NEW YORK (TheStreet) -- Not very long ago, China was viewed as the strongest emerging market, and with its talks of infrastructural development across the Asia-Pacific, the country was supposed to overtake the U.S. in being the world's largest economy. The Asian Infrastructure Investment Bank (AIIB) had European countries like U.K, France, Germany and Italy supporting China, despite the reluctance shown by the U.S.
But, recently, despite it all, China's economy has been in the news for all the wrong reasons.
Over the summer, the country faced its the twin nightmares of falling stock markets and constant state-interventions as a result. Investors continued to flee to safer markets, indicating a major loss in confidence for the Chinese markets.
By buying shares through a giant-state backed financial institution and brokerages, the Chinese government tried to support stock market prices. However, it could not sustain that for too long and as purchases stopped, markets started to tumble. Further, the government intervention, meant to prop up values, may actually have served to undercut them as investors now don't know how or when the government might meddle in the "free" markets.
China has also been criticized for a sudden and surprise devaluation its currency, the yuan, and many feel it was required as a part of a reformatory measure and was a one-time event. The surprise further triggered worrying signals across global markets as neighboring countries and advanced economies faced its repercussions. Fueling fears of currency wars, the country recorded its biggest-ever fall in foreign exchange reserves in August this year.
Some economists are of the opinion that China may be trying to deteriorate the U.S. economy through dumping its massive holdings of U.S. Treasuries, which in turn may put an upward pressure on the borrowing costs. But some think otherwise. In a recent report, chief economist at Bloomberg Intelligence, Michael McDonough wrote, "If China's U.S. Treasury stock is a nuclear bomb, moderate sales to offset selling pressure on the yuan are unlikely to set off an explosion." No country would sink another's economy at its own cost (losing confidence of investors and global markets). Besides such deliberate actions, would have harmed China's economic and international relations with other countries in the long-term.