Buckle up: China’s turbulent markets
After
a nerve-shattering start to the year, China is expected to weigh in
this week to steady its financial markets. The government and
state-owned institutions will probably buy equities to prop up the
stockmarket, which shed another 5% today, and sell dollars to support
the yuan. But even if they restore calm, big worries will persist. There
are questions about how long these measures can be sustained.
Stabilising the yuan cost China some $300 billion of foreign-exchange
reserves in the past half-year. If that continues, it may need to
tolerate a bigger devaluation, which in turn would sap Chinese demand
for imports and risk triggering a global currency war. Underlying this
concern are doubts about the economy: the government says growth is
still near 7%, but manufacturing has slowed sharply, spreading pain to
commodity exporters around the world. Worst of all, China’s economic
policymaking was long dull but effective. Now, it looks increasingly
erratic.
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