The collapse in exports and the consequent job losses in southern China have triggered speculation that the government might try to push down the value of the yuan. But not only would this provoke a protectionist backlash
from America’s new government, it would also do little to help producers. China’s problem is weak foreign demand, not competitiveness. The best way for China to support its economy—and to help unwind global trade
imbalances—is to bolster domestic demand
One piece of good news this week is that, following interest-rate cuts and the government’s scrapping of credit restrictions, total bank loans jumped by 19% in the 12 months to December, up from growth of 14% last summer.
China is perhaps the only big economy where credit growth has heated up in recent months. If that is sustained, it could help to boost domestic spending.
China certainly cannot rely on exports any more. Becoming the world’s biggest exporter will be of little comfort if global trade is spiralling downwards.