Experts at Odds Over Effects of Yuan Devaluation

Economists and industry experts disagreed Tuesday on the effects that recent currency devaluations in China and Vietnam would have on the Cambodian economy.

China’s central bank sent waves through the global business community on August 11 when it devalued its yuan currency by 2 percent, a move some claimed was an effort to spur lagging exports. Bloomberg Business reported last week that Vietnam had responded in kind by weakening its own currency by 1 percent.

Srey Chanthy, an independent economist, said that due to the Cambodian economy’s high level of “dollarization,” currency devaluations in China and Vietnam would have a negative impact on Cambodian exports.

“The garment industry pays wages in dollars and everything else in dollars. When you know these currencies [in China and Vietnam] are going down in value against the dollar, then in Cambodia, exports may have problems because everything is dollars here,” Mr. Chanthy said.

The solution to this issue was “de-dollarization,” the economist suggested.

“This means that the government and the National Bank of Cambodia have to wean the Cambodian economy off the dollar,” Mr. Chanthy said.

Hiroshi Suzuki, chief economist at the Business Research Institute of Cambodia, also called Cambodia a “highly dollarized economy” and said the country could experience some “indirect effect” of the currency devaluations.

“Cambodian currency is being appreciated [compared] to those of China and neighboring rival countries,” Mr. Suzuki said in an email.

“This could be some disadvantage for the investment decision making to [the] export-oriented sector,” he added, noting that Cambodia’s tourism sector might also be affected, with the country now a more expensive destination for Chinese visitors.

Others, though, were less concerned about the effects of this month’s currency devaluations, some even saying the devaluations would benefit Cambodian businesses.

Stephen Higgins, managing partner of financial consultancy firm Mekong Strategic Partners, said in an email that the recent drop in the value of the Chinese yuan and Vietnamese dong by a few percentage points was “not in and of itself very meaningful.”

“To put it in context, over the past year the Thai Baht is down over 10%, and the Malaysian Ringgit is down over 25%, which are bigger falls than what Vietnam and China have seen over the same period,” Mr. Higgins said.

Ken Loo, secretary-general of the Garment Manufacturers of Cambodia, dismissed assertions that China’s currency devaluation could take a toll on the Cambodia’s exports.

With the dollar stronger than the yuan, he said, the costs of raw materials imported from China by Cambodia’s garment factories would be cheaper.

“Are we exporting to China? No,” Mr. Loo said. “So in fact it makes us more competitive because we are receiving in US dollars and we are paying for our raw materials in possibly converted from renminbi [yuan].”

Jayant Menon, the Asian Development Bank’s principal economist for regional economic integration, said concerns in Cambodia should not center on the price effects of a weaker yuan, but rather on what it means for China’s economy as a whole.

“The depreciation of the yuan is significant not for what is happening in itself, but as an indicator of how China is slowing a lot more than the numbers suggest,” Mr. Menon said. “That will have [a] much greater impact on the region including Cambodia.”

With a weaker Chinese economy, he said, Cambodia would likely see both decreased investment from the country and a drop in the number of tourists.

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