China’s economy is currently battling an economic slowdown, political unrest in Hong Kong, and of course the effects of a trade war with the United States. In what many perceive as a response to US tariffs on Chinese goods, the People’s Bank of China allowed the Chinese Yuan to weakened past the critical level of 7 yuan to 1 US Dollar for the first time since the global financial crisis in 2008. Since then the PBOC has kept the Yuan at this weakened level for three consecutive sessions. A weaker Chinese Yuan poses a threat to US exporters as it makes Chinese good relatively cheaper and the Trump administration has consistently accused the Chinese government of manipulating its currency to give the country a trade advantage.
The Chinese government has maintained that the weakening of the Yuan is a response to market dynamics, however the U.S Treasury department designated China as a currency manipulator for then first time since the Clinton administration and said China’s actions were another step in a currency war.
Impact on Businesses and Law firms
Investors worry that China’s actions may exacerbate the current trade war which is already having significant effects on the global economy and stock markets from the US to Australia saw significant drops following the weakening of the Yuan. There is also some concern that the devaluation of the Yuan could do more harm than good in the Chinese economy, by making it harder for China to import key commodities and triggering as potential debt crisis. This could happen if the weakening of the Yuan makes it more difficult for Chinese companies to pay back debts denominated in foreign companies. Given China’s increasingly important role in the global economy, an economic slowdown, Chinese recession or further escalation of the US-China trade war would have significant ramifications for business globally and could result in less business for law firms.