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Washington officially accuses China, who denies it, of "manipulating the yuan". The Chinese currency has devalued significantly against the greenback since Monday, August 5. But the strategy of Beijing is not without consequences on the Chinese economy.
The Chinese currency crossed the symbolic threshold of 7 yuan for a dollar, its lowest level in 11 years. Beijing hopes to mitigate the effects of rising US tariffs on Chinese products. But this devaluation is a double-edged sword for the economy of the Middle Kingdom.
Because the weakening of the yuan can be counterproductive for the Chinese economy . It risks causing a flight of foreign capital and curbing investors wishing to settle in China. Investors tempted to sell their assets in yuan to other more stable markets.
As a reminder, more than 500 billion dollars left China in 2015 because of the weakening of the yuan against the dollar. Other consequences; imported products will cost more, like oil that China buys in large quantities from foreign partners. The decline in the yuan also adds to the debt burden of heavily indebted Chinese companies in dollars.
Moreover, the devaluation of the yuan can not be the only weapon in the trade war between China and the United States: every time the Chinese currency back against the greenback, Donald Trump can respond with an increase in customs fees. China has no interest in entering such a spiral.