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For China to regain some measure of competitiveness, the easiest and most probable solution is to devalue the Yuan around 20% against the dollar: http://www.bar

For China to regain some measure of competitiveness, the easiest and most probable solution is to devalue the Yuan around 20% against the dollar: http://www.barrons.com/articles/why-chinas-currency-could-fall-20-1440143855 http://www.barrons.com/articles/why-chinas-currency-could-fa... This will lead to massive drops in global equities due to fears of deflation.

jpatokal 11y ago
They're already doing that: http://www.wsj.com/articles/china-moves-to-devalue-the-yuan-1439258401 http://www.wsj.com/articles/china-moves-to-devalue-the-yuan-... Despite the misleading subtitle, this is a change to the way the yuan is managed and will allow continual (slow) devaluation.
- jamesblonde 11y ago
  Agreed, this is just the first act.
  - nodata 11y ago
    What's the second act?
    - jamesblonde 11y ago
      The first devaluation is just a political move. Just to test the waters - will the Americans go crazy about them devaluing. In the second act, they will say - hey, this 1.5% didn't work. Look our industrial production is still falling. We have to adjust to market forces and devalue more. Then comes the 20% or so devaluation. But look, the Yuan has appreciated around 8% the last 5 years, so it will only be a relatively small devaluation. That will be the argument.
      - dpc_pw 11y ago
        And the strengthening dollar will force more QE or/and negative interests rate and basically a currency war...
- deleted 11y ago
  [deleted]
danieltillett 11y ago
A currency war is not going to be good for speculative investments - say like the tech industry. Lets hope it does not come to this.
- jamesblonde 11y ago
  It won't be good for emerging markets or any high-beta investment. So yes, VC money could dry up in the next few months.
  - danieltillett 11y ago
    My expectation is VC money is less likely to be affected than the private equity funds. VC funds are pretty long-term and the the limited partners are locked in tight. It is the unicorns looking to raise money out of the private equity market or IPO who will really struggle if the market turns.
seanmcdirmid 11y ago
Stop. Most of my life savings are still in yuan. I really need to convert the rest. We converted a bit when the first devaluation happened (my wife can do that since she is a citizen), but to do the rest, I have to wait a month for tax receipts from work....the joy of earning money in an inconvertible currency!
- toyg 11y ago
  At least you live in a country with significant internal production, so overall things shouldn't get too bad for you even after devaluation (as long as you stay in the country and buy Chinese). I grew up in Italy during the last few devaluation waves and then the Euro switchover (when prices basically doubled overnight) -- prices of everything except food and shoes skyrocketed, it was really ugly for us little people.
  - antientropic 11y ago
    The claim that prices "basically doubled" during the Euro switchover seems rather exaggerated: http://www.inflation.eu/inflation-rates/italy/historic-inflation/cpi-inflation-italy.aspx http://www.inflation.eu/inflation-rates/italy/historic-infla... (i.e. inflation was about 2-3%).
    - toyg 11y ago
      In Italy there is a wide (and ongoing) debate on this topic, because there is a clear disconnect between official statistics from those years and widespread public perception (which, tbh, includes mine). Unfortunately very little is translated, but a couple of Italian studies on the phenomenon are at http://www.treccani.it/enciclopedia/inflazione-e-inflazione-percepita-euro_%28XXI_Secolo%29/ http://www.treccani.it/enciclopedia/inflazione-e-inflazione-... and http://www.mi.camcom.it/l-euro-tra-inflazione-percepita-e-politiche-di-pricing http://www.mi.camcom.it/l-euro-tra-inflazione-percepita-e-po... In short, some specific sectors did increase prices dramatically in those years, and probably were the ones felt the most by everyday consumers (food, restaurants, retail etc). I would personally add that Italian statistics on economic elements are historically lacking, due to widespread tax evasion and unreported activity, and suffer from the huge economic disconnect between North and South.

jpatokal 11y ago

They're already doing that: http://www.wsj.com/articles/china-moves-to-devalue-the-yuan-1439258401 http://www.wsj.com/articles/china-moves-to-devalue-the-yuan-... Despite the misleading subtitle, this is a change to the way the yuan is managed and will allow continual (slow) devaluation.

jamesblonde 11y ago
Agreed, this is just the first act.
- nodata 11y ago
  What's the second act?
  - jamesblonde 11y ago
    The first devaluation is just a political move. Just to test the waters - will the Americans go crazy about them devaluing. In the second act, they will say - hey, this 1.5% didn't work. Look our industrial production is still falling. We have to adjust to market forces and devalue more. Then comes the 20% or so devaluation. But look, the Yuan has appreciated around 8% the last 5 years, so it will only be a relatively small devaluation. That will be the argument.
    - dpc_pw 11y ago
      And the strengthening dollar will force more QE or/and negative interests rate and basically a currency war...
deleted 11y ago
[deleted]

danieltillett 11y ago

A currency war is not going to be good for speculative investments - say like the tech industry. Lets hope it does not come to this.

jamesblonde 11y ago
It won't be good for emerging markets or any high-beta investment. So yes, VC money could dry up in the next few months.
- danieltillett 11y ago
  My expectation is VC money is less likely to be affected than the private equity funds. VC funds are pretty long-term and the the limited partners are locked in tight. It is the unicorns looking to raise money out of the private equity market or IPO who will really struggle if the market turns.

seanmcdirmid 11y ago

Stop. Most of my life savings are still in yuan. I really need to convert the rest. We converted a bit when the first devaluation happened (my wife can do that since she is a citizen), but to do the rest, I have to wait a month for tax receipts from work....the joy of earning money in an inconvertible currency!

toyg 11y ago
At least you live in a country with significant internal production, so overall things shouldn't get too bad for you even after devaluation (as long as you stay in the country and buy Chinese). I grew up in Italy during the last few devaluation waves and then the Euro switchover (when prices basically doubled overnight) -- prices of everything except food and shoes skyrocketed, it was really ugly for us little people.
- antientropic 11y ago
  The claim that prices "basically doubled" during the Euro switchover seems rather exaggerated: http://www.inflation.eu/inflation-rates/italy/historic-inflation/cpi-inflation-italy.aspx http://www.inflation.eu/inflation-rates/italy/historic-infla... (i.e. inflation was about 2-3%).
  - toyg 11y ago
    In Italy there is a wide (and ongoing) debate on this topic, because there is a clear disconnect between official statistics from those years and widespread public perception (which, tbh, includes mine). Unfortunately very little is translated, but a couple of Italian studies on the phenomenon are at http://www.treccani.it/enciclopedia/inflazione-e-inflazione-percepita-euro_%28XXI_Secolo%29/ http://www.treccani.it/enciclopedia/inflazione-e-inflazione-... and http://www.mi.camcom.it/l-euro-tra-inflazione-percepita-e-politiche-di-pricing http://www.mi.camcom.it/l-euro-tra-inflazione-percepita-e-po... In short, some specific sectors did increase prices dramatically in those years, and probably were the ones felt the most by everyday consumers (food, restaurants, retail etc). I would personally add that Italian statistics on economic elements are historically lacking, due to widespread tax evasion and unreported activity, and suffer from the huge economic disconnect between North and South.