BEIJING -- China has devalued its non-convertible currency by almost 10 percent as of today, the second such move within the past year and one likely aimed at reducing burdensome subsidies to the nation's export industries.
In a terse announcement carried by China's news agency after the close of banks here last night, the State Administration of Exchange Control said that the government- set exchange rate of the Chinese currency would be cut 9.57 percent.
Much anticipated, the devaluation changes the official rate for purchasing Chinese yuan from about 4.7 yuan to about 5.2 yuan per U.S. dollar.
Foreign economists here called the move a modest step toward bringing the government's exchange rate in line with the actual value of the Chinese currency. Some Western analysts believe that a true market rate for purchasing yuan would be as low as 7 yuan to the U.S. dollar.
Further devaluation in China's currency is expected over the next few years as the country tries to achieve its previously stated goal of having a convertible currency.
Today's devaluation has been anticipated since almost immediately after the last devaluation of the Chinese currency, a cut of 21.2 percent last December. Speculation over the pending move intensified here this fall, prompting official denials as recently as three weeks ago.
If China had a market economy, the devaluation would be expected to boost the country's already burgeoning exports and its increasingly favorable balance of trade position, particularly with America.
But foreign economists say that, because China's foreign trade is under strict administrative control, the main impact of this devaluation will be to lessen the government's subsidies to its export industries, subsidies believed to be running as high as $10 billion a year.
A Western diplomat who deals with economic matters explained that the subsidies work in this way:For every dollar earned by exports, the government has been passing on to export industries 6 yuan instead of the official rate of 4.7 yuan -- thereby essentially giving these industries a subsidy of more than 20 percent.
Today's devaluation would halve these subsidies at a time when China's leadership is deeply divided over how to best tackle the crippling inefficiencies within Chinese industries, lessen the government's subsidies to both export- and domestic-oriented industries, and reduce its growing national budget deficit.
China last year spent about 20 percent of all its state revenue on buttressing money-losing enterprises, Xue Muqiao, a leading Chinese economist, said at a recent forum, according to the state news agency.