The way that a nation avoids becoming exposed to an exchange rate meltdown a la many Southeast Asian nations in the Asian Financial Crisis is avoiding excessive debt denominated in foreign currency.

Quite. But the Chinese government has enough reserves to cover the gross Chinese hard currency debt, so there is no overriding need to continue to depress the exchange rate by adding to these reserves rather than by buying real stuff. If you buy the real stuff you want with dollars bought with your newly minted currency, it will also depress the exchange rate.

But if the credit is drawn on an electrical utility, rather than on the Chinese government, the fact that China plays neo-mercentalist games with their currency raises reasonable suspicions about the multiple-decade credit worthiness of an enterprise that sells in Yuan Renminbi, if its loan is denominated in € or ¥ or US$.

I'm not sure how you get to that conclusion, unless you believe that the Chinese government will further depress the exchange rate at some point? The sign of the exchange rate pressure looks wrong for a simple cessation of mercantilist gamesmanship to impair the solvency of such an entity.

It looks to me like political risk would be a lot more significant than vanilla currency risk over a 20-30 year period.

- Jake

Friends come and go. Enemies accumulate.