We were used when we referred to China , as a country
feeding the world in the last two decades .
We were also used to 8-10% growth annually .
Well , serious problems started to emmerge hitting the world's
first economy ( it recently surpassed according to some
studies, the U.S ) , as we speak....
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Let's have a closer look at what is happening right now in
this immense country .
Every weekday morning this year , China's currency has followed the same
ominous path .
The central bank in Beijing fixes the initial value for the renminbi,
the center point for the currency's daily trading range .
It is roughly the same value , 6,12 to 6,13 to the dollar .
Then the markets open in Shanghai , and the renminbi quickly sinks close to
the bottom of the currency's trading band , roughly 2% lower . Only frequent
intervention by the central bank - buying renminbi and selling dollars -
prevents the Chinese currency from falling even further .
The weakness in the renminbi is a growing worry for government policy
makers and corporate executives .
The currency's decline reflects the money flowing out of the country .
Wealthy Chinese are moving large sums overseas ,
troubled by President Xi Jinping's anticorruption campaign and
the country's slowing economy .
Foreign investors are also growing more skeptical of China .
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For many years , China kept the renminbi weaker than economic fundamentals
dictated to help its exporters stay competitive in foreign markets .
But a weak renminbi is no longer an unalloyed advantage .
Chinese banks and companies have borrowed from overseas an estimated $1
trillion in mostly short-term , dollar-denominated debt over the past five years
.
They were betting that the renminbi would continue its
decade-long gradual appreciation , which would have made their debts in
dollars less expensive to repay .
But a depreciating renminbi makes that debt more costly .
That poses a dilemma for central bank officials .
Obviously the Chinese cannot afford to let their currency depreciate too
quickly . Firms could be pushed into default .
Almost no onr expects a sudden , disorderly fall in the renminbi .
At $3.84 trillion , China's foreign exchange reserves dwarf every other
country's , accounting for a sixth of the entire world's supply . China can
easily fend off any attempt to " break the renminbi " in currency markets
.
But banks , traders and many companies increasingly expect at lrast gradual
depreciation .
In preparation , they are starting to shift money out of China and
place bets on a weakening renminbi .
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