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China walks sensitive ground on yuan

business Updated: Dec 09, 2011 21:08 IST
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Predictably enough, the focus of financial markets in recent days has been on Europe and the attempts of Angela Merkel and Nicolas Sarkozy to piece together a deal that will safeguard the future of the euro. But interesting things are happening in other parts of the world, notably China, where fears of a hard landing have led to the currency coming under downward pressure.



An interesting note from Michael Derks, chief strategist at FxPro, points out that the People’s Bank of China has been dipping into its huge stockpile of dollars in order to prevent the yuan from declining. October's intervention was only the second time in 11 years that it has needed to shore up the Chinese currency.“Worried by slowing growth in China and falling property prices, and with credit conditions tightening not just in Europe but all other the world, some investors have started to pull capital out of the country,” said Derks.

China’s growth rate is clearly slowing, and that has already prompted a policy U-turn by the authorities in Beijing, who have relaxed credit conditions in recent weeks. China remains highly vulnerable to a drop in demand for its exports. And it may be too late to prevent a property crash.

(Guardian)