
China Moves to Devalue Yuan - ethanhunt_
http://www.wsj.com/articles/china-moves-to-devalue-the-yuan-1439258401
======
adventured
Some likely effects from this:

1) US consumers just got a small standard of living boost. The same things
they were buying before, will now cost less. It'll have little to no effect on
US domestic manufacturing.

2) This will put some downward pressure on US consumer prices. Giving the Fed
even less inflation concern (at least from the CPI angle).

3) The Fed is very, very unlikely to raise interest rates in September. It's
practically guaranteed not to happen. Investors are likely to bet on this
today, and stocks will probably climb significantly over the next few months
in response to the Fed not hiking. The bet will shift from expecting a hike,
to not expecting one for the remainder of 2015.

4) This will add fuel to the currency wars. The Eurozone, Japan and others
will probably respond. It'll also put pressure on emerging market competitors,
from Brazil to Vietnam.

5) It's going to squeeze some Chinese companies carrying debt in other
currencies (Bloomberg reports that Chinese companies have $529 billion in
dollar and euro based bonds and loans outstanding).

6) The dramatic capital flight out of China over the course of 2015 ($300+
billion so far), will increase.

~~~
chatmasta
I keep hearing about the Fed raising interest rates, or not raising interest
rates, but I'm unclear what the pros vs. cons are for the Fed to raise them at
a given time. Would someone mind explaining that?

Why does China devaluing the Yen have any impact on US raising interest rates
or not?

~~~
maxerickson
A looser monetary policy (lower interest rates) is thought to stimulate the
economy (more jobs) at the risk of higher inflation. A tighter policy (higher
interest rates) is thought to control inflation (stable prices) at the risk of
a slower economy. They post a lot of information about it, for instance:

[https://www.chicagofed.org/publications/speeches/our-dual-
ma...](https://www.chicagofed.org/publications/speeches/our-dual-mandate)

China is a large portion of the global economy, so things that happen there
can end up having a big impact globally.

------
jvm
The PRC has had a historical policy of linking the RMB to the dollar. That
made sense when they were primarily reliant on exports to the US, but now that
their exports are diversified and they have massive domestic demand, a float
and inflation peg like we have in the US is a much more sensible policy.

The US dollar has an absurdly high valuation, so the sensible thing for the
RMB (and most other currencies) is to devalue with respect to USD.

Tyler Cowen has a broader and more pessimistic view, my point is captured in
his point 6:
[http://marginalrevolution.com/marginalrevolution/2015/08/six...](http://marginalrevolution.com/marginalrevolution/2015/08/six-
thoughts-about-the-yuan-devaluation.html)

~~~
pjc50
I prefer ftalphaville's take:
[http://ftalphaville.ft.com/2015/08/11/2137067/this-one-
time-...](http://ftalphaville.ft.com/2015/08/11/2137067/this-one-time-at-band-
camp-the-pboc-did-this-thing/)

There is a massive but officially not permitted capital outflow from China
that's pushing up real estate markets around the Western world. To some extent
we're paying for our imported manufactured goods from China by exporting house
ownership and rent payments.

~~~
Zach_the_Lizard
I think the Chinese billionaire effect might be real, but really the chief
reason housing prices are so high is because we make it difficult to build
housing. This is especially true in the most economically productive metro
areas, such as New York and the Bay Area.

Even smaller cities such as DC are facing housing affordability crises. DC
gained ~90K residents from 2005 to the present, but only gained ~12.5k new
housing units in that time. If DC continues to grow, in the next 30 years DC
will actually reach full buildout as allowed under current zoning and height
restrictions. No additional units will be allowed.

~~~
go1979
Consider Toronto as a counter example. That city tore down parks to build
condos. That didn't rein in prices. Now, the affluent foreigners have 3-4
condos to go along with that Maserati.

~~~
joelwilliamson
The obvious counter-argument is that home prices would have risen even faster
without the construction boom.

------
astrocyte
I've asked this question many times to people deeply educated and versed in
economics and never got a a good answer... In a world of currency pairing
(ratios) A:B:C:D:E

Assuming parity among A:B:C:D, if each country prints 1 Trillion in their
respective currency, what is the net effect aside from inflation 'potential'?
100:100, 1000:1000 .. It's still 1:1. Assuming there are deflationary forces
countering the inflationary force of printing, nothing changes beyond
maintenance of status quo.

The more and more I look at this picture, the more it appears to be global
maintenance of status quo to, in the face of destabilizing systemic forces,
keep things stable via countering forces (printing)

The only thing I can see suffering here are the variables outside of the clown
show :

> Natural resources

> Environment

^ (Economic system becomes disentangled with underlying condition of
resources/environment)

I guess this is where the eventual selling of 'global control' of these
variable comes....

A system headed to centralized control.

~~~
floatrock
> Assuming there are deflationary forces countering the inflationary force of
> printing, nothing changes beyond maintenance of status quo.

In the net, yes, but another way of looking at this is as a wealth transfer
inside each country.

In the net, the pies remain the same size, but each individual slice is worth
less and less.

The result is that as each government is playing the devaluation game to keep
up, the organizations with early access to the newly printed trillions in
respective currencies increase their relative percentage of the pie.

It's the status quo at the inter-country level, but it's a huge wealth
transfer to the politically and financially connected at the local level.

------
jakozaur
China is devaluing yuan for quite a while, but usually more smoothly. Will
this that do the trick or there is problem in fundamentals? Like debt is
growing too fast comparing to rest of the economy.

Moreover, will China start making transition from cheap labour, efficiency
based economy to innovation based one. Does government is aware of that
challenge or they try to execute strategy for old model, that used to work,
but may not help to make that transition?

