Monday, 8 August 2016

China debt and currency problems

Christopher Balding wrote that China cannot solve its debt problem.

China's public finances are in worse shape than is commonly understood. And as debt levels rise and the economy remains sluggish, the government's ability to boost growth looks increasingly precarious. Without reform, that will have some grim consequences.

Problems could show up in its currency. Indeed, Bloomberg reported that Mark Hart of Corriente Advisors has been betting against China’s currency for seven years.

Hart’s case, in a nutshell, is this: China’s currency is wildly overvalued. By some accounts, the yuan’s real effective exchange rate vs. the dollar is twice as high as it was two decades ago and almost 40 percent higher than it was in 2008. Hart foresees a one-off devaluation of at least 30 percent, maybe more, with consequences worse than those of the global financial crisis. Otherwise, he says, Beijing will just burn through foreign exchange reserves trying to fight a losing battle.

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