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Real Vision has some great commentary on the Yuan and its implications. Most recently: https://www.youtube.com/watch?v=1ssFICVFH40 https://www.youtube.com/watch

Real Vision has some great commentary on the Yuan and its implications. Most recently: https://www.youtube.com/watch?v=1ssFICVFH40 https://www.youtube.com/watch?v=1ssFICVFH40 The big risk from my point of view is that currency weakness tends to spook international investment capital who is exposed to the local currency, triggering selloffs as capital flees, exacerbating the problem.

mlyle 7y ago
It's worth noting that China's capital controls provide some insulation against this problem-- though they obviously cannot work to compel ongoing outside investment.
- calimac 7y ago
  Their access to the IMF was huge and they have favorable nation status for finance to support access to capital
- rory096 7y ago
  c.f.: the Impossible Trinity https://en.wikipedia.org/wiki/Impossible_trinity https://en.wikipedia.org/wiki/Impossible_trinity
- gamblor956 7y ago
  China's currency controls actually made the problem worse--a lot of non-Chinese companies immediately backed off on Chinese investments (i.e., factories, etc.) as soon as the controls were introduced.
  - seanmcdirmid 7y ago
    What do you mean? China has had currency controls for a very very long time. It doesn’t affect foreigners or foreign companies so much, they give us an easy out (we can exchange whatever we earn automatically).
    - gamblor956 7y ago
      I'm referring specifically to the capital-related currency controls. A few years ago China clamped down on how much cash a person could send/take out of China or exchange for foreign currency. It impacted a number of Chinese companies with operations in the U.S., especially Chinese real estate developers like Greenland, and basically eviscerated the EB5 visa market. I had a number of clients cancel deals because they couldn't get their money out of China.
      - seanmcdirmid 7y ago
        Yes, they clamped down on Chinese quotas, but not foreigner quotas. Your comment: > --a lot of non-Chinese companies immediately backed off on Chinese investments (i.e., factories, etc.) That meant foreign companies on Chinese investments, not Chinese companies on foreign investments, right?
        DuskStar 7y ago
        Doesn't China require that a lot of ventures be majority owned by Chinese citizens? I could see that money ending up 'contaminated' and hard to pull back out of the country later.
        seanmcdirmid 7y ago
        Some JVs have a 51-49 rule, but these are mostly being liberalized. Basically, most foreign companies are underwater on their quotas so they can convert as much as they need to. All they have to show is that they either converted that much to RMB earlier or earned that much and paid taxes on it. Tech companies like Microsoft fully own their Chinese subsidiary.
        deleted 7y ago
        [deleted]
        deleted 7y ago
        [deleted]
        7y ago
reggieband 7y ago
I"m having trouble really understanding what is going on in the linked conversation, I hate to admit it. The most simplistic interpretation I have is China and the US are playing a game of financial chicken. US raises tariffs and China lowers its currency. At some point, based on China's slowing economy and debt load this could trigger a major global recession since China will no longer be able to prop up economies that have been relying on its cash to purchase imports (e.g. Australian resources). In fact, China probably has to do this anyway at some point in time to offload the accumulating bad debt. If anyone can ELI5 for me I would appreciate it. My impression is that Trump is betting China may just be desperate enough to seem stable (from an economy and currency standpoint) and may actually be willing to concede to his trade war. The guy in video seems to be saying that China may just accept some currency devaluation (other rich countries have done it and survived) and use the opportunity to fix some bad debt in their economy. If they do so, and they may just do so, then they can choose a policy that minimizes impact to their internal economy. That would likely cause major problems for everyone else. I'm having a hard time seeing a good conclusion to this mess if I'm understanding correctly.
- Rolivaw 7y ago
  The short answer is china doesn’t have a lot of options. It’s not clear what leverage they can find, I’m guessing they just don’t want to seem weak and give in. Trade is so unfair the US has practically nothing to lose. China is actually keeping its currency from devaluating right now(trump is playing the media) If all controls are lifted the currency will plummet. Many friends in china have expressed their desire to get out a portion of their cash, and surely nobody is thinking about investing.
  - canada_dry 7y ago
    > I’m guessing they just don’t want to seem weak and give in. China has significantly more discipline than the current US administration and opposite to Trump's short-term shoot-from-the-hip approach, they are likely taking a page from Sun Tsu: If your enemy is secure at all points, be prepared for him. If he is in superior strength, evade him. If your opponent is temperamental, seek to irritate him. Pretend to be weak, that he may grow arrogant. If he is taking his ease, give him no rest. If his forces are united, separate them. If sovereign and subject are in accord, put division between them. Attack him where he is unprepared, appear where you are not expected.

