Chinese devaluation is a bigger danger than Fed rate rises

Bank of America expects the yuan to reach 6.90 next year, setting off a complex chain reaction and a further downward spiral for oil and commodities. Daiwa fears a 20pc slide. My own view is that a fall of this magnitude would set off currency wars across Asia and beyond, replicating the 1998 crisis on a more dangerous scale.

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Pressures on China are clearly building up. Capital outflows reached a record $113bn in November. Capital Economics says the central bank (PBOC) probably burned through $57bn of foreign reserves that month defending the yuan peg.

A study by the Reserve Bank of Australia calculates that capital outflows reached $300bn in the third quarter, an annual pace of 10pc of GDP. The PBOC had to liquidate $200bn of foreign assets... It also revealed - as long suspected - that the vast holdings of US bonds registered to investors in Belgium are actually PBOC assets held in Euroclear. These have halved.

... China's real effective exchange rate has risen by 30pc since mid 2012. Wages have been rising at near double-digit rates as the country crosses the "Lewis Point" and runs out of cheap labour from the villages.

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Li Keqiang commands the economy on sufferance only. Rumours constantly surface that he has been isolated in the Standing Committee. The real danger for the world is that he is simply shoved aside. The stability of the yuan and the world currency system rests on thin political ice.