PRC Economy - New Reflections : April 20 2015

[Altair]

Good job by them. $100 billion sounds like quite a significant market stabilization intervention. It should last at least a day if they use it right.

That was brutal!

[rsingh]

Why cant the Chinese start printing their own currency and start lending it to these investors..It has been done before in a country on the other side of the world and they became a superpower!!

-Print more money
-High inflation ,money looses value. Do not forget that China is just manufacturing and not innovating. USA was dominating in every field (science,technology,manufacturing,space, films,education,infrastructure, banking,military, and aviation).
- World may hate USA but we trust in dollah. China has good reputation only in China........not even Burkina Faso.
Im I right?

[RamaY]

I think Vina ji won the bet with a 50center that Indian will have higher GDP growth than China by 2015

@CNNMoney: By our estimates, the fastest growing economies this year will be:
#India
#Qatar
#China
http://t.co/Oz2iHfyrWx http://t.co/ZiIMleUKH3

[A_Gupta]

http://www.reuters.com/article/2015/08/ ... 1720150809

China is under growing pressure to further stimulate its economy after disappointing data over the weekend showed another heavy fall in factory-gate prices and a surprise slump in exports.

Producer prices in July hit their lowest point since late 2009, during the aftermath of the global financial crisis, and have been sliding continuously for more than three years.

Exports tumbled 8.3 percent in the same month, their biggest fall in four months, as weaker global demand for Chinese goods and a strong yuan policy hurt manufacturers.

"Policy focus is definitely the (producer) deflation at this stage," said Zhou Hao, economist at Commerzbank AG in Singapore.

He said China's central bank would likely need to further cut interest rates again, having already cut four times since November in the most aggressive easing in nearly seven years.

The gloom may only deepen in the coming week with a raft of economic data forecast to show renewed weakness in factories, investment and domestic spending.

The world's second-largest economy is officially targeted to grow at 7 percent this year, still strong by global standards, but some economists believe it is growing at a much slower pace.

Economists expect the central bank to cut rates by another 25 basis points this year, and further reduce the amount of deposits banks must hold as reserves by another 100 basis points, according to a Reuters poll last month.....

[kancha]

China is in the midst of a triple bubble

as many have pointed out the Chinese stock market is only a tiny part of the economy. It represents "less than 15% of household financial assets and equity issuance accounts for less than 5% of total social financing," wrote Qu Hongbin, HSBC's chief economist for Greater China.
.
.
That's why what Credit Suisse's Garthwaite points out is so important. If you're wondering why the Chinese government is freaking out about such a small part of their economy, it's because the rest of it needs restructuring.
The stock market was supposed to help out with that.

"The ideal situation would be several years of a steady bull market to cover the restructuring phase," Societe Generale's Yao Wei wrote in a recent note.

"Conversely, the worst-case scenario would be a stock-market crash before restructuring has even begun."

In other words, this stock market's collapse is forcing the government to hold off on implementing its "new normal" phase - a phase Xi promised would bring slower growth but more transparency and reform.

[TSJones]

Their stock bubble was fueled by margin(loans). This was done deliberately by the Chinese government. When any other financial regulator would have started applying the brakes (reducing margin buying i.e. requiring more up front capital to buy stocks) at the first sign of a bubble, the Chinese government let 'er rip due to a combination of political and nationalistic imperatives. A very bad combo indeed.

On top of that, their exports to their biggest customer, the USA, is in the doldrums with customers avoiding Chinese goods shops like Walmart. So more exports are not exactly the answer. The Chinese are in a classic trap where they sacrificed building their internal markets with harmful import restriction policies and gave all their emphasis to export only. Everything had to be made in China and if they didn't know how to do it, they stole the technology, even to the point of sending agents into Iowa farm fields to steal genetically modified hybrid seed corn. WTF, over?

The US is about to suffer a pull back in its stock market with a rise in federal interest rates but that is part of the accepted financial business cycle. That's the way it works in the US.

