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Is China preparing to implement the economic "nuclear option"?

Beijing has been buying raw materials at a rapid pace

Certainly China is gearing up for something major. This seems increasingly obvious, judging by the accumulation of important resources. Could it be that they are preparing for a major, one-time devaluation of the CNY?

By deliberately devaluing the yuan, China could boost exports by making its products cheaper and more competitive, but not without serious repercussions, such as upsetting trading partners and worsening the trade war between China and the United States.

The previous accumulation of resources such as gold and oil could provide some financial security and bargaining power, helping to stabilize the economy against the potential negative effects of a devaluation, such as higher import costs and inflation.

China's central bank continued its rush of gold purchases in March, increasing its reserves of the metal for the 17th consecutive month, despite record metal prices and a weak yuan.

Economists have attributed this to China's efforts to diversify away from dollar assets amid geopolitical tensions with the United States after witnessing the economic blow suffered by Russia after its invasion of Ukraine in 2022.

China's steady accumulation of commodities extends to crude oil.

China has taken advantage of its "borderless" partnership with Russia, which replaced Saudi Arabia as China's largest oil exporter last year, to ensure a reliable and low-cost energy flow while helping to support Moscow's war-isolated economy.

Devaluation could be a temptation for China, the world's largest exporter, as it seeks to expand its industrial presence in international markets for its goods amid deflation and weak domestic consumer demand.

But the move would surely increase tensions with Washington and other major trading partners.

Chinese industries are already accused of flooding markets with cheap exports such as steel and chemicals, prompting investigations. The United States and the European Union are already considering tariffs on Chinese electric vehicles.

I don't think China is preparing to devalue its currency against the dollar," Craig Shapiro, macro consultant at LaDucTrading, told Newsweek. "But I think China continues to buy basic resources, which it can buy in RMB (renminbi/yuan) from sanctioned producers like Russia and Iran.

Source Adevarul

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