News / Asia

Chinese Currency Decision Could Boost Southeast Asia Trade

Southeast Asian economies could be among the first to benefit from China's decision to unpeg its currency, the yuan, from the dollar and allow a wider trading band.  Financial analysts see the potential for regional exports rising, both to markets outside Asia and to China.

Members of the Association of South East Asian Nations have seen China as a competitor as its industries have taken a greater share of global markets over the years.

But now, with China's recent decision to widen the trading band of its currency, Southeast Asia may benefit if the yuan rises in value.  Many economists and business leaders around the world have long complained that China kept the yuan artificially weak, making Chinese goods cheaper on international markets, and making imports more expensive in China.

Double benefit?

Tiziana Bonapace, a senior economist with the U.N. Economic and Social Commission for Asia and the Pacific (ESCAP), sees a double benefit for industries in Southeast Asia if the yuan slowly strengthens.

"Southeast Asian economies are competing on the basis of costs with China - that these products in the immediate future have a cost advantage because they become relatively cheaper because the yuan has appreciated," Bonapace said.  "Then the expected increase in demand for imports from China will result in increased exports of Southeast Asian economies to China."

Two years ago, when the global financial crisis began, China essentially pegged the yuan to the dollar and ended any appreciation of the currency.  But many Southeast Asian currencies rose against the dollar and other major currencies, making their exports less competitive.

Slow progress

Sunday, Beijing announced the yuan would no longer be pegged and it widened the range the currency could move against the dollar.  But many foreign exchange market experts have said they expect the yuan to appreciate only slowly.  As if to confirm that, the yuan has weakened slightly this week.

In the past year, ASEAN has strengthened its ties with China through a free-trade agreement.  The expanded trade, analysts say, will further boost economic integration in East Asia.

Thailand Trade Representative Office president Kiat Sittheeamorn
Thailand Trade Representative Office president Kiat Sittheeamorn

Thailand Trade Representative Office president Kiat Sittheeamorn says currency markets also will shift to better reflect the economic conditions of the countries in the region.

"Currency regimes are meant to reflect the fundamentals of the economy," Kiat said. "With the potential strengthening of the yuan I would say that exports from Thailand could be most beneficial in terms ... and also from ASEAN countries because we have ASEAN China [free trade] agreements so that the whole ASEAN 10 countries could benefit from higher exports."

Trade between China and ASEAN now tops $100 billion and during the past few years as grown at more than 20 percent annually.

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