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China's Yuan Devaluation: Warning of Deflation Shock

As a candidate, he has continued to be vocal about the subject. For example, on Aug. 11, 2015, Trump said China's devaluation of the yuan is a "disgrace" and would be "devastating" for the United States (Reuters).

However, in January at Davos, Chinese Premier Li Keqiang said, "China has no intention of stimulating exports through competitive currency devaluation."

Now, Ambrose Evans-Pritchard of The Telegraph writes that the premier's promise has been broken, and the consequence could be a worldwide deflation shock. Here's an excerpt from his July 8 article:

China has abandoned a solemn pledge to keep its exchange rate stable and is carrying out a systematic devaluation of the yuan, sending a powerful deflationary impulse through a global economy already caught in a 1930s trap.
The country's currency basket has been sliding at an annual pace of 12pc since the start of the year. This has picked up sharply since the Brexit vote, suggesting that the People's Bank (PBOC) may be taking advantage of the distraction to push through a sharper devaluation.
"This makes a mockery of the PBOC's suggestion that its policy is to keep the currency's value stable," said Mark Williams, chief China economist at Capital Economics. "Markets will not take PBOC policy statements at face value in the future."
Mr Williams said it is unclear whether Beijing intended to deceive investors all along when it gave categorical assurances earlier this year, or whether it is feeding on events...
Factory gate prices within China are falling at a rate of 2.9pc, further amplifying the deflationary impact...
"They seem to be overriding their own model and letting the remnimbi (yuan) fall to improve competitiveness. They are in the same sort of deflationary syndrome as Japan in the 1990 but on a much bigger scale. The global economy is in no position to absorb this," said [Morgan Stanley's currency chief].

You can read the entire article, which includes three charts, by following the link below:

http://www.telegraph.co.uk/business/2016/07/07/world-faces-deflation-shock-as-china-devalues-at-accelerating-pa/