China Drops Yuan’s Value. On 26 May, China lowered the official value of its currency, the yuan, to 7.13 per dollar, the lowest official exchange rate since February 2008.
China sees a cheap yuan as making the country’s products more affordable abroad, boosting exports as it seeks to recover from its economic shutdown.
The yuan has weakened against the dollar steadily since 2018 as the U.S.-China trade war dragged along. At one point, the yuan fell below seven to the dollar, prompting President Trump to accuse China of manipulating its currency’s value.
The yuan’s value could sink to 7.3 or even 7.6 to the dollar this year if the trade war and economic pressures on China continue, analysts forecast.
A rising number indicates a weaker yuan; two yuan to the dollar is a currency only half as strong as a yuan that’s worth the same as a dollar, one to one.
The yuan could end the year closer to a value of 7.05 to the dollar if trade tensions ease, predicted Iris Pang, China economist at ING Bank.
However, those tensions seem likely to continue. In May, the Trump administration banned U.S. trade with dozens of Chinese companies, including tech giant Huwei, which has been involved in 5G technologies rolling out in the U.S. and several European countries.
China’s new crackdown on Hong Kong’s demands for political freedoms could prompt additional U.S. retaliation.
TREND FORECAST: History may be about to repeat itself. As noted in the U.S./CHINA RELATIONS: THE NEW COLD WAR article in this issue, history is repeating itself. In the 1930s, during the Great Depression, there was a currency war and a trade war with Japan, followed by World War II.
In 2020, there is a currency war (the yuan is at 2008 lows) and a trade war with China at the onset of the “Greatest Depression.” Will it be followed by World War III?
As Gerald Celente says, “When all else fails, they take you to war.”
Electric Car Sales Lag. April was the first month in which electric car sales in China shrank while the overall car market there grew.
For the first time in 21 months, sales of gas-powered cars rose instead of dwindled. While sales were up 6 percent in that category, EV purchases plunged 27 percent.
As part of its plan to make China a leader in next-generation transport technology, the government had restricted sales of gas buggies and had set a goal of two million EV sales in the country this year. Now analysts expect 2020’s sales to reach barely half that number.
Post-lockdown, Chinese authorities have eased restrictions on petrol-powered cars as part of a plan to stimulate the economy. At the same time, dealers are trying to clear out old gas-powered models, often selling them at a loss or on dramatically easy payment terms.
Also, gas prices in China have fallen by more than 30 percent, helping to lure drivers back to the familiar cars they already are comfortable with.
The government has intensified its EV efforts, pledging to build more charging stations, offering cash incentives for drivers to trade in gas guzzlers for EVs, and raising EVs’ targeted share of China’s car market in 2025 from 20 percent to 25.
Also, Chinese officials had begun phasing out subsidies for EV purchases but now have decided to extend them through 2022. The supports are generous, reducing the sticker price of a typical EV by about $13,000. Tesla also has cut the price of its Model 3 to under $42,000, so it qualifies for the subsidies.
Those efforts still might not be enough.
EV sales in China have mostly been made to fleets, not individuals. For example, in Shenzhen province, which has an all-electric taxi fleet, only 10 percent of EV sales have been made to individuals.
“People just aren’t that interested,” said analyst Robin Zhu at Sanford Bernstein.
TRENDPOST: Electric cars will not be interesting to the mass market while gas prices are below $3 a gallon, which will be the case at least through 2021. Also, EVs have more appeal to younger people, who are less interested in owning cars than in taking public transport or calling an Uber. As we have been forecasting for several years, until there is a more advanced battery technology, the market power of EVs has been overhyped.
