Despite the Yuan’s value recently plummeting to an eight-year low, the Chinese economy has been rather stable in the second half of 2016, manufacturing PMI held above 50 (above 50 signals expansion); exports reached $196.8 Bln in November(from $176.2 Bln in January); and in industrial production growth averaged 6.14% Year over Year.
Together, these changes all represent a strong indicator of growth - and of bounce-back - and all thanks to the Yuan. Or more accurately, to the Yuan meltdown. Even as the Chinese Yuan shed more than 7.1% this year, it allowed China’s exports to rebound and stabilize industrial and manufacturing production. But all that stability comes at a stiff price, down the line.
While a weaker Yuan helps exporting sectors, it causes problems in China’s domestic economy. In it, an exceptionally weak currency has the same impact as monetary easing, creating an inverse relationship where, when the Yuan’s value is eroded, China’s housing bubble swells.
The more China’s housing bubble swells, the more its debt problem becomes acute. And, ultimately, the more painful its bust will be. Continue reading "China 2017: More Boom Before the Bust"