Monday, January 11, 2016

Buckle up: China’s turbulent markets

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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