What is the reason that China de-values their yuan against our dollar?

Question

What do they have to gain by doing this?

Answer 1

Keeping the value of the yuan too low act like a uniform tariff on imports and a subsidy on exports which serves to protect their industries from foreign competition while making their goods cheap in foreign markets. Most Countries have protected their industries from competition in some way during the period of development including the United States, and only be come free trading after the become competitive. Free market economist do not think it is a good policy, but China is not run by free market economists.
The US paranoia about China is only the latest in our unhappiness with countries with which we run a trade deficit. It was the Arab oil kingdoms 30 year ago follow\ed by Japan and is now it is China. Our trade deficit is due to the fact that we do not save enough as individuals and allow our government to run on borrowed money, so we should not blame our trading partners for our problems.

Answer 2

Protects their exports on the world stage, and makes foreign imports costlier at home. Also, if a nation limits its currency's value it decreases the probablility of speculators stockpiling the currency and playing with it too much. If a currency is used in a lot of futures trading, it comes under excessive scrutiny, and if that nation's economy displeases the market, traders will dump the currency and devalue it on the world stage. China knows that its tactics for spurring economic growth are shady as compared to countries with strong currencies. So rather than subject their currency to such abuse, the Chinese prefer to keep the value low so that the shenanigans are out of sight somewhat.

Answer 3

The fact that China sells off Euros and Yen to buy Dollars has a net effect of raising demand and price of the dollar (but not enough to stop it from falling completely).

Unfortunately, it would appear the U.S. government would like to see an even cheaper dollar as a means of paying down the massive debt (I say unfortunately because most of that debt is owed to U.S. citizens through bonds and legislative promises such as social security).

Since China has so much invested not only in U.S. denominated assets but also in the value of its trade-deficit based income, they have every incentive to do what they can to keep the dollar higher. Its almost like buying into a company whose stock keeps going down because you already have so much invested - and because you can't find a better alternative.

It is also a tool of diplomatic leverage. Relations have been tense for decades but suddenly we're mutually-dependent trading partners. China holds some power in that they could suddenly attempt to liquidate their dollar reserves on the open market, but that would be so hurtful to their own economy that it would be like the economic equivalent of 'Mutually Assured Destruction.'

Answer 4

Well its self evident, they are purchasing the US bonds by trillions (now over 1.2 trillionsUSD in value), so by keeping a control on their currency, they can purchase the US cheaper and increase their leverage against it! Also, it keeps the US from bothering China on sensitive issues... In any cases its more about geopolitics and internal political and economic stability that China is doing this!