Yesterday the media covered two types of information, which were not connected with each other at first glance. The first one is that the prime minister Tigran Sargsyan accepted the Ambassador of China to Armenia Tian Chanchun and by welcoming the Ambassador thanked his country for the dynamic development of the relations with Armenia. The second information concerns the currency exchange rate, specifically it informs that the NADAQ OEMEX ARMENIA CJSC implemented a transaction of 1,500,000USD at an average rate of 363AMD for one dollar and the closing rate was 363AMD.
Of course the readers are wondering what the connection between these two things is.
According to Tigran Sargsyan, the Armenian-Chinese relations are developing dynamically. From this point of view he attached importance to the participation in Shanghai-Expo 2010 and the opening of the joint Armenian-Chinese venture which produces chloroprene cautchouc. However the most important component of the bilateral business cooperation is the foreign trade. Notwithstanding the long distance China is one of the biggest trade partners of Armenia, which makes the 9.7% of Armenia’s foreign trade circulation (as per the data of January-May 2010). This rate was 7.4% in the same period of the previous year. This means that the trade relations have really developed. But the situation is not that much happy when you try to figure out which party enjoyed the benefits of this trade circulation growth more. During the first 5 months the trade circulation between the two countries made 171.8 million dollars, 159.5 million out of which was the import (92.8%) from China. The export has doubled compared to the previous year and reached 12.3 million dollars, but the import of Chinese products increased rapidly and reached 70%. If the process continues like this we will need many years to help our export balance stop being negative with the trade relations with China.
The Chinese people are importing almost everything to Armenia and the prices are so low that the people who have some idea about production are simply surprised. By the way, not always the Chinese products may have low quality. Even very famous European companies are entrusting their production to the Chinese. Thus, the Chinese products are a serious competitor for the Armenian production, which is in a heavy situation. Once the prime minister jokingly said that the Armenian producers should produce products that the Chinese are not producing. However, this rapid growth of the Chinese products import in the Armenian market shows that the Armenian producers have failed to do that and now the market is attacked by products with the stamp “Made in China” on them.
In fact, the Armenian-Chinese competition is prevailing over Armenia, the negative trade balance for Armenia is growing and the prime minister is happy for that. From the pragmatic point of view it is natural as the PM should be thinking of filling the budget and the Chinese import is sending a lot of money to the budget. What should the domestic producers do who get the government’s help only in the form of beautiful words and moral support? They are doing their best, working too much and struggling against the domestic corruption and nepotism, they are trying to find their places in the market by saying that “they don’t need the government’s help and the only thing they need is not to be an obstacle for them.” However it turns out that it is too good to be true and the obstacle is the exchange rate of their national currency.
Yesterday the process of the national currency appreciation hit a new record as the exchange rate went down to 363 dram and the trade banks were buying dollar from people at 360-361 and selling at 364-365 dram. This is the lowest rate during the past 12 months. As it is shown in the chart, the exchange rate was 360 dram in the end of June of last year. During the consecutive 8 months the national currency slowly depreciated till February 2010 and somehow a stable exchange rate was formed at 380-385. The Central Bank has been assuring that it did not interfere with the formation of the floating rate and would do interventions only for the purpose of preventing the rapid changes in the exchange rate. In the beginning of March the exchange rate grew rapidly by reaching 410 dram but it was regulated in a short period of time and returned to the previous rate. Unlike the predictions of a number of economists that the exchange rate would continue falling, the vice process happened. The national currency started losing its price faster. If in the end of April 1 USD used to cost 384.85 dram, in the end of May it became 379, in the end of June – 368, and yesterday it became 363. In fact during three months from the end of March till mid July the rate of dollar fell down by 9%, and no one knows how long this process may continue.
The readers know about the results of this process. The appreciation of the national currency by 9% means that on the one hand the price of the imported products will be cut down by 9% (or an opportunity to cut down), on the other hand the price of travel services for foreign tourists and the prices of exported products will be increased by 9%. We can be proud of the dynamic development of the relations between Armenia and China only if we act for the interests of China. We understand that the Chinese Ambassador is sincerely happy for that, but it seems the smile of our prime minister is more sincere.