Lessons from Chinese devaluation

By Vestnik Kavkaza
Lessons from Chinese devaluation

President of Russia Vladimir Putin arrives in Beijing on Wednesday, where he will participate in solemn events dedicated to the 70th anniversary of the Victory of the Chinese people over Japan and the end of the World War II. Putin will also meet the head of China, Xi Jinping. During his visit about 30 documents are due to be signed, including documents on the opening of general consulates in both countries. Moreover, Gazprom plans to sign a memorandum on mutual understanding in the sphere of exporting gas to China from the Far East of Russia through a pipeline. Apparently, the leaders of the two countries will touch on the difficult situation on the financial markets.

Nikita Maslennikov, head of the Finance and Economics Institute of Contemporary Development, has a pessimistic view on the prospects for the yuan: “September 3rd is the 70th anniversary of the end of World War II, everyone has to be benevolent and calm, financial markets should be stable, and this way, unless they went to the eastern forum, somewhere else, in general, the first decade of September will be calm. Then the situation will worsen. Despite all the assurances of Premier Li Keqiang that a long period of devaluation of the RMB will not happen and that it is excluded, the markets do not believe this information. Bloomberg magazine already made a hint, citing high-ranking insiders from Сhinese government circles, that some economic departments and research institutes have received a legislative task to work out forecasts for the Chinese economy with the parameters of the devaluation of China to 8% this year and 20% next year. That is, in fact, the benchmark with which the markets now look at the Chinese economy, and it offers a soft landing.”

This is not good for Russia, according to the expert: “There is quite a serious problem with the deterioration of the structure of the bilateral trade balance, its reflected light will be on the reduction of the surplus and the current account. And finally, of course, it drags the ruble down.”

Nikita Maslennikov thinks that the lessons from the Chinese devaluation are highly valuable: “In addition to all the different motives that guided our Chinese counterparts, in terms of supporting the economy and exports, and in terms of market-support over the course of education, however, it is very important that the devaluation has given a signal to everyone: it is better to link with fixed rates.”

The expert says that Kazakhstan is a living example, as well as Vietnam and several other countries which have already begun working out measures to enhance these fluctuations of the currency corridor: “Almost the whole of South-East Asia is involved in this, this is like a domino effect. It turns out that the Chinese devaluation provokes some new fashion in monetary policy: let us do everything to quietly move to a floating rate. And that's another economic world, and it will occur just before the end of this decade. And we need to fall out of it when we are ahead of many other countries due to our currency policies, which is something completely illogical and counterproductive.”