The Chinese government yesterday announced it would move to devalue its currency, the yuan. The move is seen both as a necessary step in moving towards decentralizing China’s heavily-regulated economy and as a short-term effort to boost the nation’s economy. By devaluing its currency, China will make exports less expensive in foreign currency terms, while simultaneously making its imports more expensive in local terms. The move had immediate international repercussions, with the Dow Jones Industrial Average falling more than 200 points on the news. In the longer term, the move may also force the US Federal Reserve to push back its plan to increase interest rates in the United States.
Countries regularly attempt to manage currency values, usually within a relatively narrow band of values. By increasing the supply of currency in the market, or by reducing interest rates, governments can put negative pressure on the value of their national currencies. In doing so, they make exports from the country less expensive in global terms, thereby providing an economic stimulus. However, some observers fear that the move by China may spark similar moves by other countries, leading to a competitive devaluation and a currency war, thereby threatening global economic growth.
What do you think? What impact will the move have on China? What impact will it have on the global economy? Should China continue with its devaluation? Why?
Investors around the world are closely watching the Chinese stock market, which suffered a massive sell-off this week. The Shanghai Composite fell by 8 percent yesterday, and markets in Shenzhen and Hong Kong also fell. In all, the Shanghai composite has lost one-third of its value since June, while the Shenzhen market is down by over 40 percent. All told, Chinese markets are down more than $3.25 trillion. Yesterday’s decline came after the Chinese government attempted to inject money into the markets, ordering government-owned companies to purchase billions of dollars’ worth of stick and the Central Bank cut interests rates to record lows.
International observers note that most Chinese citizens hold their wealth primarily in real estate, so the domestic impact of the stock market declines should be limited. The political impact inside China will similarly be blunted. But the decline highlight China’s slowing rate of economic growth. China is currently experiencing its lowest rate of annual economic growth since 2009, and slowing growth in China is affecting commodity markets for everything from copper to oil.
What do you think? If the Chinese stock market continues its fall, will the sell-off have a domestic impact on China? How might a continued decline affect Chinese politics, if at all? And what might the international impact of a continued decline in Chinese markets be?
The Shanghai Composite and the Shenzhen A Share stock markets—China’s two largest stock markets—posted large losses yesterday, capping a week of sharp falls. The two markets were down about 13% each. It marked the worst week in China’s stock markets in more than 7 years. Although they are up year-to-date, the sharp losses this week lent weight to speculation that the bubble in the Chinese markets could soon burst. According to Bloomberg,
Fueled by record margin debt and unprecedented numbers of novice investors, China’s market capitalization has tripled in the past year to $9.8 trillion. At 84 times projected earnings, the average stock on mainland exchanges is now almost twice as expensive as it was when the benchmark Shanghai Composite Index peaked in October 2007.
If the Chinese stock market were to fall, it could have dramatic effects both within and outside China. As much as 80 percent of investment in Chinese markets comes from middle-income Chinese citizens, and a sharp decline in their wealth could spark demands for political change.
What do you think? Is China’s stock market a bubble about to burst? If so, what might the effects be on Chinese politics and the legitimacy of the Chinese government? What international effects might a sharp fall in Chinese markets have? How might it affect China’s international influence? Why
Thursday marks the 26th anniversary of the student protests in Tiananmen Square. On June 4, 1989, the Chinese military used force to end a mass student protest demanding democratization and liberalization. The BBC marked the anniversary with an interview with Mo Shaoping, one of China’s most well-known defense lawyers. Mo specializes in handling sensitive cases and has defended many Chinese dissidents, including Guo Guoting and Liu Xiaobo.
In the video, Mo criticizes the Chinese government for what he sees as a lack of progress in democratization. He argues that, “China has laws but no rule of law. We have a constitution, but no constitutional governance.”
What do you think? Is Mo correct in his assessment? And if so, why has the push for democratization in China stalled? What does Mo mean by “Rule of Law” and why is it important for democracy? How has economic growth affected demands for political liberalization in the country? And what might the Chinese experience suggest for democratization and development elsewhere?
Competing territorial claims over islands in the South China Sea are intensifying tensions between the United States and China. Last week, the United States flew a military surveillance plane over disputed waters—a move described by the Chinese as a threat to Chinese sovereignty. China has been expanding natural reefs and constructing man-made islands in the sea in an effort to assert greater control over the region, particularly in light of competing territorial claims by Brunei, Malaysia, the Philippines, Taiwan, and Vietnam. The Chinese military are also using the new islands to construct forward observation posts and airbases to support operations in the region.
In response to the US mission, the Chinese Ambassador to the United States lodged a formal diplomatic complaint and called on the US to stop its operations in the South China Sea. The Chinese Defense Ministry said it would expand operations in response to US actions. The danger is that both countries reach a point at which the cost of backing down is too high, and the fear of losing face leads to escalation on both sides, creating the possibility of unintended direct conflict.
What do you think? How might the United States and China deescalate tensions in the South China Sea? How do the interest of other regional actors, including Taiwan, complicate efforts at de-escalation? How would you advise the Chinese Premier or US President to handle the situation? Why?
The United States and the United Kingdom have long maintained close ties. Since World War II, the two countries have maintained a “Special Relationship” characterized by deeply rooted connections across politics, trade, arts and sciences, government and military operations. But a decision by the British government to join the Chinese-backed Asian Infrastructure Investment Bank (AIIB) appears to be straining that relationship.
The AIIB is envisioned by China as an alternative to the other multilateral development institutions, which China asserts are dominated by Western interests. And while China has actively recruited additional countries to join the AIIB, American pressure has led countries like Japan, Australia and South Korea to resist joining.
The United State criticized Britain’s decision, which the British government described as being “in-line” with British national interests. But the United States said the British move was made “without any consultation” with the United States, and decried Britain’s “constant accommodation” of Chinese interests.
What do you think? Does Britain’s latest move signal the declining importance of the special relationship? What strategy should middle powers like the United Kingdom employ in addressing growing tensions between the United States and China?
A new photography exhibit seeks to highlight to challenges faced by China’s migrants. Millions of China’s citizens have migrated from rural homesteads to urban centers over the past two decades as China had rapidly developed. Indeed, according to one estimate, up to one-third of Beijing’s twenty million citizens are migrants.
Under China’s hukou system, citizens of China are classified as either rural or urban residents. The system historically defined a wide range of asocial benefits. In more recent years, the hukou system has been reformed, but it still limits the ability of rural citizens to purchase property in urban areas. This system, according to its critics, has limited the upward social mobility of millions of Chinese.
What do you think? What are the advantages and disadvantage of China’s hukou system? Would you suggest reforming the system? Why? How?