Exports could take a hit

THAI EXPORTERS’ competitiveness will take a hit if China continues its weak currency policy, following yesterday’s surprise 2 per cent devaluation of the yuan.

Kobsidthi Silpachai, head of Market and Economic Research at Kasikornbank, said China’s devaluation is understood to be a policy tool to shore up its sagging economy after Beijing earlier implemented drastic measures to deal with bubbles in its stock markets.

Beijing also needs to stabilise its currency in order to make the yuan an official reserve currency – as determined by the International Monetary Fund – on par with the US dollar, euro, the Japanese yen and the British pound. 

He said China had lost some competitiveness because its currency has appreciated after it kept the yuan broadly stable against the dollar since March in a move to be the additional official reserve unit.

Vichai Assarasakorn, vice chairman to Thai Chamber of Commerce, said Thai traders, especially those who do business with China, need to closely monitor the currency movement as it could affect Thai exports to China.

Poj Aramwattananont, president to the Thai Frozen Foods Association, said the yuan devaluation was mainly aimed at adjsuting the Chinese unit to balance with regional currencies which have dropped against the US dollar in recent months.

However, if the weak yuan policy is sustained, it would affect Thailand’s export competitiveness as Chinese goods would be comparatively cheaper than Thai |products as the countries have similar exports.

Vichai said the Thai government should focus more on investment stimulation as exports this year will inevitably decline by about 4 per cent. 

Measures to spur the domestic economy needed to drive investment, which should focus on public private partnerships as the private sector has efficiency and transparency.

Chantavarn Sucharitakul, the Bank of Thailand (BOT)’s assistant governor of its Financial Markets Operations Group, said the move by the People’s Bank of China was part of the Chinese government’s financial reform effort to gradually make the currency more flexible.

“The depreciation of the yuan will have a short-term impact on market sentiment but the impact in the long-term will have to be assessed,” she said.

“The increased flexibility should be positive for China’s economic reform efforts and the depreciation of the currency should better support China’s economy and that could beneficial for trade activities in the region,” she added.

China is currently Thailand’s biggest trading partner accounting for 14.8 per cent of Thailand’s total trading value in the first five months of 2015, while 1 per cent of the product and service transactions between the two countries are done in yuan.

Usara Wilaipich, a senior economist at Standard Chartered Bank (Thai), agreed that the yuan devaluation could have only a short-term impact on Asian currencies since the People’s Bank of China (PBOC) told the market its devaluation is a one-time adjustment.

The economist noted that the baht had depreciated due to the likelihood of a US Fed rate hike and stronger US dollar.

StanChart expected the baht’s value against the US dollar to be Bt34.50 by the end of this year.

Tim Leelahaphan, an economist with Maybank Kim Eng Securities (Thailand), said the weaker yuan would affect Thai exports, as shipments to China would be hit due to higher prices, while Chinese exports would be more competitive in the global market.

 

Thai exports similar to China’s 

“China and Thailand are both emerging markets with similar products so the depreciation means that Thailand’s export of products that are similar to China, especially in the export of agriculture products, will suffer,” he said.

“The baht is weakening from the strengthening of the US dollar but China uses a fixed exchange-rate policy while Thailand’s is a managed float exchange-rate policy,” he said.

The baht fell to Bt35.53 per US dollar yesterday afternoon while the yuan dropped from 6.1162 per US dollar on Monday to 6.3273 per US dollar yesterday.

Maybank expects the baht to trade around Bt35.5 per US dollar by the end of the third quarter. 

But it sees the currency trading near Bt36 in the short term before strengthening to Bt35 per US dollar by the end of the year, as the Thai economy is expected to pick up by then.

Tourism and Sports Minister Kobkarn Wattanavrangkul said there was currently no impact on the tourism industry. But she noted that the stronger US dollar had benefitted Thailand.

“The tourism sector is not counting on the exchange rate for growth as exchange rates can always fluctuate, so we would rather concentrate on creating and finding new market channels for the industry through promotions,” she said.

“We also expected more Middle Eastern visitors due to the end of the Ramadan season,” she added. 

Nopporn Thepsithar, chairman to the Thai National Shippers Council, said the weaker yuan should be fine in the long run if the Chinese economy is stronger and has more demand for Thai imports.

But a weaker Chinese unit would |hit Thai competitiveness, especially |shipments of similar items to Asean markets.