Is #China heading for some kind of financial or #currency crisis? In the short term, no. But over the medium- to longer-term, the possibility of a sharp fall in the value of the #renminbi against other currencies, accompanied by large falls in the values of other Chinese assets, can’t be ruled out.

China hasn’t been running large current account deficits and financing them by borrowing in foreign currencies – as Thailand, Malaysia, Indonesia, the Philippines and Korea did in the years leading up to the Asian financial crisis of 1996-97. But its current account deficit is shrinking – and a swing into deficit can’t be ruled out. And foreign investment into China has all but dried up. The Chinese banking system almost certainly has more bad loans than officially admitted, thanks to the on-going deterioration in China’s property markets. Japan’s experience in 1998 shows that countries which are international creditors (as China is) aren’t immune from banking and currency crises.

John Menadue’s Pearls and Irritations blog published an article from me exploring this topic in more detail on 4th April 2023. You can read it here:

Is China heading for some kind of ‘currency crisis’? – Pearls and Irritations (johnmenadue.com)