China is still failing. The yuan plummeting against the dollar

“The whole world, and China in particular, is in recession.” Word of Fedex. And if the giant who delivers parcels to almost every corner of the globe says so, you have to believe him. Also because the US group is paying for the rapid deterioration of the global economy on its own skin. A profit warning on the whole of 2023 yesterday cost the stock a bloodbath on Wall Street, with a -22% one hour after closing and with over 11 billion of capitalization gone up in smoke. In short, Fedex does not seem to believe in the current vulgarity of a mild correction of the economic cycle destined to harm almost no one; nor – much less – does he believe that the Dragon has shoulders strong enough to support world growth, as it did after the global financial crisis.

Moreover, Beijing has to face two unsolved problems which are inextricably linked to each other. The first refers to the zero tolerance policy adopted to counter the resurgence of the pandemic from Covid, with lockdowns that have led to the forced enclosure of the nerve centers of Chinese production. The restrictions, although now more targeted and less disruptive, do not help to untie the second knot, that of the real estate sector on which the sword of Damocles of insolvencies continues to hang overhead. The seizure of the Hong Kong office a few days ago by Evergrande, burdened with a debt of 300 billion dollars, is the litmus test of a sector in extreme distress, as also demonstrated by the collapse in profits accused in the first half by Country Garden , the largest Chinese real estate giant. As on other occasions, the public hand is trying to put yet another patch, in the form of special loans for an equivalent value of 200 billion yuan (29 billion dollars), in order to allow the closure of construction sites. The bottleneck is in fact the lack of trust on the part of buyers about the ability of developers to complete the houses under construction. Thus, the sales of new residential properties become jammed and the liquidity of the companies in the sector ends up under even more stress. The numbers released yesterday confirm that a turning point is not on the horizon: in August, real estate investments fell by 7.4% compared to the beginning of the year and home sales fell by 3%. It is evident that the limitation of personal freedoms reduces the propensity to spend of families. While the unemployment rate dropped to 5.3% last month from 5.4% in July, retail sales rose by a stifling 0.5% annually, a percentage that prevents adding a few tenths of a point. to an expected growth of 5.5% this year. The real question mark is whether a possible collapse of the brick can degenerate into a real financial crisis with incalculable consequences. Morgan Stanley finds the hypothesis unlikely: “China has very strict prudential mortgage standards and a modest exposure of banks to the real estate sector.”

However, there is another front that President Xi Jinping and the People’s Bank of China cannot afford to underestimate. It is the currency one. For the first time in two years, the Chinese yuan weakened yesterday past the psychological threshold of 7 against the dollar. The Fed’s aggressive rate hike policy works to the detriment of the renminbi, whose weakness could fuel fears of capital outflows just as the authorities want to raise the resources to revive the economy.

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China is still failing. The yuan plummeting against the dollar


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