Slower Economic Growth in China - What Will Happen Next?

There are renewed indications that China is seeking to cool the growth of its economy.

Growth based on the pegged Yuan is part of the problem I think. It has probably caused a great deal of inefficiency in the Chinese economy and now people in business and the Communist Party have come to expect there will never be fluctuation in the value of the Chinese currency. This is unsustainable and could have disastrous implications for the Chinese people and the global economy.

Attempting to control currency market as a means of gaining competitive pricing advantage for exports and to reduce profit uncertainty is insane. The practice builds up financial pressures in global capital flow that are hard to ignore. This is exaggerated as the size of an economy becomes larger.

Further, if economic growth slips there will be more internal pressure to peg the Yuan as a means of maintaining social order.

It is my view that the original policy of pegging has caused a serious situation within China. Free markets for currency mean that the adjustments are more gradual. This is a good thing and it allows worldwide allocation of productive assets.