Why China won’t start a currency war

Some said China’s small currency devaluation on August 11 would lead to a currency war.  It hasn’t happened yet as China has not allowed the RMB to fall much below the level that was reached on the day of the devaluation.  The fact is there is more reason for China to support the RMB than to let it depreciate.  Here’s why that is the case. 

This Month in a Nutshell

This Month in a Nutshell

The Middle Kingdom is the Center of Attention

 From driving global markets and to irking Donald Trump, China was never far from the headlines in August.

 

Devaluation thrusts China into US campaign

It started when China executed a minor devaluation of its currency (which was actually a readjustment that bowed to market forces). Some took this as the first step in an inevitable currency war which then became a political football in the American presidential campaign, with Donald Trump leading the way.

Why is China Driving the US Stock Market?

Uncertainty and the impact on the global economy make China a major factor   China isn’t the only reason US stock market plunged last Friday. But it was a big…

Did China Just Blink?

Is China’s currency devaluation a sign of desperation?  Is a hard landing now unavoidable?   Everyone knew China’s double-digit growth rate couldn’t last forever. Optimists were hoping for a “soft…

US Politicians Ignoring the Reality of China’s Currency “Manipulation”

It is the market that wants China’s currency to devalue, not China’s government   As China’s recent currency devaluation rekindles the “currency manipulator” argument and rapidly enters the presidential campaign…

Is China a Currency Manipulator?

China’s decision to allow its currency to devalue by 2% on Tuesday (8/11/15) will certainly reignite the debate as to whether China manipulates its currency, primarily for the purpose of giving…

This Month in a Nutshell

This Month in a Nutshell

The stock market crashes.

 The government panics.

 The economy keeps slowing.

 Debt keeps growing.

 

Stock market debacle adds to the pressure on China

China already had a full plate, even before the stock market debacle that began in June and continued through July. In addition to the plethora of issues any nation faces (in China’s case, environmental degradation, terrorism from a discontented minority, tensions in the South China Sea, a huge corruption problem, etc.), China began 2015 at the most critical point of its transition from an export and investment driven economy to one led by innovation and consumer demand. We say China is at a critical point because, not only does it have to adjust to a lower, “new normal” growth rate due in part to stagnate export markets, but the debt China has added over the past five years (debt to GDP increasing from 125% to more than 250%) is putting China’s long term growth at risk.

This month in a nutshell

The economy is STILL weak, plus the stock market is falling (for now). Will China pile on the debt to try to keep things moving?

 

Between the recent hacking incident and tensions in the South China Sea, can US-Sino relations stay on an even keel?

 

June didn’t answer these questions, but it brought them closer to a head.

This month in a nutshell

The economy gets weaker.

Liberalization gets stronger.

The stock market soars higher.

Warnings in the South China Sea gets harsher.

 

Balancing growth and debt remains China’s greatest challenge

As more economic indicators suggest China’s economy continues to decelerate, concern mounts that growth, instead of adjusting to a “new normal,” will fall to an unacceptably low level that will have a serious impact on employment and the ability of China to regain momentum. China implemented another minor stimulatory measure in May, but also took actions that seem to pave the way for much larger fiscal stimulus, should the government decide it is necessary. But is more debt really what China needs? Just as it was at the beginning of 2015, the central question for China’s economy remains how China will balance debt with growth. Prudence has been the theme so far, but that could change.

加油

加油

加油 means   c.) “let’s go team,” “hustle,” i.e. something said as encouragement at a sporting event   Sports fans will chant this to encourage their team at a sporting…