Billionaire investor George Soros declared a "war"against China at this year's World Economic Forum held in Davos, Switzerland, from January 20-23, betting that Asian currencies would fall against the dollar. Due to his influence, fluctuations in the international financial market have intensified, and Asian currencies are facing increased pressure from speculative attacks.

However, there is no doubt that Soros' challenge against the yuan and Hong Kong dollar is unlikely to succeed.

Since last year, China's economic growth has receded, the stock market has kept shifting, and the yuan has fallen against the U.S. dollar. However, while the global economy is slowing down, China's economic fundamentals remain relatively sound.

In 2015, China's economic growth was double that of the United States, and its exports dropped by 1.8 percent in contrast to the 10-percent decline in global trade. Also, China's industrial structure continues to improve, as advanced manufacturing industries and emerging service industries are growing, and China strives to become world leader in many sectors.

All these factors indicate that China's macroeconomy is much more stable than those of other BRICS countries (Brazil, Russia, India and South Africa), as well as most developed economies. Economic turmoil alone cannot topple China. Rather, China is still capable of maintaining sound growth among major world economies. Because of the structure of China's ethnic groups and its cultural uniformity, it is also easier for China to maintain social stability compared to other countries.

That said, the yuan has been depreciating in small measures against the U.S. dollar since mid-2015. However, market players must recognize that considering the annual average exchange rate, the yuan had been appreciating against the U.S. dollar for 20 years, from $1 equaling 8.6187 yuan in 1994 to $1 being equivalent to 6.1428 yuan in 2014. It is very rare for a currency to appreciate against the U.S. dollar for such a long time and with such a large margin. It is therefore normal that the yuan is now falling slightly.

Moreover, since China has become the second largest economy in the world, the Chinese currency is unlikely to be unofficially pegged to the U.S. dollar forever. In a world of frequent capital flows, China--for the sake of the independence of its monetary policy--is willing and able to endure temporary, slight fluctuations in the exchange rate. Market players should recognize and accept this sooner or later, and they should not overreact to it.

Under current circumstances, a strong U.S. dollar may continue to reign for a long time against most emerging economies' currencies, but not against the yuan. That is because China now still has a trade surplus, which is growing, while the U.S. financial sector is knee-deep in "the Dutch disease"--an increase in the economic development of a specific sector which causes a decline in other sectors. The United States is eager to consolidate the foundations of its real economy, but its reindustrialization seems unable to move forward, which further worsens the balance of its trade. It is inevitable that the ongoing period of a current strong U.S. dollar against the yuan will come to an end, which is likely to happen in the near future.

Actually, Soros' "war" against Asian currencies will create opportunities for China to improve financial cooperation in East Asia and for the Belt and Road Initiative.

International monetary cooperation includes international financing collaboration, joint intervention in the foreign exchange market, coordination in macroeconomic policies, joint exchange rate mechanisms and the creation of a single currency. Deepening international monetary cooperation usually comes as a natural reaction against currency speculators' attacks.

The monetary cooperation in East Asia now stays at the level of regional financing collaboration, featuring currency swaps and repurchase networks.

Soros has triggered a "war" against Asian currencies while emerging markets are volatile. Isn't it an opportunity for China and other East Asian economies to elevate their monetary relationship from simple financing cooperation to joint exchange market intervention and even coordination in macroeconomic policies?

The author is  a researcher at the Chinese Academy of International Trade and Economic Cooperation

Copyedited by Bryan Michael Galvan

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