What’s up with the financial crisis?

Western newspapers and other media are all jumping over each other in attempts to “blame China” for financial collapse caused by China devaluing the currency, Renminbi – or “Chinese Yuan” – CNY as its known in financial markets.

“google ” devalutaion of the Yuan and you will get screaming  saying “currency wars” , “currency wars” – and wait – yes, another “currency wars”. it takes a while to sort through the screaming headlines to reach the facts. Like this graph from CNN for example

hang on a tick –  isn’t China the lowest in that graph which shows currency devaluatons? Aren’t,  say, for example, the Russian ruble, the Australian dollar and the Japanese yen, all much lower in the graph? Doesnt that mean that those currencies dropped much further than the humble Yuan did against the USA dollar?

Yep, that’s what that CNN graph from here means.  http://money.cnn.com/infographic/economy/china-yuan-devaluation-is-nothing-compared-to-dramatic-losses-in-euro-yen-and-ruble/

Did we have screaming headlines asking ( or stating) : Russia ( Australia/Japan, Canada/Euro/Sweden etc) starting currency wars?

Nup. don’t think so. So, why are we seeing those headlines when China devalues, slightly ( in comparison with Europe, Sweden, Russia, Canada etc) it’s currency?

Here’s some other views:

Stephen Perry, from – China Global Impact watched  “ the rise of Shanghai since early last year and felt it was speculative based. It was largely from funds who felt it was a way to buy into China. But clearly that was not the case” and concludes

“But the economy looks in reasonable shape to me. Certainly better than many Developed economies.”

Shanghai trading markets. Photo credit: http://www.cnbc.com/2015/07/06/over-700-china-firms-file-trading-halts-as-shanghai-shenzhen-markets-slump.html

There has been a fluctuation in currencies, though. What ( or who?) caused it?

Some blame it on disgruntled returnees , and name names.

Hai gui or sea turtles, are Chinese people who returned from overseas study to help the Motherland, and worked in state enterprises. Undervalued, underpaid, and overworked, they left the state sector to move to higher paid jobs in the private sector.

This photo explains the origin of the term ‘hai gui “- sea turtles. Chinese is full of puns – plays on words which sound alike. Both “sea turtle” and “(over)seas returneed” sound the same in Mandarin. Photo credit : http://blog.mandarinchineseschool.com/2012/05/overseas-returnee-in-chinese-hai-ui.html

Li Bingtao from J.P. Morgan Chase’s global treasury department, who joined the CSRC planning committee is one of the names dropped in newspaper reports. The theory goes that when these experienced global traders moved to private enterprise, they left the state run bodies with inexperienced people running them.

As far as theories go, it sounds reasonable.

China claims that it is simply “keeping the Yuan at a reasonable and balanced level” .

Asian sources seem to have quite a different view. Mizihuo Securities Asia Economic Research Paper   conclude that “most East Asian economies, including China, appear to be in a better condition than they were 18 years ago”, and that many Asian countries ( not just China) have depreciated their currency against the US dollar.

Their analysis is that the Chinese economy remains solid, that 2015 is much different from the Asian financial crisis of 1997, and that “most of the factors that contributed to China’s surviving the Asian financial crisis still exist today. “

Princeton Oil and Energy sees it thus

the devaluation of a broad range of currencies against the dollar does not reflect the weakness of the US’s trading partners individually.  Rather, it reflects the strength of the US economy.  It is not the yuan, Euro or yen depreciating, but rather the dollar strengthening.

From Reuters correspondent Clyde Russell:

“The relatively small movement in the yuan prices of major commodities, especially when the massive declines over the past year are taken into account, make it extremely unlikely that China’s import demand will be affected by currency depreciation”

It’s possible, really, to go round and round in circles quoting different analyses.

Who’s right? Who’s wrong? Bottom line: the graph at the top says it all. Regardless of the effect, the devaluation of the Chinese Yuan is much much less than the devaluation of many other countries currencies against the US dollar.

World currencies fluctuate all of the time. Perhaps the world is used to seeing the Chinese Yuan as stable, so when it does fluctuate in a minor manner, the world panics.

The Onyanko Club

I couldnt resist adding this photo. What on earth is the Onyanko Club, you may be asking? ( I did) Apparently, it’s Onyanko Kurabu, which translates as Kitty Club. The Onyanko’s were an all- female band popular in Japan in the 1980s. “Panic the World” was one of their albums. The things one can find on the world wide web.