The Chinese find that unacceptable for their stock market due to their cultural proclivities and what they think their national imperatives are. Good luck with that.

And good luck with the AIIB and whatever the Chinese thinks is in their national interest with that.

[Rishirishi]

I had predicted this in BR already in year 2000. Had travelled to china and seen what they are doing. At that time people were not taking me seriously about India being the first of the two countries to reach developed stage.

I think china faces 3 main problems

1
The Patry knows very well that it needs to keep up the growt in order to avoid a massive uprising. People in china have never vitnessed a resession and even a slowdown would be viewed as a failure of governement.

2
Chinease economy is build arround 2 pillars. First one being government spending or directing banks to spend. They have not been very concerned with returns of the investments. It is all about showing growth. If you are making a loss, simply invest in a new plant and use some of the loans to fiance your losses. This has been going on both for local governments and state controlled companies. The second pillar is the export driven economy, which is unsustainable, as the costs go up, and exporters are unvilling to accept trade defecit.

3
lack of a leagal framework. In sted of laws, China is governed by party officials who create dicates at any given time.


There is one way out of the mess for the communist party. That is to start a "limited" war. The public opinion focus will shift away from the economy. The war or tension will have to be large enough to create a fear among the Chinease but at the same time manageble so that China is not defeted. India and Japan are both nice picks, but too dangerous. Taiwan may be a nice target, as may be the Phillipines. Vietnam would also work. But the Chinease do not know what the ripple effect could be. would India, Japan and most importantly the USA join in ? China may look strong, but without the export markets and the imported raw materials it is a lemon.

[nachiket]

On top of that, their exports to their biggest customer, the USA, is in the doldrums with customers avoiding Chinese goods shops like Walmart. So more exports are not exactly the answer.

Huh? Walmart isn't exclusive in sourcing from China. Every single retailer in the US, big or small is filled with stuff made in China. And Americans haven't suddenly started reading labels to avoid buying Chinese products. They wouldn't even have a choice in most cases.

The Chinese export slowdown has more to do with the problems in Europe and losing business to other East Asian countries which are now more price-competitive than China due to lower wages.

The Chinese are in a classic trap where they sacrificed building their internal markets with harmful import restriction policies and gave all their emphasis to export only. Everything had to be made in China and if they didn't know how to do it, they stole the technology, even to the point of sending agents into Iowa farm fields to steal genetically modified hybrid seed corn. WTF, over?

I've heard this parroted often, but I wonder how much it really affects them. It is true they export a lot compared to what they consume, but that is because they manufacture on such an enormous scale. And the Chinese market has kept pace with their income level. They were the fastest growing or the largest market (sometimes both) for everything from smartphones to cars and commercial vehicles. "Making everything on their own" is certainly not the thing causing current problems. That is what enabled the rapid growth in the first place.

Suraj and others have already laid out the reasons for the current issues. They are more political than economic. Growing at more than 7-8% per year becomes progressively difficult after a certain stage and the Chinese are working on a very large base now. Slower growth rates are a given. Slowing exports are also a given considering the current size of exports and slowing world demand. This would be fine in a democratic country. But the CPC had promised to deliver the moon (and keep delivering it YoY) in exchange for the people accepting reduced personal freedoms, censorship, no elections etc. They stuck to that promise till now, but economic realities are raising their ugly head. That is at the root of the current panic.

[A_Gupta]

^^^ A stupendous savings rate, still.
http://www.bloomberg.com/news/articles/ ... g-spending

or

http://www.nber.org/papers/w16771

In this paper, we define "The Chinese Saving Puzzle" as the persistently high national saving rate at 34-53 percent of gross domestic product (GDP) in the past three decades and a surge in the saving rate by 11 percentage points from 2000-2008. Using data from the Flow of Funds Accounts (FFA) and Urban Household Surveys (UHS) supplemented by the findings from existing studies, we analyze the sources and causes of China's high and rising saving rates in the government, corporate, and household sectors. Although the causes of China's high saving are complex, we suggest that the evolving economic, demographic, and policy trends in the internal and external environments of the Chinese economy will likely lead to a decline in national saving in the foreseeable future.

http://www.bloomberg.com/news/articles/ ... -the-world

Chinese savings are at $21 trillion.

