Sinopsis International investors have long been haunted by rumors that China might abruptly devalue its currency. Investors were spooked as recently as July, after China's central-bank governor, Dai Xianglong , declared that the yuan's value would be determined by the market. Nevertheless, as I have correctly predicted since April 1998, China will not devalue its currency this year.
Investors have good reasons to be nervous about the Chinese currency.
China suffers from slowing economic growth, intensifying deflation, and a deteriorating current-account balance. Deflation has gripped the economy. Due to massive oversupply and underconsumption, retail prices have fallen for the past 22 months. Nevertheless, these adverse developments must be kept in prospective. Hence, no matter what the government says, the market cannot force the country to devalue.