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A Mild China Crisis.

At 1.18 GMT on Aug. 11, 2015, the People's Bank of China (PBoC), central bank, let the Yuan fall 1.9% - the biggest decline since 1994. The PBoC again let the yuan fall further on Aug. 12 and Aug. 13 - in a 4.4% devaluation which in 2015 shook the world. Clamour in government circles to help struggling exporters later put further pressure on the PBoC to let this currency drop lower still. Although that was a mild crisis, it did present the world with a model of what may cause a more serious global response such as a severe US crisis provoked by a drastic move by President Trump.

A more serious Chinese crisis hitting the globe would be a severe producer price deflation, putting China at risk of repeating the deflationary cycle which had blighted Japan for decades. The Aug. 11-13, 2015, devaluations followed a run of poor economic data and raised market suspicions China was in longer-term slide to cheapen its exports (see the 2015 background in omt7NigrExpGlblPerspv17Aug15).

Years of building pressure in many parts of the world, at least since the 2007-08 global financial crisis, crystallised into dramatic political results during 2016 as public disaffection with the status quo gained traction. In the West, consensus expectations were defied by the UK's decision to leave the European Union, by President-elect Donald Trump's victory in the US and by the Italian electorate's rejection of Matteo Renzi's constitutional reforms.

The implications of results such as these are potentially far-reaching - some people question whether the West has reached a tipping point and some of them might now follow the US shift to a de-globalisation of the world's economy. And the un-certainty and instability which characterised 2016 are not OECD phenomena alone: variations of them have been seen this year in countries across the world, including the US, Brazil, the Philippines, as well as Turkey and other countries in the Greater Middle East (GME).

The annual World Economic Forum at Davos in early 2017 issued a study noting that, over the past decade, its Global Risks Report had drawn attention each year to a persistent cluster of economic, social and geo-political factors which had helped shape new scenarios for the global 2017 risks landscape.

In 2007 and 2008, for example, The Global Risk Report's rankings showed de-globalisation in advanced economies as tied for the risk with the highest impact; in 2011, the report focused on "economic disparity and global governance failures".

In 2014 it highlighted "societal concerns includ[ing] the breakdown of social structures, the decline of trust in institutions, the lack of leadership and persisting gender inequalities".

In 2015 the study observed that "the fragility of societies' was of "increasing concern". That study cautioned against excessive economic optimism, noting that it might "reflect a false sense of control, as history shows that peopleare often taken by surprise by the same risks".

That discontent with the current order has now become an election-winning proposition. It clearly increases the urgency of understanding and responding to these global risks.

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Publication:APS Review Oil Market Trends
Geographic Code:9CHIN
Date:Aug 28, 2017
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