For many months, as dark clouds have gatheredover the Chinese economy, it has seemed obviousthat the authorities might be tempted to press anescape button that has been used by all the othermajor economies since 2008. That button is labelled“devaluation”. Yet, until Tuesday, this temptationwas stoutly resisted. Premier Li Keqiang has neverseemed particularly attracted to a traditional Asiandevaluation strategy. Indeed, export-led growth isthe reverse of the economic rebalancing that he hasalways championed.
China has now clearly blinked, and the renminbi has fallen by 4 per cent in two days. However,as so often in China, it is impossible to tell from official statements whether a major regimeshift has actually taken place.
The PBOC is trying to describe the devaluation as nothing more than a tactical shift to allowmarket forces to work more actively, thus allowing the currency to enter the SDR fairly soon.But the PBOC has also warned that the short term market moves might be quite large. Theymay be seeking to dress up a deliberate devaluation in the clothes of a “market friendly”reform.