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Sunday, March 23, 2014

Yuan Liberalization and China's Economic Challenges

Yide Qiao: Reminbi Liberalization and China's Economic Challenges The recent events in the Ukraine and Russia have exposed the fragility of emerging markets around the world. Yet, as important as these events are from a geopolitical perspective, looking at the global economy China is still what matters most because it has become such a locomotive for the emerging world. At the beginning of the year George Soros said that China's economy might be the crisis of 2014. This sentiment took hold in the financial markets, helping to trigger the break in emerging market currencies and stock markets in January and early February, which had a contagious effect on the global financial market as a whole. Today, it seems the risks that something will go wrong in China this year are slightly higher than they were when George Soros made his comments. The Chinese currency has suddenly weakened, which imperils the recent flow of speculative money and credit into China that has mushroomed in recent quarters. Though China has a mountain of foreign exchange reserves to cushion any change in capital flows, its fixed investment has become so debt dependent and reliant on foreign funding that a disruption or reversal in such capital flows would add to the squeeze on these debt dependent investment sectors in ways in which the authorities might not be able to readily compensate. So it is a particularly apt time to discuss the potential liberalization of the Chinese currency with Yide Qiao, head of the Shanghai Development Corporation. Qiao has devoted considerable thought to this issue and written extensively on the subjects of renminbi liberalization and China's overall reform efforts. In the interview below he explains many of the broad challenges facing by Beijing.

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