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. The RMB hasn’t really fallen much since then and the worry over a currency war looks over done, but that won’t stop Trump and company from focusing on China. Expect more of the same as the campaign continues. (For our thoughts on the recent discussion, see our blog “Why Trump is Wrong About China.”
Problems in China send global markets reeling
Later in the month, a bad PMI reading sent China’s stock market reeling again, only this time, to the surprise of many, it took global markets with it, inducing a near 600 point drop on Dow Jones Industrial Average in one day. Then, just when it looked like the markets had stabilized, it happened again. On September 1 bad economic news in China drove the Chinese market down and global markets followed suit. It certainly isn’t China fault that global markets are so jittery. But it is an indication as to how important China is to global growth that any unduly negative sentiment about the Chinese economy can have such an impact on global markets.
Tianjin blast rocks China
From the Chinese point of view, probably the biggest story was the industrial accident (chemical explosion) in Tianjin which killed more than 150 people. Demonstrations resulted in reaction to a variety of issues including the proximity of the chemical warehouses to residential areas, the regulatory and legal negligence surrounding the incident, and dissatisfaction with the response and information flow following the accident. In reality the incident simply brings to light that China still has a long way to go to meet the standards of more developed nations.
Below is a quick summary of the stories covered in this month’s newsletter.
China Roils Global Markets
Bad economic news sends China’s stock market reeling which then sends global markets reeling, including a 588 point drop in the Dow. Markets have steadied, for now, but a continued fall in China seems likely.
Worries mount amidst mixed data
Economic indicators weren’t all bad in August, but particularly bad numbers relative to exports and industrial activity stoked concerns that the economy is weaker than expected. More stimulus is on the way, along with a nod toward debt control. Time will tell if China can manage a smooth transition to the “new normal.”
RMB Devaluation: Liberalizing trading rules leads to devaluation
China made a small step toward a more freely traded currency which resulted in a 2% devaluation in one day which immediately resulted in suspicions and accusations that a currency war was about to start. So far China has not permitted the RMB exchange rate to fall much further.
Liberalization Roundup: Xi’s Reform Plan Under Attack
There were some interesting yet small moves toward liberalization in August, but the biggest story is the apparent revelation that there is significant internal opposition to reform. Who wins that debate is key to China’s future.
Currency liberalization: New rule relative to trading
On any given day the RMB is allowed to trade 2% above or below a rate fixed by the central bank. The new rule says that the fixed rate will be the rate at the close of the previous day, not simply a rate set by the central bank.
Law & Politics Roundup: Punished for spreading rumors and media extortion
China punished 200 people for “spreading rumors” relative to the stock market and Tianjin explosions. China also arrested a senior manager in the state media for corruption, which may be more political than anything else.
Huge Blast in Tianjin Kills More than 150
More than 150 people were killed by an explosion in a hazardous chemical warehouse in an industrial park in Tianjin. It seems multiple safety regulations had been broken and so far 11 have been arrested in connection with the accident.
The government struggles to cope with religion in China
Cooperation with the Vatican and a campaign to tear down crosses shows how China is trying to figure out how to deal with religion as interest grows in China.