[Suraj]

And the yuan gets devalued:
China Slashes Yuan Reference Rate by Record 1.9%

China devalued the yuan by the most in two decades, a move that rippled through global markets as policy makers stepped up efforts to support exporters and boost the role of market pricing in Asia’s largest economy.

The central bank cut its daily reference rate by 1.9 percent, triggering the yuan’s biggest one-day drop since China unified official and market exchange rates in January 1994. The People’s Bank of China called the change a one-time adjustment and said it will strengthen the market’s ability to determine the daily fixing.

Chinese authorities had been propping up the yuan to deter capital outflows, protect foreign-currency borrowers and make a case for official reserve status at the International Monetary Fund. Tuesday’s announcement suggests policy makers are now placing a greater emphasis on efforts to combat the deepest economic slowdown since 1990 and reduce the government's grip on the financial system.

“It looks like this is the end of the fixing as we know it,” said Khoon Goh, a Singapore-based strategist at Australia & New Zealand Banking Group Ltd. “The one-off devaluation of the fix and allowing more market-based determination takes us into a new currency regime.”

The yuan dropped 1.8 percent to 6.32 per dollar as of 1:34 p.m. in Shanghai. It slid 2.3 percent in Hong Kong’s offshore trading. The onshore spot rate was 1.4 percent weaker than the reference rate of 6.2298, within the 2 percent limit allowed by the central bank.

The devaluation jolted global markets, with the currencies of South Korea, Australia and Singapore falling more than 1 percent amid bets other countries may seek weaker exchange rates to keep exports competitive. Shares of Chinese airlines sank on concern their dollar debt costs will rise, while commodities retreated amid speculation yuan weakness will erode the buying power of Chinese consumers. U.S. Treasuries gained on growing demand for dollar assets.

China’s intervention in the currency market had contributed to a $300 billion slide in the nation’s foreign-exchange reserves over the last four quarters. It made the yuan the best performer in emerging markets, fueling an 8.3 percent slide in exports last month.

Cost of keeping the yuan stable = $300 billion per year.

[hanumadu]

What happened to the loss of face?

[member_27845]

I think Vina ji won the bet with a 50center that Indian will have higher GDP growth than China by 2015

@CNNMoney: By our estimates, the fastest growing economies this year will be:
#India
#Qatar
#China
http://t.co/Oz2iHfyrWx http://t.co/ZiIMleUKH3

This is no cause for satisfaction

The Chinese economy is at least 3 times larger than India's and their growth rate is only marginally behind India's

To have a chance of catching up India growth rate must be at least 2-3% points above the Chinese one for the next 2 decades

[kancha]

Things are Falling Apart in China - Business Insider

The number of labor protests and strikes tracked on the mainland by China Labour Bulletin, a Hong Kong-based watchdog, more than doubled in the April-June quarter from a year earlier, partly fueled by factory closures and wage arrears in the manufacturing sector. The group logged 568 strikes and worker protests in the second quarter, raising this year’s tally to 1,218 incidents as of June, compared with 1,379 incidents recorded for all of last year.

Producer prices in July dropped 5.4% year over year, down for the 40th month in a row, the National Statistics Bureau said on today. It pushed the Producer Price Index to the worst level since October 2009. Who gets the credit? Crashing commodity prices, competitive pressures facing Chinese manufacturers, and weak demand for Chinese goods.

Then there’s the plunge of the China Containerized Freight Index (CCFI), which tracks contractual rates and spot market rates for shipping containers from major Chinese ports to major port around the world. Last week, the CCFI dropped 2.4% to 798.89, near its multi-year low at the beginning of July. It is now 23% below where it was in February, and 20% below where it had been in 1998, when it was set at 1,000!

