China's politicians used to talk about the economy being unbalanced, as if that were obviously a bad thing. The surprise devaluation of the official yuan exchange rate by nearly two per cent on August 11 shows the debate has moved on - though the currency's pervasive undervaluation hasn't.
The newly cheaper yuan will have little practical impact on the real economy. China's export competitiveness is decided by labour costs above all else. Minimum wages have been rising 13 per cent a year for the five-year period ending in 2015. Small price changes matter little for higher-tech industries or capital goods like trains.
Even so, the move is an admission that conditions have softened. Exports slumped 8.3 per cent in July compared with a year earlier, with shipments to the euro zone down 12 per cent. The prices producers get for their goods have declined for 41 months. If the market really drove the yuan's value, it would be falling. By stressing the importance of supply and demand in setting the currency's value, the People's Bank of China may be paving the way for further weakness.
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Then there are the big trade surpluses China still runs with the world. The gap with the United States in July was the third largest on record, at $31 billion. Those surpluses have shrunk as a proportion of China's gross domestic product as its economy has expanded. For slower-growing trade partners, though, China's gluts remain as big and scary as ever.
It is fanciful to think that China would target a stronger currency at a time when growth is slowing. Getting the economy into balance will require unpleasant adjustments, repurposing assets, people and equipment, and the country just isn't yet ready to take that medicine. The hope is that this gesture towards a weaker yuan doesn't mean that long-term goal has fallen from view altogether.
