HONG KONG — When Prime Minister Li Keqiang convened the Chinese cabinet last month, the troubled economy was the main topic on the agenda.
The stock market had stumbled after a yearlong boom. Money was flooding out of the country. Most ominously, the country’s export machine had stalled, prompting a wave of labor strikes.
In a little-noted advisory to government agencies, the cabinet said it was essential to fix the export problem, and the currency had to be part of the solution.
With the government keeping a tight grip on the value of the renminbi, Chinese goods were more expensive than rivals’ products overseas. The currencies of other emerging markets had fallen, and China’s exporters could not easily compete.
Soon after, the top leadership of the Communist Party issued a statement also urging action on exports.
It all set the stage for the currency devaluation last week that resulted in the biggest drop in the renminbi since 1994.
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The cabinet’s call to action: The country needed to give the currency more flexibility and to reinvigorate exports. If officials did not act, China risked deeper turmoil at home, threatening the stability of the government.
Article Source: www.nytimes.com
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