The Chinese yuan has depreciated

China on October 19 announced that its GDP in the third quarter of the year grew by 6.5 percent over the same period last year, the lowest since the 2009 global financial crisis.

The latest statistics show that the world’s second largest economy has been impacted by the trade war with the US, its biggest export market. China’s GDP was growing steadily by 6.7-6.9 percent quarterly in the last three years.

Chinese stock indexes have been falling as investors rushed to sell stocks for fear about economic performance. The Shanghai Composite on October 18 dropped to a 4-year low. 

The Chinese yuan value has also fallen to a 2-year low after PBOC slashed the yuan reference price by another 0.25 percent against the US dollar.

The problems of the Chinese economy are feared to have had an impact on Vietnam, an economy reliant on exports.

The Voice of Vietnam quoted Nguyen Tri Hieu, a banking expert, as saying that as the Chinese yuan has been devalued so sharply, Vietnam is under pressure to devalue the Vietnam dong to prevent cheap Chinese products from flooding in Vietnam.

Meanwhile, the US FED still continued its interest rate increase policy this year. This will also put pressure on the dong/dollar exchange rate. In such conditions, Vietnam likely will have to adjust the exchange rate to fit the new circumstances.

The expert went on to warn that curbing the inflation rate at below 4 percent will not be an easy task. In principle, inflation also puts pressure on the exchange rate because high inflation damages the stability of the dong.

An analyst commented that the State Bank of Vietnam now bears a heavy burden because its monetary policy has to serve two purposes – economic development and dong stabilization.

If it applies measures to stabilize the dong, it will be able to curb inflation, set limit for money supply and keep the exchange rate stable. However, the low money supply will hinder Vietnam’s GDP growth.

In the long term, the two objectives will support each other. The economic development will be an impossible mission if inflation cannot be curbed, while inflation congestion will support economic growth. 

The business community has urged the State Bank to devalue the dong, saying that Chinese goods, which are becoming cheaper thanks to the weak yuan, will affect the competitiveness of domestically made goods, and make it more difficult for Vietnam’s businesses to export products to China.

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