushin said.

“The size of the deviations was very small. This 1.9% is seen as a rather sharp movement in the context of a very stable trend without fluctuations of the yuan. But outside this context, it becomes a less important factor,” – he said.

According to the expert, the payments between Russia and China in yuans and rubles will not be affected by the yuan jumps, which still occur less frequently than the jumps of the ruble.