Cross-posted from Investing in Chinese stocks:
Hope for stabilization in China’s economic slowdown has been smashed by deteriorating data and economic forecasters at Industrial Bank of China have dubbed December the line in the sand. The article goes through the data points below and mainly sees the existent trends continuing.
Analysts also see the data pointing to devaluation:
The drop in interest rates and RRR, fiscal stimulus, accelerating monetary growth along with other factors, have repeatedly raised the market expectations for a better economy, but soon after these hopeful expectations come falling investment, industrial production, inflation and other indicators, smashing those hopes to pieces.
December could bring a major devaluation in the yuan:
Both have made RMB devaluation pressures continue to grow after the November vote SDR, IMF has currency stability requirements, but also need to have a more market-oriented exchange rate, and this October the US Treasury Department report explicitly gave these requirements. Therefore, December is the key month for the RMB exchange rate choices. Our advice: Instead of waiting, it is better to act decisively. If you wait until next year, the rate of decline in forex reserves will accelerate again.
The problem facing China is that intervention may now be the best course of action, followed by a major liberalization in the currency. Devalue beyond the target and let the market bid the yuan back up to stabilize the market. If instead the market is tasked with depreciating the yuan, the overshoot could be much greater and, by taking far longer to complete the job, will trigger far more secondary and tertiary effects as expectations shift. A quick one-off move short-cuts the market and prevents expectations from forming.
iFeng: 经济前瞻：中国经济美好预期被击碎 12月是抉择时刻
Decent discussion here from Bloomberg:
