“China Drags Down Markets.” This was the lead headline in the Wall Street Journal last Friday, January 8th that said it all. Global markets from the get-go this year were pounded by mostly panic selling. It was compounded by technical issues in the marketplace although fundamentals were largely stable. Given what had happened late last summer in China, everyone was tracking intensely what was going on in the Shanghai market. Those fears quickly broadened to a focus on the yuan, the Chinese currency, and a concern about Beijing’s diminishing foreign currency reserves. However, as we pointed out earlier, these reserves still stand at $3.3 trillion at the end of last year. I think in large part due to the current focus on outflows and the possible pressure of further devaluation of the yuan, the PBOC through our old friend Ma Jun who is currently the chief economist of its Research Bureau, stated that China should fix the yuan to a basket of currencies rather than a single one which is the dollar. Beijing’s quick response suggests that the Chinese are now much more attuned to market sentiment and is reacting correspondingly.