China’s stock market experienced a large drop in value in early trading this Monday, with the important Shanghai Composite Index down 0.2 percent. The yuan also saw its value decrease to 6.1807 against the US dollar in early trading– a figure that has since decreased further to just 6.14 after further panic amongst currency investors.
Economic concerns have resulted in a loss of confidence amongst many of China’s top investors. The country, which is the world’s largest manufacturing base, has a credit bubble and growing real estate boom that many believe could lead to long-term economic consequences, including the possibility of a recession.
Despite this, China remains one of Asia’s fastest-growing large economies, and the country’s large manufacturing sector continues to grow. What concerns investors, however, is the possibility of an economic slowdown that brings growth down to levels similar to those seen in many Western economies.
Economists believe that China’s government, which has previously implemented tight currency controls to prevent the yuan’s value from increasing, will take new steps to ensure that the currency’s value remains low. China’s rapid growth has largely been fuelled by exports, which are threatened by a strong currency.
The UK has recently invested in China with a three-year deal seeing the UK grow into one of the world’s top trading centres for the yuan. The deal will see the UK participate in a currency swap with China valued at over £21 billion in order to simplify UK-China trade and capitalise on China’s looser control of its currency.
Beijing has increasingly loosened its previously tight control on China’s currency, which many experts believe is part of a long-term strategy to make the renminbi a global trade currency to rival the US dollar. China has also entered into currency-swapping agreements with Hong Kong, Australia, Japan, and Brazil.