~~~
rm_-rf_slash
>Moreover, will China start making transition from cheap labour, efficiency
based economy to innovation based one.

This is my biggest skepticism towards China. They are simply not an
aspirational brand. Who says "I buy Vietnamese so someday I can buy Chinese"?
No, they say "I buy Chinese so someday I can buy European."

It doesn't matter how much of my dad's semiconductor research they steal
(>10,000 hacking attempts from China EVERY DAY at an IVY LEAGUE INSTITUTION),
China will never be sexy. That's why Titans like Renren and Weibo are huge in
China while almost nobody outside the Middle Kingdom could give a damn. Name
one luxury product that says "Made in China" without being accompanied by
"Designed in California."

If the Chinese government let go of their iron grip of culture, maybe
something remotely approaching cool will come out of China, but that's a can
of worms they would rather keep shut.

It should be no surprise that even Hong Kongers are openly racist towards
mainlanders: China has no brand.

~~~
droopyEyelids
Precisely the same thing was said about Japan. I know Japanese products don't
have special cache now, but there was a time when the phrase "Jap crap" was in
common circulation, and then a time afterwards where Sony took over the world.

It seems entirely plausible to me that China is working through the same
historical process. Consider the possibilities of Foxcon- they already
manufacture the most desirable consumer devices in the world.

~~~
rm_-rf_slash
I'm not entirely convinced. Japan didn't only invade America with electronics,
it came with a widely appealing culture as well. Sushi, anime, jpop, all of
these things made Japan more interesting than the gadgets it made.

Foxconn does indeed produce excellent electronics, but they're largely
designed elsewhere. Most Chinese-designed consumer products lack appeal
outside of China.

The reason I harp on about culture is because it drives fashion. The Chinese
government is so adamant about dictating culture that it stamps out the
possibility for subcultures to grow and, most crucially, become popular
outside the country. Just look at China's film industry. Actually, don't. I've
seen what passes for Chinese film media and it could have been written by a
machine, or one of those folks from 1984 who release the same book every few
years with different character names.

Dissent gives rise to new culture: American blacks playing blues becomes
classic rock, which becomes punk rock, and so on. A government focused on
dictating culture in an age of information is like going to high school and
still being dressed by your mom.

Meanwhile, peripheral - and far poorer - countries are having cultural booms
as their popularity spreads around the globe. Singapore, Vietnam, Thailand,
heck, not to mention India, all have widely appealing cultural products. If
China can't become cool, then they'll remain a factory, subject to the whims
of global finance and technology.

------
eitally
I wonder if they'll actually let it float this time. I thought when they
previously devalued it to 6.20 a few years ago they claimed they'd float it
but instead kept it statically pegged. Given macro-conditions, floating would
probably make a lot more sense (if you agree with Tyler Cowen's perspective).

~~~
achamayou
But politically, that would be relinquishing a degree of control, something
they've been loath to do in general, especially in areas that are of strategic
importance.

------
vegabook
CNYEUR (euro per cny) exchange rate past 60 months:

    
    
           ++-------+------+-------+------+-------+------+--+
      0.15 +                                          **    +
           |                                           *    |
           |                                            *** |
           |                                        **      |
      0.14 +                                                +
           |                                                |
           |                                                |
           |                                        *       |
      0.13 +                                      **        +
           |                  *                   *         |
           |                 ***    * *                     |
           |             *      **   * *         *          |
           |                *     **    *** *   *           |
      0.12 +            * **       *     * **               +
           | *         *                     ***            |
           |   *                                            |
           |    **      *                                   |
      0.11 +  *   *  *                                      +
           |   *  * ***                                     |
           |       *                                        |
           ++-------+------+-------+------+-------+------+--+
            0      10     20      30     40      50     60
    
    

Against the euro, the CNY has appreciated by about 20% in the past 12 months,
so any deval is as much about dollar strength (against which the CNY is semi-
pegged). Europe has been devaluing through it's own QE and it buys about 20%
of Chinese exports roughly. The same picture is more or less true of all the
emerging markets that China exports to. Thus it's pretty much a rebalancing
than anything else, and let's not forget it's only 2% (so far). Perhaps the
most interesting chart is China's fiercest competitor, Japan. The yen is down
more than 50% against the yuan in the past 2 years:

CNYJPY past 60 months:

    
    
         +-+------+-------+-------+------+-------+-------+--+
      20 +                                             * *  +
         |                                              * * |
         |                                         * **     |
         |                                          *       |
         |                                        *         |
      18 +                                       *          +
         |                                *                 |
         |                                      *           |
         |                               * **   *           |
      16 +                           *****   ***            +
         |                          *                       |
         |                         *                        |
         |                        *                         |
         |                        *                         |
      14 +                       *                          +
         |                                                  |
         |                *     *                           |
         |       *       * *   *                            |
         | ** ******  ***   ****                            |
      12 +   *      **  *                                   +
         +-+------+-------+-------+------+-------+-------+--+
         0     10      20      30     40      50      60

~~~
brobinson
What did you use to create these charts? I like them.

~~~
vegabook
R package txtplot.

~~~
brobinson
Cheers! I'm actually using R as part of a SaaS app I'm building at the moment.
I'm gonna use this for an easter egg. :)

~~~
vegabook
It's pretty useful if you're ssh-ing into a machine to run R and you just want
a quick and basic idea of some data.

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seanmcdirmid
It was expected, let's hope they don't slip much further.

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iscrewyou
Non Paywalled:
[https://www.google.com/#q=http:%2F%2Fwww.wsj.com%2Farticles%...](https://www.google.com/#q=http:%2F%2Fwww.wsj.com%2Farticles%2Fchina-
moves-to-devalue-the-yuan-1439258401)

------
milkywayz
Paywall

