Consensus is emerging that no RMB appreciation will occur. I’ve been of that opinion for months now, mostly based upon creative interpretations of tea-leaves (read: don’t have any idea what I’m talking about). 

… most people believe official urban employment rate significantly understates real urban unemployment, and the real level could be as high as 10-11%… The key to social stability is adequate employment growth.  That growth either has to be fueled by maintaining exports, or increasing domestic consumption.  But there are important reasons why domestic consumption won’t increase.  For one, the lack of safety nets in health and elder care cause Chinese households to save in order to self-insure their risks for illness or health care emergencies.

So they’ll have to push more exports in any way possible; subsidies and currency seem the most likely - and might work, that is until hit with protectionist measures from the rest of the world. Real RMB depreciation is great for me - kegs of beer will remain at the appropriate price of $2.67. Of course, factors motivating this phenomena also mean that unemployment will increase; research becomes more complicated. Chinese are generally a jovial people, but poverty can motivate all sorts of undesirable behavior towards a walking white ATM: being mugged may well complicate my project, which consists of me wandering around talking to underemployed guys with power tools. 

This is of course despite ample amounts of rhetoric indicating that Beijing is intent upon ‘replacing foreign demand with domestic consumption. There are over a billion people here…’ with no absolutely discussion of how the process could actually occur - unsurprising, since Communist state media is only slightly more nuanced than cro-magnons like Bill O’Reilly and Lou Dobbs. There is so far little discussion of the ‘painful’ scenario - I become even more pessimistic.

Prof. Roubini argues that China will hit the “hard-landing” 5-6% growth scenario:

… a hard landing in the economy and in investment would lead to a sharp increase in non-performing loans of the – still mostly public – state banks; the implicit liabilities from a serious banking problem would then add to the implicit and explicit budget deficits and public debt. Note that the poor quality of the underwriting by Chinese banks – that financed a huge overinvestment in the economy - has been hidden for the last few years by the high growth of the economy. Once net exports go bust and real investment sharply falls we will see a massive surge in non-performing loans that financed low return and marginal investment projects. The ensuing fiscal costs of cleaning up the banking system could be really high.

And the comments on Roubini’s from the same post (Asia-Pacific Journal):

… the (likely) fall in construction is particularly worrisome. China’s new capital intensive export sectors haven’t been huge job generators. Building buildings by contrast employs lots of people – including a lot of migrants from rural areas.

Which puts even more pressure for China to push their China-bailout out the door as fast as possible. All of this will complicate any pretense about holding variables constant for field research, but also presents an opportunity to witness collapse / resilience first hand.