Thursday, August 13, 2015

China Currency Devaluation Stirs Concern

China's central bank devalued (CNBC) its currency by another 1.6 percent on Wednesday, as the government tries to offset slowed growth and a market crash. Beijing says the change is part of the government's policy to allow its currency to follow market changes. Major stocks throughout the region fell (Bloomberg) in response. A weaker yuan is expected to boost Chinese exports globally and support its flagging growth, however, the devaluation prompts fears (Reuters) of a currency war.
"It's plausible that SOE reform motivated the Chinese government's devaluation decision. If Xi is truly interested in allowing the market to play a leading role in economic decision making, the real test will be whether his government shows the courage to open the country's opaque financial system, tighten corporate governance and allow the media to play a bigger role in weeding out corruption," writes William Pesek in Bloomberg View.
"Part of the calculus for Chinese leaders, some analysts said, is that it’s more important to safeguard political and economic stability at home in the lead-up to a Communist Party meeting in October when key policies are set than to avoid new strains with Washington," write William Mauldin and Mark Magnier in the Wall Street Journal.
"But the devaluation could yet have unwelcome effects. It looks likely to amplify China’s export of deflation by making Chinese goods cheaper. This is of concern because the producer price index, which measures aggregate prices at the factory gate, fell in July for the 40th straight month to minus 5.4 per cent. This, coupled with the impact of potential competitive devaluations, looks likely to lead the world into another phase of slower growth," writes the Financial Times