The fear is that unless the economy is strong, China may succumb to attacks on the Renminbi by international financial speculators just as its neighbors did. For now, the West is also fearful that competitive pressure will force China to devalue its currency. This will set off another round of currency devaluation in the region with catastrophic effect on the global economic system. There are at least four reasons why it is neither to China's advantage nor is it necessary to tamper with the Renminbi. To start, China's economic condition has remained healthy.
Inflation is low, the savings rate is high, and there is a trade surplus.
Foreign currency reserves exceed foreign debt which is predominantly long term. This is why only a year or so ago, the U.S. had wanted China to appreciate its currency to alleviate America's trade deficit. Worse yet, once a slide of that magnitude begins, there is no guarantee that it will stop at the prescribed level. And no country will volunteer to devaluate its currency to the extent that Thailand or Indonesia has done lately. The damage to the domestic economy is severe and lasting, and it will scare away much needed foreign investment.