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[bob ford <bobford79 AT yahoo.com>]

I'm surprised this is not getting more attention in the media today.  All of 
the Eurpoean countries have been , along with us, cutting rates , devaluing 
currencies.  Now, China is starting to do the same.  They were not supposed 
to do this.  Watch for a currency contest to the bottom, if we can't make 
them change their minds..  For a short while, 'goods' should be the sale of a 
lifetime.  If you have been saving to buy anything big, wait just a bit; 
maybe even postpone Christmas gift buying, if you do that (I quit, 
personally, a number of years back).................

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1930s beggar-thy-neighbour fears as China devalues 

China has begun to devalue the yuan for the first time in over a decade, 
raising fears that it will set off a 1930s-style race to the bottom and tip 
the global economy into an even deeper slump. 
 
By Ambrose Evans-Pritchard, International Business Editor 
Last Updated: 10:39AM GMT 04 Dec 2008


The central bank has shifted the central peg of its dollar band twice this 
week in a calculated move that suggests Beijing aims to offset the 
precipitous slide in Chinese manufacturing by trying to gain further export 
share abroad. 

The futures markets are pricing in a 6pc devaluation over the next year. 
"This is clearly a big shift in policy and we are now on alert," said Simon 
Derrick, currency chief at the Bank of New York Mellon. 

The move follows a Politburo speech by President Hu Jintao warning that China 
is "losing competitive edge in the world market". 

China has allowed a crawling 20pc revaluation over the past three years. Any 
reversal risks setting off conflict with the incoming team of President-Elect 
Barack Obama in Washington. Mr Obama called China a "currency manipulator" 
during the campaign, a term that carries penalties under US trade law. 

Outgoing US Treasury Secretary Hank Paulson is viewed as a "friend of China". 
He called for a stronger yuan this week before embarking on a visit to 
Beijing, but the plea was couched in friendly terms. This soft-peddling may 
soon change. 

Hans Redeker, currency head at BNP Paribas, said China's policy switch could 
set off a dangerous chain of events. "If they play this beggar-thy-neighbour 
game, it will cause a deflationary shock for the whole world," he said. 

It makes sense for countries with current account deficits such as the UK, US 
or Turkey to let their currencies fall, but China has the world's biggest 
trade surplus. 

Michael Pettis, a professor at Beijing University, said it was "very 
worrying" that a pro-devalulation bloc seemed to be gaining the upper hand in 
the Communist Party. "I really do believe that we are on the brink of a very 
ugly period for trade relations," he said. 

China has relied on exports to North America and Europe as its growth engine, 
making it acutely vulnerable to the contraction in global demand. Mr Pettis 
said this recalls the role played by the US in the 1920s, a parallel fraught 
with danger. "In the 1930s the US foolishly tried to dump capacity abroad, 
but the furious reaction of trading partners caused the strategy to misfire. 
China already seems to be in the process of engineering its own 
Smoot-Hawley," he said, referring to the infamous US Tariff Act in 1930. 

China showed restraint during the Asian crisis in 1998, holding the line 
against domino devaluations across the region. It may yet hold the line this 
time. 

However, this crisis is more serious. The manufacturing sector has seen the 
steepest decline since the records began, with devastation sweeping the 
textile, furniture and toy sectors. Civil unrest has begun to rock the 
Guangdong and Longnan regions. 

Beijing has slashed rates and unveiled a fiscal stimulus of 14pc of GDP, but 
most of the spending comes in the form of instructions to local governments 
to spend more – but without giving them the money. Does China really intend 
to step in to prop up global demand? The jury is out. 




http://www.telegraph.co.uk/finance/economics/3546471/Chinese-economy-1930s-beggar-thy-neighbour-fears-as-China-devalues.html