China’s massive devaluation of its currency could take some of the heat out of Australia’s property market and hurt exports.
China aggressively cut the yuan’s value for a third day in a row on Thursday, taking it to a four-year low.
Tim Harcourt, the JW Nevile Fellow in Economics at the UNSW Business School, says the action is an attempt to boost the country’s struggling export sector by making prices more competitive, and it will have ramifications at home.
China is Australia’s biggest trading partner and a weaker yuan means 33 per cent of Australia’s total exports have just become a little more expensive, he said.
That makes Australian goods less attractive to producers and consumers in the world’s most populous nation.
But on the other side of the balance sheet, it will bring costs down for Australian companies.
Mr Harcourt said there are around 5000 Australian businesses that export products to China and around another 4000 that export to China through Hong Kong.
“They’ll get some relief on costs, and these companies will likely welcome the drop in China’s currency,” he said.
And if the devaluation moves help China’s economy continue to grow, it’ll be better for Australia’s own economic health in the long run, he said.
Australia is vulnerable to any downturn in China’s economic growth and demand for raw materials, especially for our biggest export, iron ore.
“The great Chinese export machine will keep going because their currency is a bit cheaper, so for an Aussie business it’s on balance quite good news,” he said.
And Mr Harcourt said the depreciation will probably slow down a lot of Chinese investment in Australian real estate, as a weaker yuan makes property more expensive for the biggest players in the market.
“Some Chinese buyers won’t have as much purchasing power,” he said.
A Credit Suisse analysis shows Chinese investors purchased $8.7 billion in residential property in 2013-14, with growing demand forecast to pump another $60 billion into the market over the next six years.