When it comes to the value of the renminbi (
CNY
,
quote
), the twin engines of economic growth for the Chinese economy
oppose each other. About 40% of China's gross domestic product
emanates from exports to the U.S. and Europe. The Chinese real
estate market provides about 30% of the economic growth in the
People's Republic.
[caption id="attachment_60192" align="alignright" width="300"
caption="Urban sprawl in Beijing"]
[/caption]
Recent actions by China's central bank, the People's Bank of
China,
to lower the value of the renminbi
can be seen as an attempt to further reign in the exploding
Chinese real estate market and to boost a declining export
sector.
China needs a strong export economy to provide jobs for its one
billion people. In Dambisa Moyo's book,
Winner Take All
, she explains that:
"Simply put, if the Chinese government does not deliver on its
economic promises... both those laid out explicitly in government
speeches and work program reports and implicitly in fueling the
hopes and expectations of nearly one billion people... China is
likely to face political uprisings and turmoil, as witnessed in
1989 in Tiananmen Square."
A lower renminbi is propitious for greater exports as
Chinese-made goods are that much cheaper. The lower the
renminbi's value, the less products from Chinese factories
cost overseas. This is particularly important now with the euro
much lower due to Europe's recession.
The converse side of a cheaper renminbi is that China's imports
are that much more expensive. For the Chinese real estate
market a great deal of imports are required. China is the world's
leading importer for copper, iron and coal, all vital for building.
Copper is used for wiring and pipes. Iron ore forms the steel that
is used for the frames in the construction process. About
three-quarters of the electricity in China comes from coal-fired
plants.
Beijing lowering the renminbi helps the People's
Republic's export machine at the expense of the Chinese
real estate sector. Recent articles have pointed to
signs of strength in the Chinese real estate
market
. One survey of Chinese property developers and real-estate firms
reported the average price of housing in one hundred of China's
biggest cities rose in June. In a policy decision akin to "Sophie's
Choice", the weakening of the renminbi reveals the strength of
China's real estate sector.
