The Chinese economy slows, capital flows leave and Beijing, while risking the launch of a new currency war, tries to run for cover devaluing the currency and loosening the link with the dollar rising.
With an unexpected move, the Chinese Central Bank has lowered by 1.9% to $ 6.2298 ($ 6.1162 from Monday’s) the daily fluctuation band of the yuan, bringing it to its lowest in nearly three years, specifying that This measure is ‘one-off’.
The decision Beijing has sent European stock markets in red, from Frankfurt, where even the titles of the automobile groups, who have focused heavily on China, have suffered from sharp losses along with those of luxury and commodity. The latter dragged down by the collapse of oil, the minimum six years now at $ 43.08 a barrel.
The Central Bank of Beijing took action after the peg to the dollar led to a revaluation of the currency in line with the strengthening of the greenback and hit hard in recent months exports of the Asian country. The move was in fact the declared aim to revitalize the export of the second economy in the world and to lower financing costs.
After the debacle on the Chinese stock markets in July, stop and barely struggling with a massive flight of capital, the central bank then surprised the market by deciding the night the greater
devaluation of the past two decades even though contained in absolute terms and in recent days after consumed part of the reserves to take firm level. Beijing has in fact two goals for change sometimes conflicting: promote exports but also curb the outflow of capital.
Not surprisingly, the move was immediately called ‘one-off’ but the Bank itself has said that from now on the exchange (secured by rigidity anchoring to the dollar with a swing of only 2%) will take account of more market mechanisms thus opening the way for a further depreciation.
The write-down is used to try to revive the economy while the Asian giant is definitely slowing. Not only the data on the GDP grew by 7% in the quarter and the slowdown in exports but also a whole series of indicators on consumption, vehicle registrations, investment and import shows the anxiety of China. A situation that the central bank has tried to reverse pumping money and cutting rates down but so the return on assets in yuan and encouraging capital flight that the next rate hike in the US Fed would only intensified.
The solution could be an even more massive devaluation of the exchange rate but this would have meant the failure of many local companies with debt in dollars to the airlines or telephone (already beaten on the Stock Exchange) and undo the political work for one yuan “alternative” the dollar and euro on world markets and has therefore chosen a more gradual way.
A affected by the devaluation are then immediately the prices of raw materials: oil and minerals up to now increasingly swallowed up by the “factory the world “but at the top of the chain suffer
Western markets are manufacturers of luxury goods required of the new oligarchy Chinese: auto, fashion and jewelry.
Stephen Roach, former boss of Morgan Stanley in Asia, not just a devaluation to compensate for the fall in exports in a weak global environment. The move also threatens to trigger a “war of currencies” up to now limited to a guerrilla war that saw off coins from Australia, South Korea and Singapore.
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