RMB Depreciates

Chinese government depreciates Renminbi (RMB), which could possibly be catastrophic because Chinese corporations have been borrowing from abroad with low-interest rates.  And as foreign currency, such as the U.S. dollar (USD) appreciates, it would be more expensive for those corporations to repay their debt.  The Chinese government is depreciating their currency to continue to be competitive for foreign businesses.

This article is copied and pasted from Bloomberg View.  Visit the source for the two charts that I couldn’t copy and paste, and for the author’s and editor’s contact info.  There will be a link to a blog post (opinion piece) from Reuters about this situation at the end.

China Makes Debt Burden Heavier for Others

14AUG 16, 2015 6:00 PM EDT

China’s surprise move to weaken the yuan will have repercussions far beyond last week’s market turmoil. For one: Governments and companies in emerging markets will have a harder time paying the dollar-denominated debt they have amassed.

The yuan’s depreciation — by almost 3 percent against the U.S. dollar — triggered instability and exchange-rate declines across emerging markets. As of Friday evening in Asia, the Malaysian ringgit was down 3.8 percent from a week earlier. The Turkish lira, Mexican peso and Russian ruble also fell sharply. Here’s a ranking:

[Chart]

The depreciations might help the countries’ exports remain competitive. But they also expose a vulnerability: Over the past several years, borrowers in emerging markets have built up more than $2 trillion in dollar-denominated debt. When the U.S. currency was cheap and the Federal Reserve was holding interest rates close to zero, that debt seemed like a great deal. Now, with the dollar getting stronger and the Fed set to start raising rates, it’s becoming more of a burden.

Here’s a breakdown of the dollar-denominated government and corporate bond debt of selected emerging-market countries, as a share of gross domestic product (it excludes most loans, which can be significant):

[Chart]

If investors decide the debts aren’t sustainable, they could pull out en masse, starting a dangerous spiral of declining exchange rates and financial stress that could render otherwise viable companies and governments insolvent. One can only hope that regulators are trying to understand where the resulting losses would be concentrated, and how to mitigate the potential fallout.

http://www.bloombergview.com/articles/2015-08-16/china-makes-emerging-market-debt-heavier

Reuters blog post

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Leanne

I began writing Elle's Adventure in China (EACh) in June 2014 as a fun summer project, but as obstacles kept interfering with my plans, I forked and forked more options. I took writing this novel much more seriously in mid-July, and want to have it officially published someday in my lifetime. As many artists put their hearts into their projects, so do I. I did not start out liking to read, but a professor suggested a book for me for homework a few years ago, and it was an amazing book. Since then, I read for pleasure, and I hope my novel, Elle's Adventure in China, does the same for as many of you as possible. The same thing goes to writing. I did not like to write until I took a course where the professor and papers made me love to write. I hope every one of you find what makes you happy and dedicated to work. In May 2015, I started my other blog, Read and Write Here (R&WH), as a place to post other things that aren't China- and Chinese culture-related and not EACh. I share some of my memories and experiences from student teaching, irregular participation in Daily Prompts, etc. I'd like to have regular people and bloggers to write book reviews and post it on R&WH someday. Keep reading and writing!

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