mlyle 7y ago

It's worth noting that China's capital controls provide some insulation against this problem-- though they obviously cannot work to compel ongoing outside investment.

calimac 7y ago
Their access to the IMF was huge and they have favorable nation status for finance to support access to capital
rory096 7y ago
c.f.: the Impossible Trinity https://en.wikipedia.org/wiki/Impossible_trinity https://en.wikipedia.org/wiki/Impossible_trinity
gamblor956 7y ago
China's currency controls actually made the problem worse--a lot of non-Chinese companies immediately backed off on Chinese investments (i.e., factories, etc.) as soon as the controls were introduced.
- seanmcdirmid 7y ago
  What do you mean? China has had currency controls for a very very long time. It doesn’t affect foreigners or foreign companies so much, they give us an easy out (we can exchange whatever we earn automatically).
  - gamblor956 7y ago
    I'm referring specifically to the capital-related currency controls. A few years ago China clamped down on how much cash a person could send/take out of China or exchange for foreign currency. It impacted a number of Chinese companies with operations in the U.S., especially Chinese real estate developers like Greenland, and basically eviscerated the EB5 visa market. I had a number of clients cancel deals because they couldn't get their money out of China.
    - seanmcdirmid 7y ago
      Yes, they clamped down on Chinese quotas, but not foreigner quotas. Your comment: > --a lot of non-Chinese companies immediately backed off on Chinese investments (i.e., factories, etc.) That meant foreign companies on Chinese investments, not Chinese companies on foreign investments, right?
      - DuskStar 7y ago
        Doesn't China require that a lot of ventures be majority owned by Chinese citizens? I could see that money ending up 'contaminated' and hard to pull back out of the country later.
        seanmcdirmid 7y ago
        Some JVs have a 51-49 rule, but these are mostly being liberalized. Basically, most foreign companies are underwater on their quotas so they can convert as much as they need to. All they have to show is that they either converted that much to RMB earlier or earned that much and paid taxes on it. Tech companies like Microsoft fully own their Chinese subsidiary.
        deleted 7y ago
        [deleted]
      - deleted 7y ago
        [deleted]
      - 7y ago

reggieband 7y ago

I"m having trouble really understanding what is going on in the linked conversation, I hate to admit it. The most simplistic interpretation I have is China and the US are playing a game of financial chicken. US raises tariffs and China lowers its currency. At some point, based on China's slowing economy and debt load this could trigger a major global recession since China will no longer be able to prop up economies that have been relying on its cash to purchase imports (e.g. Australian resources). In fact, China probably has to do this anyway at some point in time to offload the accumulating bad debt. If anyone can ELI5 for me I would appreciate it. My impression is that Trump is betting China may just be desperate enough to seem stable (from an economy and currency standpoint) and may actually be willing to concede to his trade war. The guy in video seems to be saying that China may just accept some currency devaluation (other rich countries have done it and survived) and use the opportunity to fix some bad debt in their economy. If they do so, and they may just do so, then they can choose a policy that minimizes impact to their internal economy. That would likely cause major problems for everyone else. I'm having a hard time seeing a good conclusion to this mess if I'm understanding correctly.

Rolivaw 7y ago
The short answer is china doesn’t have a lot of options. It’s not clear what leverage they can find, I’m guessing they just don’t want to seem weak and give in. Trade is so unfair the US has practically nothing to lose. China is actually keeping its currency from devaluating right now(trump is playing the media) If all controls are lifted the currency will plummet. Many friends in china have expressed their desire to get out a portion of their cash, and surely nobody is thinking about investing.
- canada_dry 7y ago
  > I’m guessing they just don’t want to seem weak and give in. China has significantly more discipline than the current US administration and opposite to Trump's short-term shoot-from-the-hip approach, they are likely taking a page from Sun Tsu: If your enemy is secure at all points, be prepared for him. If he is in superior strength, evade him. If your opponent is temperamental, seek to irritate him. Pretend to be weak, that he may grow arrogant. If he is taking his ease, give him no rest. If his forces are united, separate them. If sovereign and subject are in accord, put division between them. Attack him where he is unprepared, appear where you are not expected.