A lot of data points in the article

[TSJones]

Chinese devalue currency

http://www.nbcnews.com/business/economy ... on-n407661

well egg-foo-young on their face......



may be the IMF knew what they were doing, eh? Christine Lagarde and her motley crew.........arrrrh matey, hoist the jolly roger!

[Austin]

China Devalues Its Tightly-Controlled Currency to Make it 'Market-Friendly'

http://sputniknews.com/business/2015081 ... z3iUdnWUIC

[rsingh]

So what is impact on Currency reserve and GDP .........according to new calculations?

[Theo_Fidel]

Chinese savings are at $21 trillion.

One quibble. This is in yuan and as shown today the CPC stole 2% over night. or ~ $500 Billion of value.
---------------------

I think I pointed out this was inevitable. Expect more such cuts as they get more desperate. The odd thing is the number of dollars coming in actually declines which is the exact opposite of what they need.

One thing I don't understand from article above.

How can Trade surplus be $43.03 Billion,
Yet currency reserves drop $42.5 Billlion.

Doesn't make sense, no....

[Suraj]

They've been blowing through their currency reserves to defend the value of the Yuan. The devaluation just reduces the cost a little .

[TSJones]

Renminbi drops second straight day.

http://finance.yahoo.com/news/asia-exte ... 45044.html

Chinese central bank is dropping the currency in order to stimulate the economy.

May not work however. Have to wait and see what shakes out.

Retail sales figures come out for the US this Thursday. If sales are still flat in the US the Fed may not raise interest rates this year with the renminbi tanking like it is.

that's another wait and see.....

the forces of deflation are powerful indeed as the keynesians have always insisted.

China is going to be very unstable for a while with the prices of commodities may drop further while the Chinese are on the sidelines and off the playing field.

[Suraj]

After devaluing the yuan by 1.9% against the dollar on Tuesday, PRC devalues the yuan AGAIN today, by 1.6%, for a total devaluation of 3.5% in two days.
China cuts yuan rate against US dollar for second day

The daily reference rate that sets the value of the Chinese currency against the greenback was cut by 1.62 percent to 6.3306 yuan, from 6.2298 the previous day, the People's Bank of China (PBoC) said in a statement on its website.

The move took the reductions to 3.5 percent this week -- the largest in more than two decades -- after a surprise cut on Tuesday, but the central bank played down expectations it would continue to depreciate the currency.

The combined drop is the biggest since China set up its modern foreign exchange system in 1994. It is also a bigger change than the 2.1 percent rise when China unpegged the yuan, also known as the renminbi (RMB), from the dollar in 2005.

[nandakumar]

Chinese savings are at $21 trillion.

One quibble. This is in yuan and as shown today the CPC stole 2% over night. or ~ $500 Billion of value.
---------------------

I think I pointed out this was inevitable. Expect more such cuts as they get more desperate. The odd thing is the number of dollars coming in actually declines which is the exact opposite of what they need.

One thing I don't understand from article above.

How can Trade surplus be $43.03 Billion,
Yet currency reserves drop $42.5 Billlion.

Doesn't make sense, no....

To supplement what Suraj had written, some additional explanation. If we assume that the central bank intervention strategy in the currency markets has not undergone a change from one period to the next then the movement in the currency reserves (upwards and downwards) is a function of both trade flows (current account in economicspeak) and capital flows. Theoretically it is possible for the external sector of the economy to show contrasting features. That is to say, the economy may be exporting more goods and services than what it is importing (positive trade surplus) and yet witness a net reduction in foreign currency reserves due to the effect of capital transactions (outbound investment, repayment of past foreign currency loans, repatriation of portfolio investments made earlier and so on). China had all these years, a surplus on both current and capital account. That is beginning to reverse although at the margin as of now. (their foreign currency reserves have gone down in the last three months, I think). The real pain point would be if they start posting negative numbers on the trade front as well. The other thing to remember is that if the trade data is from the commerce or trade ministry as opposed to the Peoples Bank of China data on merchandise and other current account transactions, then there is a timing difference to the cash flows. It is not uncommon for exports to happen on 90-day credit against bank letters of credit. That means the trade data might show an export surplus but it is yet to be felt in the form of tangible inflow of currency. Currently global trade is going through a sluggish phase and it is not inconceivable that Chinese exporters are forced to offer extended credit than in the past. That could be an exacerbating factor as well.
I had started by saying the above explanantion is subject to the central bank intervention remaining unchanged. But if the central bank is intervening aggresively in the currency market to mop up foreign currency inflows then foreign currency reserves might go up for a given flow of current and capital capital account transactions although this has the effect of depreciating the local currency. The exact opposite would be the case if the central bank stands by beningly without intervention. there might be a dip in reserves and astrengtheneing of the local currency's value. What is interesting is that China is facing a reserves reduction even as the currency is depreciating. The conclusion is that the economy is facing a massive flight of capital.
Edited once for additional inputs.

