Xi’s Tinkering Risks China Hard Landing

by James Gruber on February 16, 2014

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{ 2 comments… read them below or add one }

James Gruber February 22, 2014 at 8:18 pm

Anand, capital flight out of China would weaken the yuan, despite capital controls. If it chooses the support the currency via intervention, that would drain liquidity from the domestic credit system, and risk a banking crisis.

A weaker yuan would also spell problems for other emerging markets, as China competitiveness would increase vis a vis them and China would in effect export deflation. That’s not a great thing when EM is battling deflationary forces as QE winds down and the US trade deficit narrows, both of which drain excess US dollar liquidity.

Anand February 19, 2014 at 2:36 am

Everybody seems to be looking for internal trigger for a crisis, history shows that many EM crisis are triggered by a chain of events which starts externally and makes it difficult to contain internal imbalances. China has one of those, a semi controlled capital account, currency. What if there is a capital flight out of China ? (http://seekingalpha.com/instablog/12963541-anandr/2656101-em-volatility-has-just-started-china-is-the-big-unknown-for-2014).

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