The Yuan: The cheapest thing going is gone

For anyone watching the EM Markets space, the RMB's rise has been one of the most discussed topics of the year. With economic growth focused on exports, a weaker yuan was integral and the source of much scrutiny from the US. So there has been confusion as to why the government has made moves to strengthen the yuan when economic data has been deteriorating.

The real reason is that saving the exporters is no longer the priority. Exports have been falling and the trade surplus has shrunk, and global demand is still weak. Instead, the government is focusing on investment/capital flows. With a strengthening RMB, flows/hot money is less likely to leave the country and the government is actively courting capital inflows. If they were to let the yuan appreciate now, the amount of investors running for the exits would be unprecedented and cause widespread panic in the market, and stability is their current goal.

I guess I'm an accidental currency speculator, having most of my savings in RMB and the rest in CHF. It is definitely good for those of us who earn RMB, vacations are much cheaper. But imports haven't really fallen accordingly; I will believe it when Apple lowers their prices according to the exchange rate value (they are out of synch now, normally their prices are pretty close + 20% tax).

The question is how this impacts the various countries that trade with China, as well as China's export economy as well.

Then in turn, how will the western markets, both real and financial react, especially in light of the US Fed giving signs of winding down fiscal stimulus?

Yuan is strong because it is manipulated by the government that controls 1.6b people in a global market. But it is not sustainable because the bill printing machine is now obviously out of control.