China’s economy grew by 7.4% in the first quarter of 2014, the slowest rate since September 2012 and below the 7.5% target set by the Chinese government.
“The big picture is that this did miss the [Chinese] government’s target which is what raises eyebrows because China is the ‘engine of global growth’,” says The Daily Ticker’s Lauren Lyster. “But the truth is that’s what the economy is supposed to do there. They are trying to wean themselves off of their desperate addiction to investment-led growth.”
Retail sales in China were up 12.2% year-over-year, beating expectations but industrial production missed estimates at 8.8% and fixed asset investment also slowed down. “Clearly they have a slowdown going on,” says The Daily Ticker’s Aaron Task, “and they’re trying to manage it.”
One of the ways China is attempting to manage is by intervening in the currency markets to weaken the yuan after years of increasing in value. A semi-annual U.S. Treasury report released to Congress Tuesday said the Chinese currency "remains significantly undervalued" and could appreciate if it were able to trade more freely. The U.S. has been encouraging China to stop intervening with the currency and let the markets set the value.
“The story has been written every year in almost the same way,” says Lyster. “The U.S. comes out and chastises China for letting the currency weaken, for undervaluing it essentially, but they always fail to label them a currency manipulator. And if you step back, China really has been allowing their currency to appreciate bigger picture.” China last month doubled the trading band for the yuan, allowing it to rise or fall to a greater extent than before.
“If the renminbi were allowed to float entirely, I’m not so sure it would rise in value and then what would the U.S. government say?” says Task.
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- Lauren Lyster