200 years earlier, Napoleon is said to have remarked – “Let China Sleep, for when the Dragon awakes, she will shake the world.” What surreal wisdom…
China has clearly shaken the status quo of global economic dominion over the last 10 years. However, on the 11th of August, it shook up currency markets in a clear break from what was expected to be a one way trade. The People’s Bank of China (PBoC) raised the USD-CNY fix to 6.2298 from 6.1162. This was the biggest one-day move since the Yuan officially de-pegged from the U.S. Dollar in 2005.
“We must deepen economic system reform by centering on the decisive role of the market in allocating resources….” — President Xi Jinping, “The Decision” of the Third Plenum, Nov. 2013
“What people don’t realize is that China papered over its last two credit bubbles, those in 1999 and 2004. The banks were never bailed out – they just exchanged their bad loans for questionable bonds from quasi-state organizations.” — James Chanos of Kynikos Associates
Last Monday – the 27th of July, was a disaster for the Shanghai stock market. The greatest one day decline in 8 years wiped out 8.5% of market capitalization. The plunge rang the curtains down on a six day rally – one that was clearly engineered by the government to arrest a freefall starting late June, wiping out some US$4 trillion or almost a third of the value of the A-shares market in three weeks. Amidst all the panic, what is conclusive is that neither the incredible bull run nor the dramatic fall in prices reflects the underlying performance of listed companies. Continue reading