He is well aware that his firm and public commitment to maintaining the value of the currency allows for no back pedaling. Hence, any deviation from the declared course would make Zhu more vulnerable politically to his conservative opponents. As China desires WTO membership this year, it will be extremely reluctant to devalue. The main victims to rumors of devaluation will continue to be Asian stock and currency markets. We have learned from the Asian crisis that a lack of transparency and the free flow of capital are a dangerous mix.
Unforeseen news can drastically alter investor perceptions and trigger tremendous market volatility.
With its secrete policymaking process and unreliable economic data, China is an extreme example of nontransparency. Hence investors could be in store for several unpleasant surprises concerning true condition of the Chinese economy. Thanks to its nonconvertible yuan, China is relatively insulated from crises of investor confidence and will not suffer the same fate that befell the other Asian states during the recent crisis. Instead, its neighboring Asian markets will continue to be the ones that suffer. In sum, only the strong at heart will win fortunes in the dangerous game of playing the capricious Asian stock and currency markets.