Forex Response to a Chinese Economic Slowdown

Recent Chinese economic data reveals that the second largest economy in the world is slowing down. This is a direct consequence of fewer purchases from a struggling European economy and worldwide economic slowdown. China missed its export and import projections.

China’s exports fell 3.3 percent from a year ago while imports tumbled 19.9 percent, well short of expectations, raising concerns about the health of the world’s second-largest economy.

Stocks are down on news of worldwide economic weakening. Our interest is in the Forex response to a Chinese economic slowdown.

Weakening Yuan

The Economic Times reports that the Yuan weakens due to poor trade data.

China’s yuan weakened slightly against the dollar on Monday after China published surprisingly weak January trade data on Sunday, and continued to trade near the limit of its daily trading band as the central bank held the exchange rate steady.

The China customs bureau reported that year-on-year exports and imports were down 3.3 and 19.9 per cent respectively, both missing analyst expectations by a wide margin.

Weakness in exports has fuelled speculation that China’s central bank might seek to guide the yuan lower.

Aside from a brief recovery in December, China’s export growth has been slowing since September, and Friday’s figure was the worst in nine months.

Over the decades of Chinese economic growth the People’s Bank of China has repeatedly intervened in currency markets to insure a weak Chinese currency which in turn make Chinese exports cheaper and served to aid Chinese growth. Now the Forex response to a Chinese economic slowdown will likely be more currency intervention in order to stimulate sales. The problem for China is that until the global economy strengthens it will be hard to sell more of anything to anyone.

Chinese Moving Assets Out of China and Out of Chinese Currency

As the Chinese economy weakens wealthy Chinese are buying property in the New York suburbs not to mention the US West Coast and London.

For the past several years, wealthy buyers from China have been purchasing investment properties and pieds-à-terre in luxurious Manhattan high-rises. Lately, though, some have moved their portfolios east to the exclusive enclaves of Long Island, springing for the pricey houses of the North Shore’s Gold Coast.

Some Chinese buyers are parking money in what they see as a low-risk investment. Others are seeking a trophy home. Still others are intent on living in these places full time while their children attend the area’s high-performing schools.

This a roundabout Forex response to a Chinese economic slowdown but what is happening is that people who have made their fortunes during the heyday of Chinese economic growth are taking their Yuan an buying US dollars (or British Pounds) and then picking up investment property in New York, Chicago, Los Angeles or London to mention a few places. This is probably a small part of a flight of capital from China to anywhere else that does not have an impending collapse of its real estate bubble, stock prices and currency. The Forex response to a Chinese economic slowdown is already happening as Chinese convert their currency a invest, bank and even live offshore.