As China devalues, India must protect itself from a currency war it cannot win

Abstract

The Chinese authorities made an exchange rate adjustment last week and the devaluation of its currency sent shivers across the world’s financial markets.

China had been averaging an annual growth rate of more than 10% since 1980 but in recent years, that trend has faltered. In 2015, the growth rate is projected to decline to 6.8%. Its current account surplus declined to 2% in 2014 from a peak of 10% in 2007. The latest IMF analysis—as of August 14 2015—suggests the Chinese economy is vulnerable to many factors; its augmented fiscal deficit is high at 10% of GDP while the country’s debt-to-GDP ratio has increased to 57%. Non-performing assets are rising too, constituting 5.4% of GDP, which could erode the safety buffers in the banking sector. In July, the authorities responded to this situation with a range of measures in the equity markets but these may not yield long lasting results. Read more at: https://thewire.in/economy/as-china-devalues-india-must-protect-itself-from-a-currency-war-it-cannot-win