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.
ANALYSIS
"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.
