WASHINGTON (AP) " A year ago, the People's Bank of China jolted financial markets by devaluing the Chinese currency. Investors were rattled again when China's yuan " also called the renminbi, or RMB " dropped last fall. They worried that China's economy was weaker than anyone thought and that Beijing was driving down the currency to make the country's exports more affordable overseas.
The currency fell again from April through July and is now down nearly 5 percent over the past year. But investors don't seem so worried anymore. The Associated Press asked Charles Collyns, a former Treasury Department official who is chief economist at the Institute of International Finance, to explain.
Why aren't markets worried about the Chinese currency's latest drop?
Collyns: The PBOC shifted their approach to more open communication. They've stressed that there is no intention among Chinese policymakers to engineer a sharp depreciation of the currency. They understand that any sharp move in the RMB can be disruptive to the global financial environment and have negative spillback on the Chinese economy. The Chinese are comfortable with a gradually depreciating currency. But they are going to let the process be driven by the market.
They also took a number of steps to support the economy, to increase the growth of credit and investment so that China looks to be broadly on track for their growth objective for this year of 6.5 to 7 percent.
Does the yuan's recent drop mean Donald Trump is right " that China is manipulating its currency?
Collyns: The facts are really not consistent with the view that the currency depreciated because they manipulated it. A few years ago, the U.S. Treasury raised concerns that they were resisting the appreciation of their currency for their own advantage. However, since early 2015, there's been a major shift. Chinese corporates started to repay (U.S. dollar loans), and a lot of Chinese residents began to look outside China for investments. That led to large net capital outflows. The Chinese authorities resisted the (resulting) depreciation of their exchange rate by intervening pretty substantially. So they were not manipulating to depress their currency. They were actually trying to (slow) the decline.
Overall, how do you assess the Chinese economy?
Collyns: I'm cautiously optimistic. China can grow at a strong pace for the next 10, 20 years. It's a huge economy, and parts of it are extremely modern, extremely efficient and quite innovative. On the other hand, large parts of the Chinese economy are highly inefficient. State-owned enterprises have excess capacity, excessive debt. A large number of people are living in poverty in rural areas. So there's room to increase productivity. There's big potential for China to continue growing at a pace that will substantially exceed what we see in mature economies and in most emerging market economies, too.
Answers edited for content and clarity.
This story has been automatically published from the Associated Press wire which uses US spellings