Panic in China Over Yuan Devaluation, Stock Market Plummets

During the recent stock market dive in China, nearly a hundred companies stopped trading, resulting in a loss of a trillion yuan within two days. (Adam Vilimek/123RF)
During the recent stock market dive in China, nearly a hundred companies stopped trading, resulting in a loss of a trillion yuan within two days. (Adam Vilimek/123RF)

Because of the anti-corruption campaign moving forward rapidly, it’s also causing large-scale capital flight from China. The exchange rate of the yuan, or RMB, against the US dollar is falling continuously. On March 3, the yuan devaluation broke the 6.15 level, and the panic selling has continued.

During the recent stock market dive in China, nearly a hundred companies stopped trading, resulting in a loss of a trillion yuan within two days.

The shock waves from the stock market have stunned the Chinese regime and the outflow of capital has also attracted the international community’s attention.

The yuan devaluation began to get serious in the middle of February. By Feb. 28,, the exchange rate of the yuan against the U.S. dollar reached the biggest decline in China Foreign Exchange Trading Center records since 2007. The intraday decline was 0.85 percent to 6.1808, and hit the lowest point in the last 10 months. Many major Western media reported this event as breaking news.

The devaluation of the yuan has become one of the focus points in the annual Two Sessions political meetings. Yi Gang, the associate director of the central bank asked Chinese people not to panic as the fluctuation of the yuan will become a norm.

yuan devaluation

When the inflated price of houses falls, gold follows. Then, more people will buy U.S. dollars. As a result, many immigrant families take dollars with them. (Priyanka Patil/123RF)

Financial commentator Niu Dao  pointed out that the fluctuation of the yuan was caused by the debt reduction of the U.S. Federal Reserve’s policy last year. He questioned that when capital is escaping from China, why should the Chinese regime try to stop capital from coming into China?

Dao thinks that for a long time the yuan has appeared to depreciate inside China, but appreciate overseas. This scenario is quite similar to what happened to Japan and Latin America in the last century. Unfortunately the end results, without exception, were all the same—the bubbles burst.

China’s market reflects the yuan’s becoming worthless. People in the mainland try to find ways to avoid inflation. Thus, a large number of people have left China, and those who could not leave buy foreign houses, gold, and foreign currency.

When the inflated price of houses falls, gold follows. Then, more people will buy U.S. dollars. As a result, many immigrant families take dollars with them.

Unfortunately, there is limited emergency US currency available and short-term U.S. Treasury bonds cannot be sold fast.

In order to meet the demand, the only thing the Central Bank in China can do is rapidly depreciate the yuan to prevent its credit becoming bankrupt.

Source

 

10 Chinese Misconceptions About America, Part 1
China Corruption: I Still Have Power Even in Prison