> don't the Chinese want a devalued Yuan? It helps their economy, right?
It helps some and hurts others. It helps when you are exporting and hurts when you are importing. But it gets complicated:
Among the 'importers' are consumers. Devaluing the yuan raises prices for imported goods and services, and goods containing imported components. In a way, devaluation taxes consumers to help exporting businesses (but it's more complex: some consumers work for or otherwise do business with exporters, while some are connected similarly to importers).
Also among the importers are businesses who import components of the products they make, including goods, software, and services. Those importers just saw an across-the-board increase in their costs.
And there is import and export of debt. Those who owe money in another currency, usually US dollars, just saw an across-the-board increase in how much they owe. Those who are creditors in another currency just got an across-the-board bonus; however I suspect that most Chinese institutions would lend in their own currency. It also helps those importing assets; for example investors are more likely to put their money in China when they can buy yuan-denominated assets more cheaply.
In a free-floating currency and open market, exchange rates also affect domestic interest rates because the exchange rates affect demand by foreign investors. I'm not sure how China's market works in that regard.
In the end it's the government picking winners and losers, but if their economy or key sectors depend more heavily on exports than imports, certainly they could see a net gain.
They devalued the yuan a bit, and probably want to keep it where it is now.
China runs partly on low interest rates on deposits. That means savers are effectively subsidising loans to businesses. Chinese savers are already looking for other places to park their savings (stocks, real estate, offshore), and China doesn't want to add more inflation as another reason to withdraw from banks.
I guess they figure that buying and selling US bonds is a way to control their target exchange rate (which they probably want to keep fairly stable) without messing other variables up too much, because the global market for bonds can soak it up.
Yeah it's confusing... You're right that a devalued Yuan helps their exporters. Of course, too much is a bad thing too. They want to keep their currency within a narrow range relative to the USD. They were recently making a move to do that which sparked all of those 'currency war' headlines:
They did that as a 'one-off thing' but it seems like everyone interpreted it to mean their economy was actually really in bad shape so investors started to get out before their assets dropped more. Then the stock market went to hell and now they're surprised that everyone is spooked:
So basically they sparked a bit of a panic and have been throwing levers to try to reassure everyone but each thing they try seems to just make it worse.
Yeah the general rule with currencies is that as long as they're not too volatile, they can go up or down without huge implications to the economy.
The other thing to realize with the Chinese stock market is that even though it dropped something like 50% in 2 months, it's basically flat since January. If you look back to 1 year ago, it's still up 40%. You don't get 250% growth in 6 months without an accompanying correction cycle. The biggest problem with China right now is that it's high on potential, but nobody knows what the right value should be. So it will continue to be volatile like this until there's a better idea of if Chinese companies are creating real economic value or not and to what degree.
You need to take news reporting with a grain of salt, just because all news papers say something doesn't mean that something is true.
There is some truth in lower Yuan helps export, and the Chinese government probably kept that in mind. But I think their main priority is to maintain the status quo, and keep things stable, for the past 15 years or so.
I believe when they decided to devalue their currency it impacted their stock market and unfortunately all central banks are now beholden to their individual equity markets and therefore "had" to take action.
It helps some and hurts others. It helps when you are exporting and hurts when you are importing. But it gets complicated:
Among the 'importers' are consumers. Devaluing the yuan raises prices for imported goods and services, and goods containing imported components. In a way, devaluation taxes consumers to help exporting businesses (but it's more complex: some consumers work for or otherwise do business with exporters, while some are connected similarly to importers).
Also among the importers are businesses who import components of the products they make, including goods, software, and services. Those importers just saw an across-the-board increase in their costs.
And there is import and export of debt. Those who owe money in another currency, usually US dollars, just saw an across-the-board increase in how much they owe. Those who are creditors in another currency just got an across-the-board bonus; however I suspect that most Chinese institutions would lend in their own currency. It also helps those importing assets; for example investors are more likely to put their money in China when they can buy yuan-denominated assets more cheaply.
In a free-floating currency and open market, exchange rates also affect domestic interest rates because the exchange rates affect demand by foreign investors. I'm not sure how China's market works in that regard.
In the end it's the government picking winners and losers, but if their economy or key sectors depend more heavily on exports than imports, certainly they could see a net gain.