The devaluation of China's currency over the last two days is likely to increase the ongoing flight of capital from that country. Estimates are that so far in 2015, something on the order of one trillion dollars has been sent out of China and placed in dollar denominated assets. In essence, this means that Chinese investors are taking their cash out of the country and putting it in dollars in order to avoid a decline in the value of Chinese currency. The people who made that move are now looking good since the dollar based assets are suddenly worth much more in Chinese currency.
Given that China announces that it has 7% growth in GDP, it seems hard to understand how the currency could be that weak and there could be such a capital outflow. The most likely explanation is that China's economy is actually not growing at a rate anything like the one the government announced. Indeed, many experts believe that actual growth figures for China would be more like 1% than 7%. Some even think that the Chinese economy has been contracting.
A weak Chinese economy would be bad for the world economy. Much worse is a weak Chinese economy for which the real numbers are hidden by phony rosy numbers released by the government in Beijing. It is hard enough to know how to react to economic problems. It is nearly impossible to react to problems when one doesn't really know what those problems are.
Given that China announces that it has 7% growth in GDP, it seems hard to understand how the currency could be that weak and there could be such a capital outflow. The most likely explanation is that China's economy is actually not growing at a rate anything like the one the government announced. Indeed, many experts believe that actual growth figures for China would be more like 1% than 7%. Some even think that the Chinese economy has been contracting.
A weak Chinese economy would be bad for the world economy. Much worse is a weak Chinese economy for which the real numbers are hidden by phony rosy numbers released by the government in Beijing. It is hard enough to know how to react to economic problems. It is nearly impossible to react to problems when one doesn't really know what those problems are.
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