February 13, 2025
Is China About to Cause the Next Asian Economic Crisis?
China is clearly waiting President Trump out in the hope that he loses the 2020 election. But the Chinese economy may be in a much more vulnerable position than markets realize, and that could massively destabilize the world economy.
China is clearly waiting President Trump out in the hope that he loses the 2020 election. But the Chinese economy may be in a much more vulnerable position than markets realize, and that could massively destabilize the world economy.

Last week, the Chinese yuan depreciated further and broke through the very closely watched level of seven yuan per dollar. This depreciation sent global equity markets into a tailspin, with the Dow Jones Industrial Average declining almost 3%.

Many market economists view the Chinese currency breach of the long-held seven-yuan level as a sign that trade negotiations with the U.S. are going poorly, resulting in the global markets selling off.

However, it may be a sign of a much more troubling problem. China has some issues eerily similar to what other Asian countries had just prior to the 1997 Asian financial crisis. That event two decades ago has been analyzed in great detail. It was triggered by a debt default of two companies: Somprasong Land (a major Thai property developer) and Finance One (one of Thailand’s largest finance companies). Currency traders began to short the Thai currency, and eventually it broke its peg to the U.S. dollar, resulting in a 40% collapse in value. This steep drop made paying back dollar-denominated loans impossible. Currency weakness spread to South Korea, Indonesia, Malaysia, and the Philippines. All their currencies declined dramatically –between 34% and 83% against the dollar. Equity markets around the world, including the U.S., experienced significant declines.

While the trigger was a debt default as financial conditions shifted, the underlying factors had long been in place – these were export-driven economies that had close government co-operation with preferred manufacturers, subsidies, favorable financial deals, massive debt-financed growth and a currency pegged to the U.S dollar. Sound familiar?

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See Also:

(1) Would China risk another Tiananmen in Hong Kong?

(2) China moving mainland military units into Hong Kong as airport totally closed down

(3) Canadians’ negative impressions harden toward China

(4) Hong Kong Shows the Flaws in China’s Zero-Sum Worldview

(5) Why The U.S. Will Win The China Trade War