China’s sudden move to engineer a weaker yuan to curb heavy inflows from abroad has led to an unexpected and undesirable upshot: a sharp increase in cash flowing into its financial system.
Investors have been buying up U.S. dollars and selling yuan over the past two weeks, leading to local currency flooding China’s money markets and sending short-term interest rates plummeting. That has caused concern among economists, because it contradicts Beijing’s campaign since June to keep borrowing costs high to rebalance a credit-driven economy and rein in risky financing such as the loosely regulated “shadow-banking” sector.
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Shen Hong, Wall Street Journal via CHINA US Focus http://ift.tt/NnLOPu
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