Chinese economy weakens as yuan devalued again | Business| Economy and finance news from a German perspective | DW | 12.08.2015
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Chinese economy weakens as yuan devalued again

China's industrial production for July came in well below expectations, stoking fears of a deep economic slowdown. Earlier on Wednesday, the government devalued the yuan, sparking a sell-off on the markets.

Industrial production in the world's second largest economy rose by 6 percent in July, compared with the same month a year earlier, according to government data.

The figure, which includes output at factories, workshops and mines, was below analysts' expectations - surveys from both Reuters and Bloomberg had shown experts expected a 6.6-percent rise.

Fixed asset investment, a measure of government spending on infrastructure, expanded by 11.2 percent on-year in the January to July period - also below estimates and the lowest since December 2000. Retail sales were also lower than expected.

China, the world's top exporter, has been grappling with slowing growth - gross domestic product (GDP) for 2014 came in at 7.4 percent, which was the lowest rate in nearly 25 years.

Growth slowed even further in the first two quarters of the year, with GDP coming in at 7 percent.

The government and the central bank have reacted with a slew of stimulus measures, including cutting interest rates four times since November and loosening restrictions on bank lending.

Yuan devalued

On Tuesday, the central bank devalued the tightly controlled yuan - also known as renminbi - leading to a 1.9-percent drop against the US dollar on Tuesday - its biggest one-day fall since the yuan was unpegged from the greenback in 2005. On Wednesday, it dropped an additional 1.6 percent.

China's devaluation of the yuan sparked a sell-off on global stock markets, with carmakers, luxury goods makers, miners and energy companies all hit because of their exposure to China.

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The great market fall of China

The US government, long a critic of China's rigid currency regime, said it was too early to judge the move.

China says the move is part of reforms to make its exchange rate system more market-oriented. The International Monetary Fund welcomed the move, saying it will allow market forces to play a greater role in the nation.

But critics simply see it as an unfair tool to prop up China's weakening export market. China's central bank insists, however, that it does not plan a "sustained depreciation" of its currency.

ng/uhe (Reuters, AFP)

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