[A_Gupta]

^^^ on the money!

The conclusion is that the economy is facing a massive flight of capital.

This is from the first week of May:
http://www.bloomberg.com/news/articles/ ... he-country

While the world marvels at the rise of Chinese stock prices, money is quietly leaving the country at the fastest pace in at least a decade. Louis Kuijs, Royal Bank of Scotland’s chief China economist, estimates that China lost $300 billion in financial outflows in the six months through March. Deltec International, a Bahamas investment firm, puts the number even higher.

This is from July 22:
http://www.telegraph.co.uk/finance/econ ... epens.html
"Capital exodus from China reaches $800bn as crisis deepens"

This is from 2 days ago:
http://www.businessinsider.sg/china-mus ... cueplKvh0U

“We think China faces a hard choice: a weaker yuan would support exports only at the risk of capital flight,” wrote Bloomberg economist Tom Orlik in a note following the data release.

“Our calculations suggest a 10% depreciation of the yuan would boost export growth 10 percentage points, but risk more than $400 billion in capital flight.”

---
Question: when there is a massive capital flight like this, what does the capital flee to? To US Treasuries? To gold? To stock market investments in other markets? Thanks in advance!

[Theo_Fidel]

Condo building in town sold out in 30 minutes on Monday. Speculation in paper is that it all appeared to be chinese or chinese looking buyers. Had a picture of the queue.

[A_Gupta]

Paul Krugman has this:
http://krugman.blogs.nytimes.com/2015/0 ... he-cherry/

When Japan loosens money, it creates an incentive to move funds abroad, causing the yen to fall. This process only stops once the yen has fallen enough that investors consider it undervalued, and are willing to buy Japanese securities in the expectation of a future yen rise. Exchange rate overshooting is an essential part of the story.

China, however, did not let the renminbi float, nor did it devalue by enough to persuade investors that any future move was likely to be up. Instead, it only devalued a little.

This is what Charlie Kindleberger used to call “taking the first bite of the cherry”. (Nobody takes just one bite out of a cherry.) China has now demonstrated that its currency peg is no longer solid; but it has come nowhere near to devaluing enough to create expectations of future appreciation. This is a recipe for convincing investors that the future direction of the currency is down — which means that capital flight will accelerate (and apparently already has.)

[member_23365]

Was talking to one of my colleague from mainland and as per him CPC will devalue it upto 6%.

[Y I Patel]

I just finished reading "The Ascent of Money" by Niall Furguson, where he tells the story of the Scot John Law and the French Banque Generale. John Law was a pioneer in the invention of paper money and in the role of a central bank. He was also responsible of creating a state monopoly that not only enjoyed sole power over issuing bank notes and determining the conversion rate between the French livres and gold, but also for issuing stock in the French Mississippi Company. Furguson makes the point that John Laws ability to exercise the monopoly in the name of the state enabled him to commit excesses that led to the Mississippi bubble. As in all such stories, the beginning was great, and led to coining the term millionaire. The end result was that the French economy was wrecked, the middle class wiped out. Most importantly, royal power lost credibility, and the seeds were sown for the most famous revolution of them all.

