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Asia Markets Plummet

NOEL KING, HOST:

The U.S. stock market looks ready to recover some of yesterday's dramatic losses when Wall Street opens this morning. Most Asian markets were down overnight, the Nikkei, the Hang Seng. But the Shanghai Stock Exchange was stable, which was unexpected because China's stock market has fallen 30 percent since January. And its currency has fallen to its lowest level against the dollar in nearly two years. NPR's Rob Schmitz is with us from Shanghai. Good morning, Rob.

ROB SCHMITZ, BYLINE: Good morning.

KING: All right, so a 30 percent drop for China's stock market sounds pretty darn bad. What's going on?

SCHMITZ: Well, China's economy has been lagging for the last few years. The government's dealing with a lot of problems. You've got public debt spiraling out of control. You've got a fairly significant property bubble. And through all of this, Beijing's making painful changes in how China's economy runs, moving from an economy based on building things to one based on buying things. And the downturn in China's stock market this year reflects that.

But it's important to remember here that when China's stock market drops by 30 percent, like this year, it isn't going to have as big an impact on the economy, like, if the Dow fell by the same percentage. And that's because in the U.S., much of the country's retirement plans are invested into the stock market, but not in China. It's still a relatively young market, and it isn't a great indicator of the overall economy as, say, the value of China's currency.

KING: Let me ask you about China's currency. The U.N. is at its weakest level against the dollar in nearly two years. Now, President Trump says Beijing is keeping its currency low to make exports cheaper, which could give China an edge in a trade war. Is China manipulating its currency?

SCHMITZ: Well, what's interesting here, Noel, is that China is likely manipulating its currency. But it's doing so in the opposite direction of what President Trump has accused China of doing. Years ago, China used to weaken its currency to make exports cheaper. But that's not what's happening now. What's happening now is that the U.S. dollar is stronger. And this is putting pressure on the U.N. to weaken.

And Beijing has stepped in to try and prevent it from weakening too fast. China is doing - China doesn't want its currency to be depreciating too quickly because it can lead to inflation. And that's the last thing China needs right now. So if China should get out of the way and stop managing its currency like this, the U.N. would likely weaken much faster, which is what Trump does not want because that could lead to an even bigger trade deficit between the U.S. and China.

KING: Are these tariffs that President Trump has imposed on Chinese goods having a big impact on the economy there?

SCHMITZ: Well, from economists I'm speaking to, it's a little early to tell. The U.S. tariffs are certainly having a deep psychological impact on the movers and shakers here in China's economy. In my conversations with business owners here, I keep hearing stories of how companies are making plans to move parts or sometimes all of their supply chains to countries in Southeast Asia to avoid this trade war.

KING: Wow.

SCHMITZ: And that, of course, does not bode well for China's economic future. But it's important to note here that even without the trade war with the U.S., China's economy was already vulnerable from a host of economic problems that are finally coming home to roost.

KING: NPR's Rob Schmitz in Shanghai. Thanks, Rob.

SCHMITZ: Thanks. Transcript provided by NPR, Copyright NPR.