Finance Minister not worried by China's devaluation of yuan and talk of currency wars; also confident of good Chinese consumer demand; takes swipe at economists seeking to 'out-gloom' each other

Finance Minister not worried by China's devaluation of yuan and talk of currency wars; also confident of good Chinese consumer demand; takes swipe at economists seeking to 'out-gloom' each other

By Bernard Hickey

Finance Minister Bill English has rejected concerns that China's decision to allow a sharp devaluation of its currency for two days running could lead to "currency wars" that undermined the benefits of the New Zealand dollar's falls in recent months.

"It'll be just a bit more of a challenge for people selling goods into China, but the people selling into that market know the challenges and the opportunities, so I'm sure they'll handle it," English told reporters in Parliament.

He didn't think China's shock decision on Tuesday to allow the yuan to fall by 1.9%, the biggest one day fall in history, would lead to tit-for-tat devaluations that some have described as 'beggar-thy-neighbour'  'currency wars'.

"I wouldn't think so. Our devaluation reflects some fundamental stuff like the US economy is picking up, that our commodity prices are down, so there isn't really room or opportunity for governments to be manipulating currencies on that scale," English said.

He downplayed concerns that the actions by the People's Bank of China (PBOC) actions showed the Chinese authorities were increasingly worried about slowing economic growth.

The PBOC allowed the yuan to drop a further 2% on Wednesday, unleashing another slide on Asian stock markets and on commodity markets. Vietnam's authorities also widened the band for its currency in response.

The New Zealand dollar dropped to a fresh six year low of 64.82 USc after the second successive day of devaluation of the yuan as investors worried about commodity-linked currencies sold them down. However, the New Zealand dollar has risen more than 3.2% to 4.18 yuan/renminbi in the last week after the Chinese authorities' actions and despite the recent fresh slump in dairy prices.

"There's been uncertainty about whether China is growing at 7% and can continue to grow at 7%. There's aspects of how that economy is operating that look a bit risky like the very high levels of debt and excessive investment on the one hand, but on the other hand the underlying story of growing consumer demand is still pretty sound," English said.

"We're relying on the Chinese authorities making decisions about an economy that's not that transparent to us," he said.

'Economists competing to be the gloomiest'

Later in Parliament, English said Treasury had advised New Zealand's major trading partners were growing GDP at 3.5-4% and that the risks arising from Greece and China had receded somewhat in recent weeks.

He rejected questions from Labour Finance Spokesman Grant Robertson that were based on Westpac Chief Economist Dominick Stephens' downbeat quarterly update published yesterday, and on calls from ANZ Chief Economist Cameron Bagrie for the Government to consider a 'Plan B' programme of Government stimulus spending.

"Plan A is an economy that can continuously adapt as circumstances change, as illustrated by the fact that in light of lower commodity prices, the exchange rate has dropped significantly and interest rates are now falling rather than rising," English said, adding that the Government's micro-economic reforms were supporting growth.

He said the Government saw sustained economic growth of 2.0-2.5% "despite the excessive rhetoric of some of our bank economists."

English pointed to Stephens' calendar year forecast of GDP growth of 1.8% still being in line with March year forecasts for growth of more than 2%.

"There isn't a good reason to panic in the way that that member (Robertson) is panicking," he said.

Asked again about the comments from Stephens and Bagrie, English said: "In general we would pay more attention to what's happening from those who are out on the economic playing field, rather than those who are sitting in the grand stand watching it, which is where they are."

Earlier English was asked by Robertson about comments by ANZ Economist Sharon Zollner about a "sea of red" across commodity prices.

"I have noticed the tendency of bank economists recently to compete for making the most outrageously negative comment, but of course they have to go a long way to be more negative than the finance spokesman for the Opposition," English said.

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12 Comments

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Yes, I watched that exchange. Sad to see him trying to out-jolly the PM. Were I the Opposition, I'd bring a bucket of sand into the chamber and ask the Minister if he'd like to put his head in it.

Although I believe the economy is heading south for various reasons (and have done since around 2005), the more people talk it down, the faster it will go down. Negative breeds negative, and that's why an opposition has to be careful not to talk the economy down, because if the economy does go south, then the government can blame the opposition for helping it come true, and if it doesn't the can be shown as not economic savvy.

It is the Government's jobs to talk the economy up and provide confidence, so encouraging the real money producing productive industries and sectors an incentive to keep diversifying, providing jobs and investing therefore creating the wealth the rest of the country enjoy.

... encouraging the real money producing productive industries and sectors an incentive to keep diversifying, providing jobs and investing therefore creating the wealth the rest of the country enjoy.

Productive industries like the Auckland housing market?
The government seems pretty keen to keep that 'industry' afloat.

Every time I buy a lotto ticket (which wouldn't even be a handful a year), I talk up my chances that I've got the winning ticket in my hand. I guess I'm just not positive enough in my belief.

Welcome to Pleasantville! No problems here! Everyone is happy and everything is going swimmingly!!

I have thought it for quite a while, finally concluded that the reason that the bank economists from the big fours are still having their jobs is because they give (worthless/confusing) opinions quite often and our memories are just too short.

Oh, so that nice Bill English is telling us not to worry our pretty little heads. So reassuring.

These are the same idiots who told us dairy was going to double by lunchtime. Their announcements and five dollars will get you a cappucino anywhere in AKL.

Talk the economy up??? Or is that another way to tell those who are "not so switched on" that its all gunna be ok?

They need more than a bucket of sand. Why this government is not more concerned does confound me. Their arrogance and unwillingness to acknowledge a serious problem angers me. It reminds me of an 18yr old on a credit binge. And then the monthly bill comes in. Only then does the 18yr old realise how much they spent. Govt is irresponsible, they should be warning kiwis about their debt levels now

he is just repeating what his masters in china are telling him, meanwhile

Our devaluation reflects some fundamental stuff like the US economy is picking up, that our commodity prices are down, so there isn't really room or opportunity for governments to be manipulating currencies on that scale," English said.

A claim not supported by reality and if it were not for Yellen's persistent threat of rate hikes in the near future the USD would reflect as much. Read more

China is faced with the reality that US imports have collapsed without any possible near term recovery and had to stem the flow of desperate currency carry traders seeking debtors as State side leverage unwinds.

It would seem NY Fed's Bill Dudley is all too aware. Hence subsequent USD weakness.

DUDLEY: HOPEFULLY IN NEAR FUTURE FED ABLE TO RAISE RATES Read more

With BE it might be a case of ignorance is bliss.