The parallels to current day China are eerie.

Wikipedia on John Law

[Suraj]

Was talking to one of my colleague from mainland and as per him CPC will devalue it upto 6%.

I wouldn't say this is 'wrong', but this strikes me as an effort to quantify something that hasn't been fully understood. PRC didn't just devalue the yuan. They devalued it twice. In successive days. By over 1.5% each time, adding up two a 3.5% devaluation within a couple of days.

The most apt description I can think of to express how I see their action is 'decisively panicked', as in '(authoritatively) people! we have this under control! we have acted firmly! (whispering to aide) psst, get me a change of pants and underwear.'

They cannot fix this by fiat actions, any more than they could curtain the stock market drop by banning selling of stocks. All it does it that the conventional result of the market action, i.e. a drop in prices, are replaced by indirect signals of distress.

They're also in an interesting quandary: growth is falling, equity markets are in turmoil, trade is dropping, currency has been devalued, interest rates are cut, and yet, food inflation is rising, even though manufactured goods are in deflation territory. This is a bad cocktail for social stability.

[amit]

Meanwhile more bad press for CPC

Tianjin blast kills at least 17, leaves 400 injured

Reuters cited state media reports that 17 people were confirmed dead and as many as 400 injured. The Beijing News, an official outlet, reported that authorities had lost contact with 36 firefighters on the scene, while Chinese state television said that nine firefighters had been killed.

[Singha]

Condo building in town sold out in 30 minutes on Monday. Speculation in paper is that it all appeared to be chinese or chinese looking buyers. Had a picture of the queue.

bay area , SFO, vancouver, seattle, NYC or anyplace with large chinese diaspora ...realtors must be seeing a deluge of interest as the rich find means to park more % of their wealth abroad.

I am not sure how they txfer such vast sums abroad and whether its all legal or some "workarounds" are used like overinvoicing some exports to friendly/shell cos outside china and getting paid in $$ in foreign accounts.

there are some urban legends in vegas of wealthy old chinese showing up to gamble with underlings carrying suitcases full of cash...maybe macau is more monitored by cheen intel agencies to tag the high rollers.

[amit]

This is a nice report on the China crisis in The Telegraph (UK).

The ending few paras have a lode of good information:

The calibrated deleveraging by premier Li Keqiang simply went too far. He has since reversed course. The local government bond market is finally off the ground, issuing $205bn of new debt between May and July. This is serious fiscal stimulus.

Nomura says monetary policy is now as loose as in the depths of the post-Lehman crisis. Its 'growth surprise index' for China touched bottom in May and is now signalling a “strong rebound”.

Capital Economics said bank loans jumped to 15.5pc in June, the fastest pace since 2012. "There are already signs that policy easing is gaining traction," it said.

It is worth remembering that the authorities are no longer targeting headline growth. Their lode star these days is employment, a far more relevant gauge for the survival of the Communist regime. On this score, there is no great drama. The economy generated 7.2m extra jobs in the first half half of 2015, well ahead of the 10m annual target.

Few dispute that China is in trouble. Credit has been stretched to the limit and beyond. The jump in debt from 120pc to 260pc of GDP in seven years is unprecedented in any major economy in modern times.{I'd ask folks to check out Greece's debt to GDP ratio to get an idea of what we are looking at here! Only saving grace for China is it's a dictatorship and so can keep control of the sh!t better than Greece.}

For sheer intensity of credit excess, it is twice the level of Japan's Nikkei bubble in the late 1980s, and I doubt that it will end any better. At least Japan was already rich when it let rip. China faces much the same demographic crisis before it crosses the development threshold.{This is the trap which China is unlikely to avoid and hopefully India will learn its lesson from it, you need to grow rich before you grow old as a society}

It is in any case wrestling with an impossible contradiction: aspiring to hi-tech growth on the economic cutting edge, yet under top-down Communist party control and spreading repression. That way lies the middle income trap, the curse of all authoritarian regimes that fail to reform in time.

