Why China Can Have Devaluation and a Stock Market Crash at the Same Time

The fact China has taken a step to liberalize its exchange rate has added huge uncertainty to every other asset class, which is one of the reasons stocks are selling off hard.
Why China Can Have Devaluation and a Stock Market Crash at the Same Time
Investors monitor screens showing stock market movements at a brokerage house in Shanghai on Aug. 13, 2015. Johannes Eisele/AFP/Getty Images
Valentin Schmid
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China’s stock market has been relatively quiet since the big crash in June and July. It seems that period of quiet has come to an abrupt end with the shares crashing 6.15 percent on Aug. 18.

One thing China always had going for itself was stability. Real estate bubble? No problem, the regime will stabilize it. Excess capacity and rampant deflation? No problem the regime can handle it.

Stock market? No problem the regime can prop it up.

Currency? Pegged to the dollar, nothing to worry about—at least not until Aug. 11.

China's stock market in Shanghai crashed 6.15 percent Aug.18, 2015. (Google)
China's stock market in Shanghai crashed 6.15 percent Aug.18, 2015. Google
Valentin Schmid
Valentin Schmid
Author
Valentin Schmid is a former business editor for the Epoch Times. His areas of expertise include global macroeconomic trends and financial markets, China, and Bitcoin. Before joining the paper in 2012, he worked as a portfolio manager for BNP Paribas in Amsterdam, London, Paris, and Hong Kong.
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