When the world gets closer.

We help you see farther.

Sign up to our expressly international daily newsletter.

China

As China Staggers, The World Trembles

This week's currency setbacks for the world's second-largest economy have created a financial ripple effect across the globe, with stock market nosedives and raw material prices dropping to dangerously low levels.

Shenyang's Stock exchange in northeastern China
Shenyang's Stock exchange in northeastern China

-Editorial-

PARIS — If we needed evidence of China's crucial place in the global economy, its currency troubles emerging this week offer a resounding demonstration. By devaluing the RMB, or yuan, against the dollar three days in a row, China has sparked a shock wave — perhaps even the beginnings of a panic — in markets around the world. Stock exchanges from Frankfurt to Seoul have been left wobbling, and raw material prices, starting with oil, have plunged to levels unseen in more than a decade.

It comes amid a worrying context, despite Beijing's insistence that it is simply readjusting its currency value after a years-long increase. For a little over a year now, Chinese growth has been out of breath, and some sectors such as car manufacturing have been showing clear signs of slowdown. The real estate bubble is also bursting, leaving investors rushing to an immature stock exchange that collapsed at the beginning of July, forcing authorities to take drastic emergency measures to end the crash. The figures of Chinese exports published earlier this week, showing an 8% slump in July compared to a year earlier, planted the last seeds of doubt.

It seems obvious that the country's hypergrowth is now in the rearview mirror, and we can see that the government is trying to mitigate the damage every way it can. It is in the entire world's interest that it finds a quick solution. The Chinese engine is vital for global growth — and not just for French luxury brands and German car manufacturers. China alone buys, among other things, between one-third and half of most of the raw materials produced around the world.

The current devaluation, the most significant since 1993, seems intended to support the exports of millions of Chinese companies, and it bears all the signs of a declared currency war. But it should also be viewed as a desirable evolution towards the liberalization of the RMB, a prerequisite for its inclusion by the International Monetary Fund as a reserve currency alongside the dollar, the euro or the pound sterling. This has been Beijing's goal for a long time.

Behind the ongoing normalization, it's the Chinese economic model's viability that's being questioned. Everybody knows the diagnosis: Large state-owned companies represent a crushing weight that smothers private initiative. Restrictions on incoming capital and the tight grip on the banking sector guide investments towards government projects, leaving entrepreneurs marginalized.

From the moment he took office, President Xi Jinping has been pledging to resolve these issues. But growth has weakened more than expected, and the overused strategy of investing in massive infrastructure projects such as the high-speed rail is no longer enough to drive the economy — not to mention the matter of these projects actually increasing Chinese debt.

Inside the palaces of Zhongnanhai, headquarters of the Communist Party, government and party officials seem to be hesitating. They obviously fear instability. But more importantly, interest groups that have long enjoyed the status quo are lurking in the systemic obscurity created by the single party. Now that China's economy is second only to the United States, the whole planet is counting on it to reform itself.

You've reached your monthly limit of free articles.
To read the full article, please subscribe.
Get unlimited access. Support Worldcrunch's unique mission:
  • Exclusive coverage from the world's top sources, in English for the first time.
  • Stories from the best international journalists.
  • Insights from the widest range of perspectives, languages and countries
Already a subscriber? Log in

When the world gets closer, we help you see farther

Sign up to our expressly international daily newsletter!
food / travel

Denied The Nile: Aboard Cairo's Historic Houseboats Facing Destruction

Despite opposition, authorities are proceeding with the eviction of residents of traditional houseboats docked along the Nile in Egypt's capital, as the government aims to "renovate" the area – and increase its economic value.

Houseboats on the Nile in Zamalek, Cairo

Ahmed Medhat and Rana Mamdouh

With an eye on increasing the profitability of the Nile's traffic and utilities, the Egyptian government has begun to forcibly evict residents and owners of houseboats docking along the banks of the river, in the Kit Kat area of Giza, part of the Greater Cairo metropolis.

The evictions come following an Irrigation Ministry decision, earlier this month, to remove the homes that have long docked along the river.

Keep reading...Show less

When the world gets closer, we help you see farther

Sign up to our expressly international daily newsletter!
You've reached your monthly limit of free articles.
To read the full article, please subscribe.
Get unlimited access. Support Worldcrunch's unique mission:
  • Exclusive coverage from the world's top sources, in English for the first time.
  • Stories from the best international journalists.
  • Insights from the widest range of perspectives, languages and countries
Already a subscriber? Log in
THE LATEST
FOCUS
TRENDING TOPICS

Central to the tragic absurdity of this war is the question of language. Vladimir Putin has repeated that protecting ethnic Russians and the Russian-speaking populations of Ukraine was a driving motivation for his invasion.

Yet one month on, a quick look at the map shows that many of the worst-hit cities are those where Russian is the predominant language: Kharkiv, Odesa, Kherson.

Watch VideoShow less
MOST READ