MOSCOW, July 22 (RIA Novosti commentator Peter Lavelle) - China has loosened its dollar peg, allowing the yuan to fluctuate against a basket of currencies within a 3% band. International pressure on China to revalue its currency had mounted and the recent U.S. threat to impose a 27.5% import tariff on Chinese textiles is also looming over China's head.
The 2.1% revaluation of the Chinese currency is likely the start of a more flexible exchange rate. Although the markets reacted positively to the adjustment, experts say the move was too miniscule to impact the imbalanced trade relationship China has with the United States. Market players expect the United States to apply pressure for further adjustments, after its demand for a no less than 10%
revaluation.
The impact of Chinese revaluation on Russia will depend on the effect it has on the United States and specifically the dollar. As the dollar was expected to weaken against the yuan, the revaluation against the dollar/euro exchange rate will be minor.
The ruble's depreciation against the yuan will benefit Russian exports, while also assisting domestic producers by making Chinese imports more expensive. However, with a mere 4% ruble depreciation and the fact that China accounts for only about 5% of the total exports and imports, the effects will be limited. In terms of exports, wood and paper, chemicals and machinery and equipment exporters should benefit. Textiles and machinery and equipment are major import items from China, so domestic producers of these goods should gain.
Chinese economic growth is expected to continue to provide good support for Russian raw material exporters. China consumes only 1.9 barrels of oil per capita a year, below the world average of just more than 5 barrels and well below South Korea's 15-barrel average, meaning there is plenty of scope for increased exports, primarily from LUKOIL and Rosneft.
The demand for metals is being driven by the foreign relocation of production to China and the country's rapid urbanization, with Russia's Evraz Group a major supplier. Even if the revaluation does take some steam out of the economy and provides for a "soft landing," expect China's demand for raw materials to increase.
