The end of the world will come in China
The global market may not survive the devaluation of the yuan
For the last two days, the world has been waiting for a new round of the global financial crisis. Moreover, analysts believe that the consequences of the recent devaluation of the Brazilian real may be a trifle compared to the reaction to a possible fall in the Chinese yuan. The next crisis could significantly complicate Russia’s negotiations with the IMF and other creditors.

Early on Monday morning, when all European trading floors were still closed, it became known that the Chinese state newspaper China Daily in one of its materials announced the possibility of devaluation of the yuan. “A devaluation or float of the yuan would not necessarily be a bad thing, and it may not trigger the new round of currency devaluations that most people fear,” the paper said.
No one expected such a turn of events. According to experts, the financial crisis, which will undoubtedly follow the devaluation of the Chinese currency, will have much more devastating consequences than all the recent events in the global financial market. If foreign investors in one form or another have invested about $150 billion in Brazil, then the total volume of foreign investment in the Chinese economy exceeds $200 billion. Accordingly, investor losses will be significantly greater.
The most obvious consequences of the Chinese crisis are a fall in stock prices in all markets (primarily developing ones) and an increase in the exchange rate of the euro against the dollar and yen. The latter is explained by the fact that the bulk of foreign investment in the Chinese economy comes from American and Japanese corporations.
But that's not so bad. The main problem is that after the Chinese crisis (if it happens), the global financial market will take much longer to recover. Capital flight from emerging markets could trigger a series of crises, leading to significant losses for international corporations and, quite likely, a weakening of the dollar.
Naturally, in these conditions, international financial organizations will have to support those countries where foreign, primarily American, investors suffer the most significant losses. Russia is not one of them, so IMF assistance will come here last. The already unsuccessful negotiations with the fund will then become completely futile.
True, so far official Beijing has denied all rumors about a possible devaluation of the yuan, calling them idle inventions of journalists. However, Andrew Spilesbergen, an analyst at the London office of Mediser Investments, believes that "the actions of the Chinese government are not reassuring foreign investors, but on the contrary, are causing a negative reaction; most likely, the result will be their flight, which will be impossible to stop."
Yesterday, unscheduled meetings of senior management were held at the London offices of a number of banks and investment companies. They announced their readiness to temporarily suspend all operations with China until the situation is clarified. It is also known that a number of Japanese and US banks attempted to close credit lines to Chinese banks ahead of schedule and get some of the money back. All this indicates that investors tend to believe rumors rather than official statements from the authorities. And if panic begins in the Chinese market, then the devaluation of the yuan will occur regardless of Beijing’s wishes.

ILYA Kommersant-Plaksin

Newspaper "Kommersant" No. 7 dated January 27, 1999, p. 7