China's "one-off depreciation" of yuan to boost its flagging economy will certainly encourage Pakistan's protesting export sectors, particularly textiles, to step up their campaign towards their objective of a weaker PKR owing to a variety of widely known factors. The central banks of some major Asia-Pacific economies such as China, South Korea, Australia and India have already cut interest rates in recent times to boost exports facing a lackluster global demand. Insofar as Pakistan is concerned, policy rate cuts have not really helped exporters as government borrowing from banks continues to dominate the lending scene. Notwithstanding the government's growing reliance on banks in relation to its borrowing needs that discourages greater private sector off-take, the issues of rising cost of doing business, energy and law and order have already dampened the private sector's appetite, taking a lot of gloss off the plausibility of argument that government borrowing crowds out the private sector space.
As the global stocks, particularly European and the Wall Street, were witnessing a decline and US dollar and British Pound Sterling making some valuable gains on the news of yuan devaluation by 2 percent on Tuesday (Beijing further devalued its currency yesterday), the bigger fall since 1994, Pakistan's top export earner, All Pakistan Textiles Mills Association (APTMA), was asking the federal government to either devalue PKR by at least 15 percent or withdraw a slew of taxes and surcharges to help textiles, the largest foreign exchange earner, survive with a measure of dignity, warning that the country's exports will decline by $4 billion in the absence of "remedial" measures by the government.
Little do, however, our exporters appreciate the fact that China's is an export-driven economy that posts trade surpluses to help Beijing create new job opportunities for a great sea of humanity; it also helps the former Middle Kingdom to pursue its investment philosophy aimed at milking overseas infrastructure or non-infrastructure investment opportunities, in addition to exploring investment alternatives to traditional stocks, bonds and money market instruments. China has both matching and competing goals: it has weakened yuan only in a measured way; it hasn't lowered its currency by 20 percent, for example, because it is fully mindful of the fact that any imprudent or aggressive decline in currency value can lead to massive capital outflows.
Seen through the prism of Free Trade Agreement (FTA) between Pakistan and China, which is strongly skewed towards the latter, trade balance acquires a new but grim significance following depreciation of Chinese currency as a cheaper yuan will help Chinese exports by making them less expensive in Pakistani market and elsewhere.
The writer is newspaper's News Editor