No Kidding: Trade Shock Could Ignite Yuan Depreciation

This is not at all a surprise or shocking to anyone who is paying attention.

FT: China’s current account at risk of deficit on trade shock

A moderate shock, perhaps caused by mounting trade frictions, could send China’s current account into deficit this year for the first time since 1993, according to Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered.

As the current account balance moves closer to zero, more movement in the value of the renminbi, China’s currency, against the US dollar is possible, Mr Ding said. A weakening renminbi has in the past fuelled outflows of capital from China and hit domestic equity and bond markets.

Aside from the impact of a trade war on China's FX reserve, the entire Chinese economy is at risk from "moderate" shocks that could come from any number of sources.

It only takes one or two "moderate" dominoes to set off a chain reaction in highly fragile global markets.