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Thread: Should China give a hand to the EU?

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[quote=BOBERT,451512]XIAOBAIHE:

Apparently The Guardian newspaper also has "experience limitations."

Headline; Why China needs to shore up the yuan

December 9, 2011 - 3:47PM

Predictably enough, the focus of financial markets in recent days has been on Europe and the attempts of Angela Merkel and Nicolas Sarkozy to piece together a deal that will safeguard the future of the euro.

But interesting things are happening in other parts of the world, notably China, where fears of a hard landing have led to the currency coming under downward pressure.

The US dollar was buying 6.3630 yuan today, up from a low of 6.3190 early November.

An interesting note from Michael Derks, chief strategist at FxPro, points out that the People’s Bank of China has been dipping into its huge stockpile of US dollars in order to prevent the yuan from declining. This is a rare occurrence: October’s intervention was only the second time in 11 years that it has needed to shore up the Chinese currency.

Derks said: ‘‘Worried by slowing growth in China and falling property prices, and with credit conditions tightening not just in Europe but all other the world, some investors have started to pull capital out of the country.’’

China’s growth rate is clearly slowing, and that has already prompted a policy U-turn by the authorities in Beijing, who have relaxed credit conditions in recent weeks.

Despite some rebalancing of the economy towards domestic demand, China remains highly vulnerable to a drop in demand for its exports. And it may be too late to prevent a property crash, given the size of the bubble that was allowed to develop.

In those circumstances, it is not difficult to see why there should be downward pressure on the currency. But China is still running a huge trade surplus, particularly with the United States, and Washington would not look kindly - to put it mildly - if Beijing allowed the yuan to slide on the foreign exchanges, thereby making China’s exports cheaper.

The Guardian

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