Federal Treasurer Joe Hockey has weighed in on China’s shock decision to devalue its currency earlier this week, saying the move is good news for Australia.
The Chinese central bank devalued the yuan by 1.9% on Tuesday, with overseas markets reacting negatively to the news.
Wall Street was hit the hardest, suffering its sharpest one-day drop in the past four months.
However, despite the devaluation ruffling investors’ feathers, the drop in the yuan has been tipped as a good sign for Aussie businesses importing Chinese goods.
Hockey told Fairfax that in the past China’s rising currency has damaged its exporting market.
This is significant, the Treasurer says, because Australia is one of China’s largest trading partners.
“Importantly, we need to remember that the yuan has appreciated significantly in recent times, and that has had some significant impact on Chinese exports,” Hockey said.
Tim Harcourt, an economics professor at the University of New South Wales, told SmartCompany Hockey’s assessment of the yuan’s devaluation is accurate.
“If the devaluation helps China grow and helps their economy, that’s obviously good for [Australian] exporters as they are our number one trading partner,” Harcourt says.
“There’s about 3000 Australian companies actually based in China itself, so that’s going to be a pretty good thing for them. For exporters overall, there’s about 5000 that export directly to China from Australia and about another 4000 through Hong Kong. So you’ve almost got about 10,000 people involved in China. Eighty per cent of them are importers as well, so if they’re buying from China it’s probably cheaper and they’ll have lower costs.”
However, Harcourt also points out that the yuan isn’t the only factor that Australian exporters should keep their eye on when trading with China.
“They [the exporters] always say that business culture and non-tariff barriers within China are hard,” he says.
“There’s not many holding back Australia from an Australian domestic view right now, so it’s more about the help you get on the ground. I would say in China, the government badge really matters. They respond really well to good government connections.”