Mike,
I have been reading 'yuan devaluation' projections for the 19 months and have posted against it many times. IMO it would not be good economics for China to devalue and the leadership understands this.
1. Unlike most of SEA, China is not dependent on exports as they amount to less than 20% of their GNP. Rather than devalue, they have been subsidizing exporters thru tax incentives, low interest loans, and direct payments. Most exporters have been able to compete as raw materials and many other costs are based in $US. They are being hurt more by the overall SEA reduction in consumer spending than the level of the yuan.
2. A devaluation would prompt another round of global devaluations in emerging market currencies negating any desired benefits.
3. Foreign debt would be more difficult to pay, new debt more difficult to obtain. They have enough problems with this already.
4. China must import certain commodities and a devaluation would be inflationary.
5. They have promised to not devalue and would lose face.
Almost every article I see that suggests a devaluation is based on a specific reason and ignores the whole picture. When the entire economic and psychological impact are viewed, a devaluation would do more harm than good.
These projections of a devaluation are hurting China's ability to obtain foreign investment - along with Gitic, China A&B companies losing so much money, negative press, and constantly changing policies. However, the loss of foreign capital is more a matter of the overall poor economy in SEA than the above because most of the investment was coming from Japan, Taiwan, and South Korea. From what I'm reading, only Europe is still actively investing in China.
JMHO,
Ron
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