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Sept.7, 2015

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SEPTEMBER 7.2015 COVER STORY 10 THE JOURNAL OF COMMERCE WHEN CHINA DEVALUED its currency in mid-August after a 10-year run-up against the dollar, the People's Bank of China described the move as a natural step toward the creation of a market dominated Chinese exchange rate. No one in the market — not importers, exporters, manufacturers, investors or analysts — bought the message. Global stocks and commodity markets sold off at an astonishing rate, triggered by fears that China could launch a pro- longed currency war that would boost its own exports at the expense of those it buys from, including the U.S. Long after stock and commodity markets regain their footing, other questions and doubts about China's intentions will linger, many that impact global supply chains in general, and con- tainerized shipping in particular. What does China's new philosophy mean for the retail sector? If the country pur- sues an aggressive policy of devaluing the yuan further, could it derail the 12-nation Trans-Pacifi c Partnership, so cherished by the U.S., even if China isn't lined up as an initial member? At its core, the devaluation comes down to trade, several economists and China experts told The Journal of Com- merce. "Strip away the rhetoric, and the devaluation is in response to miserable July trade fi gures," said Marshall Meyer, professor emeritus of management at Wharton and a longtime China expert. Chinese exports plunged 8.3 per- cent year-over-year in July, the worst decline in four months, with depressed demand from Europe and the U.S., and far worse than the 1 percent decline most economists expected. "The intent," Meyer added, "is to jump-start the export engine. Whether it will, given soft global demand, is an open question." Mario Moreno, chief economist for The Journal of Commerce, said Chinese policymakers have been alarmed that the yuan in recent years has appreci- ated so much against the currencies of the country's major trading part- ners, including the U.S., Japan and South Korea. As the yuan has appre- ciated, its exports have suffered, and their growth rate has failed to meet expectations. "They are trying to boost exports," he said, "because exports The devaluation of the yuan sent shivers through global markets. Was it a pure exports play or is something else at work? By Alan M. Field

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