Safe Haven Effect Analysis

The economy of the People’s Republic of China (China) is changing its structure from that of developing country to that of developed country with leading a slowing of the Chinese economy. The Chinese economic slowdown with rebalancing its structure is a global threat with four points. First, distrust of the Chinese currency, yuan, leads to the "safe haven" effect. The “safe haven” effect is a phenomenon that investors invest in stable currencies in order to avoid being affected by a recession. This causes upward trends of currencies that are regarded to safe, such as yen or Swiss franc and does damage to those countries. Second, the Chinese economy possesses amount of debts. If these banks default their obligations, the banking crisis will
When the “safe haven” effect happen, the exchange rates of those currencies are raised. The high exchange rates raise the price of merchandise of them in importing countries and lower that of the imports in them. This does damage to exporters and benefits importers, so companies move their factories to foreign countries to cut costs. Then, many workers lose their job in the countries. In this way, the “safe haven” effect does damage to the countries whose currencies are regarded as
China is changing its industrial structure from manufacturing to service, and becoming a developed country. This means China will consume less metals in manufacturing in the future. According to Business Standard, the Chinese consumption of base metals is about 50 percent of global consumption, and when it comes to iron, it is approximately 60 percent. A decline of demand leads to the low price, so the declining of Chinese consumption of base metals directly causes the low price of them. The low price of base metals causes difficult situations to countries which depend on exports of them. Thus, Chinese rebalancing of its economic structure will lead the low price of base metals and do damage many countries which export