Yet this is a story for the next fifteen years. The Communist Party has not yet run out of stimulus and is clearly deploying the state banking system to engineer yet another mini-cycle right now. One day China will pull the lever and nothing will happen. We are not there yet.

[amit]

I am not sure how they txfer such vast sums abroad and whether its all legal or some "workarounds" are used like overinvoicing some exports to friendly/shell cos outside china and getting paid in $$ in foreign accounts.

there are some urban legends in vegas of wealthy old chinese showing up to gamble with underlings carrying suitcases full of cash...maybe macau is more monitored by cheen intel agencies to tag the high rollers.

I think this over-invoicing is called round tripping. Chinese exporters are famous for this. That's the way the wealthy syphon off their money overseas. We think of Indians having a lot of wealth stashed overseas. Compared to the Chinese our folks are babes in the woods for this.

[member_23365]

Suraj Sir,
His exact words were its war with US, I persume he is getting info from chinese newspaper or whatever CPC wants to feed mango people. Will pick his brain again.
Singha Sir, here in Canada they have stopped investors immigration program b'cos too many chinese were coming thru that route. Vancoure housing is unaffordable b'cos of that. Now govt is thinking to bring some rules to discourage home buying for non-residents.

[Theo_Fidel]

Reports also says most of the condo buying was with 10% down. Many apparently already own 1-2 properties. Money borrowed from relatives and friends in usa probably, so more shadow banking. This way cash can be moved in trickles from HK & Singapore where large sums are parked.

[Suraj]

Suraj Sir,
His exact words were its war with US, I persume he is getting info from chinese newspaper or whatever CPC wants to feed mango people. Will pick his brain again.

War with the US ? Excuse me while I take a moment to

So far the Chinese have demonstrated that their response to a state of economic stress that they're unused to, is to do the wrong thing, almost recklessly. Who feeds buying on margin in the middle of a stock market mania normally ? One would think that lesson was learned long ago.

[ArmenT]

From the BBC and as predicted by some above:
China allows yuan currency to drop for third day

China has set the guiding rate for its yuan currency lower for third consecutive day.
But Thursday's rate of 1% down against the dollar was a smaller margin than the shock cuts earlier in the week.

[Suraj]

Another day, another devaluation. 1.9% on day 1, 1.6% on day 2, now 1% on day 3. Sounds like atamjeetsingh's Chinese friend was indeed right about plans to devalue by 6%. Per week ?

Looking at it seriously, the three devaluations in as many days is not really a sign of decisiveness. It reeks of hesitancy to act decisively, while also indicating that they really have to act and cannot put this off further. Rather than make one quick significant cut and be done with it, they're doing things the long drawn out way.

[amit]

Chinese mechantalist instincts in full display. This is a blatant Beggar thy Neighbor monetary policy. However this time it may not work.

[ArmenT]

Looking at it seriously, the three devaluations in as many days is not really a sign of decisiveness. It reeks of hesitancy to act decisively, while also indicating that they really have to act and cannot put this off further. Rather than make one quick significant cut and be done with it, they're doing things the long drawn out way.

Wouldn't it have caused even more panic in the markets if they'd decreed a 6% devaluation on the 1st day?

[Singha]

maybe they are targeting folks like thailand, cambodia, vietnam, malaysia who have been "stealing jobs" formerly with the big dragon.
and to send messages to the likes of foxconn not to invest anywhere else.

[Suraj]

Wouldn't it have caused even more panic in the markets if they'd decreed a 6% devaluation on the 1st day?

The market responds more adversely to indecisiveness than to a significant decisive action. If they made a full 6% cut and then stated their reasons, the market would react positively, in response to an act of seeming confidence and decisiveness. When they do it in dribbles, it screams of 'we know we have to do this, but we don't know how bad it is and will keep doing it bit by bit and hope it works'. The market doesn't know how much more is coming, and more importantly, is unsure if CPC itself knows it, because the dribble cuts suggest they're not sure themselves. That's market kryptonite.