George Soros may have done China a big favor

With the yuan surprisingly strengthening instead of weakening after Lunar New Year week, it now appears that George Soros and others betting big on a Chinese financial meltdown have given a bigger boost to the reformers in Beijing than even Xi Jinping could have. Whereas before everyone was fearful that China (not so) secretly intended to weaken the RMB to boost exports, it's all but given now that it in fact wants an artificially strong currency as long as possible to facilitate - force, actually - painful structural reforms.

Those vested interests in the lumbering SOE sector which have fiercely resisted restructuring and have doubtless lobbied for a large yuan devaluation so they could dump more excess capacity on global markets have probably lost their reactionary campaign against the Xi-Li reform team for good: before Mr. Soros and other speculators openly declared their intention to rake in billions from China's collapse, their arguments for a weak yuan were hard to counter; now, however, they will be viewed as traitors making common cause with foreign devils who want to steal tons of money from the Chinese people by sowing panic and distrust in their system.

Of course, few doubt that the yuan will continue to slide throughout 2016: as of this moment, both onshore and offshore rates are falling quickly against the dollar from the strong fix that PBOC set at the beginning of this week following New Year's; but Beijing has already sent a clear signal that any talk of rapid uncontrollable currency collapse will meet determined opposition, as PBOC chief Zhou Xiaochuan has finally broken his months-long silence to reiterate his intention to keep the RMB strong, with special emphasis this time on warding off speculators.

In another sign that things may be looking up for China, Inc., the Shanghai stock market has rebounded over 3 percent today despite more worse-than-expected trade data yesterday of 11 percent decline in exports and 18 percent decline in imports. Should the index rally above 3,000 points in the coming days it could herald a turn of sentiment, in that bad news is now being regarded as good news.

Whatever happens going forward, there's little doubt that Zhou, Li Keqiang, and Xi Jinping himself will try to not waste this crisis caused by foreign speculators, and use it as yet another justification to get their ambitious programs off the ground, with a stable currency as a requisite backdrop.

A plausible refutation of the "super-bear" argument that Chinese banks are on the verge of collapse has been provided here, which essentially stresses the same basic point I made about China being a dictatorship, and hence its financial system simply doesn't work the same way as a Western one.