China's economic growth simply isn't sustainable, and that's even if it was true growth. There isn't a top economist alive who believes China's self-reported GDP numbers aren't fudged in one way or another (source: http://www.businessinsider.com/economist-reactions-to-chinas...). Either one of those situations (an economic slowdown, China fudging the numbers, or the more likely situation: a combination of both) makes hedging against the Yuan a pretty solid bet.

People and foolish investors think, "Well, China has more than a billion people so it will eventually have a robust and rich economy!" Only, it doesn't work like that (cue the "That's not how this works. That's not how any of this works" lady). Population size is only a tiny facet of a much larger picture. And it's not even a particularly important one, relatively speaking. There are some economists who are now starting to think that having a massive population size may have the opposite effect; it helps you reach a certain point but then your massive size begins to act as an anchor which keeps you from growing further.

Isn't everyone and their dog trying to devalue their currency these days to boost exports? What's the problem with weak yuan? Sure, iPhones will get even more expensive to buy in China (rather funny since they are made there) but other than that it should be a boon to exports, no?

Will this be a replay of Soros "Breaking the Bank of England"?

http://dealbook.nytimes.com/2010/06/04/when-soros-decided-to...

Remember when the US was complaining that the yuan was undervalued to make China's exports more competitive?[1] That was back in 2014. Now it's overvalued.

[1] http://yaleglobal.yale.edu/content/renminbi-undervalued-thin...

Kyle Bass went all-in, because 'this is much larger than the subprime crisis':

"Kyle Bass’s Hayman Capital Management has sold off the bulk of its investments in stocks, commodities and bonds so it can focus on shorting Asian currencies, including the yuan and the Hong Kong dollar.

It is the biggest concentrated wager that the Dallas-based firm has made since its profitable bet years ago against the U.S. housing market. About 85% of Hayman Capital’s portfolio is now invested in trades that are expected to pay off if the yuan and Hong Kong dollar depreciate over the next three years—a bet with billions of dollars on the line, including borrowed money."

Pretty easy bet:

China Capital Outflows Rise to Estimated $1 Trillion in 2015

http://www.bloomberg.com/news/articles/2016-01-25/china-capi...

Chinese banks' new bad loans more than doubled in 2015

http://www.reuters.com/article/us-china-banking-npl-idUSKCN0...

China Crash: $28 Trillion Debt Load Forces Credit Crunch

http://www.breitbart.com/national-security/2016/01/05/china-...

Capital flight pushes China to the brink of devaluation

http://www.telegraph.co.uk/finance/china-business/12088033/C...

Mark Hart: The Yuan Devaluation Still Has 50% To Go

http://www.valuewalk.com/2016/01/mark-hart-the-yuan-devaluat...

I don't subscribe to the WSJ so I can't read the OP, but I thought the Yuan was wanting to rise, and that china was slowly letting it revalue. I thought all the economic pressure was aligned that way. Chinese have currency controls so they can't easily sell the yuan to buy other currencies (bitcoin is down for the past couple weeks- the one currency which chinese people love and which doesn't have any controls).

It will be interesting to see what happens with China and Russian economies. I think their best chance is major cooperation with other countries via economic development zones (Silk Road, etc.) and trade. It seems like they are betting on a multi-polar world. The problem for Russia and China is the the USA will probably maintain its dominate military role for another decade or so.

That said, I think that the world economic situation is so complex and chaotic that who knows. The USA might have a black swan economic event (my bet would be on a digital credit meltdown, no ATMs, run on cash, etc.) that would affect everything.

It's quite interesting this news comes out when USD is taking an heavy hit against HKD for the last days: https://finance.yahoo.com/q?s=usdhkd=X

Depending in the leverage they used for betting against the HKD these people might be at a serious risk of loosing everything they put there in case the trend doesn't suddenly change or if they don't get enough money from other sources to hold their leverage.

China purposely engineered its economic growth to capture the lions share of the reward, which leaves China with the lions share of the risk. Moreover with capital outflows at record highs the only money going back into China is sovereign so this shouldn't create a net flight of capital in the west that would lead to a liquidity crisis.

China's been in an economic boom for 37 years and for the most part people don't know what a bad market is. This is healthy for China. It will help shine the light on poor management. The question is whether the CCP will make the necessary changes which are antithetical to their stay-in-power strategy.

I don't get how they can expect to make money off betting against the Hong Kong dollar---I thought the HKD was fully backed by USD?

Paywalled ? There is a free version ?

And they thought ghost towns are the answer...

Non WSJ-paywalled article by Reuters:

http://www.reuters.com/article/uk-china-forex-hedgefunds-idU...

Not the same article, FWIW.

What I'm about to say is unfortunate but true. China has a big us against the world mentality. Economic "attacks" are often seen as attacks by nation states, not by individuals, and as such, directly reflect foreign policy attitudes. Language like this only adds fuel to the fire. Given the different worldview about how the world works, motivations will always be suspect. Official party mouthpieces will never view such actions as a secular step to simply make money, and many especially uneducated people (who still make up a huge portion of the country) would agree with the mouthpieces on how to understand it. I'm not saying that we should coddle nation states. I am saying that it's unfortunate that I think an economic exercise would result in strained foreign relations at all levels. At the very least, it easily gives the government a scapegoat on which to blame things.

I was far more interested in this article when I thought the title was "Concurrency War" :-(