Effect of Yuan Devaluation on Emerging Economies

Given that the bank of China has started to devalue the Chinese Yuan there has been worries about how this would affect emerging economies. The result of devaluation is that China's exports will be cheaper and importing will become more expensive for the Chinese.

Following the market crash that China has experienced in the past few months, they are already importing less from emerging markets since their growth, and hence production has slowed. Devaluing the Yuan will result in less importing by China further exacerbating the issue of falling trade balance for emerging economies.

A second concern is that if China devalues, other countries will follow suit (currency war) in a bid to make importing from them, as opposed to China more attractive. This will lead to reduced attractiveness of importing from emerging markets as a devalued currency means exports are cheaper for foreigners and imports are expensive to domestic businesses. The trade balance of emerging economies will take a blow depending on how many devaluing countries are major trading partners.