• by Thom Forbes  @tforbes, August 12, 2015

China’s central bank “stunned the world” by devaluing its tightly controlled renminbi — aka, the yuan — for a second straight day Wednesday even as U.S. companies with a large presence there, such as Apple and Yum Brands, saw their stock prices tumble Tuesday in anticipation of an expected slowdown in sales. 

After saying Tuesday that its 1.9% devaluation of the yuan was a “one-off” deal, the People’s Bank of China on Wednesday let it fall an additional 1.6%. “The move sent fresh shockwaves through global markets, pushing shares sharply lower and sending commodity prices further into reverse as traders feared the move could ignite a currency war that would destabilize the world economy,” writeThe Guardian’s Martin Farrer and Fergus Ryan.

“The PBOC sets a daily midpoint for the yuan, around which the currency is allowed to trade within a 2% band. Until Tuesday, the central bank had total control over where the midpoint was set. Going forward, the midpoint will be based on the previous day's closing price,” explains Charles Riley for CNN Money.

“In a sign that China is following through on its plan, the central bank set the yuan's midpoint at 6.3306 on Wednesday — 1.6% weaker than the previous day's midpoint, but near where the currency last traded.” But the People’s Bank also promised in a statement to keep the rate “basically stable,” Riley reports.

Indeed, in the “last minutes of trading” Wednesday, the People’s Bank instructed state-owned Chinese banks to sell dollars on its behalf, sources tell the Wall Street Journal’s Lingling Wei. “The result: The yuan jumped about 1% in value against the dollar … bringing it to a level where one dollar would buy 6.3870 yuan.”

Bottom line, early Wednesday morning EDT: the Chinese currency is down 2.8% since Monday’s closing, Wei reports.

“Companies that are reliant on revenues from China will be shunned by investors for the second day in a row,” FXpro senior strategist Angus Campbell tells Reuters’ Jamie McGeever, observing the action earlier in the day.

Meanwhile, Apple on Tuesday “cratered 5.2%, while Yum, which owns KFC, slid 4.9%,” reports Kaja Whitehouse for USA Today. But Adolfo Laurenti, chief international economist for Mesirow Financial in Chicago, points out that companies such as Apple that manufacture products in China could benefit in the long run by lower production costs.

“Laurenti also says he thinks companies with strong enough brands — like Apple — may not be dinged as badly as less popular products because wealthy Chinese consumers may be willing to shell out more to have those name brands,” Whitehouse writes.

“This devaluation is a form of economic stimulus that promotes Chinese exports and makes imports from abroad more expensive —making this a suspiciously convenient moment for China's leaders to recognize the merit of market forces,” observes a Bloomberg Views editorial. 

“Later, when those forces point in the opposite direction — pulling the yuan up not down, and threatening to put Chinese exporters at a disadvantage — Beijing will face a dilemma. That will be a revealing moment. Outsiders can't be sure what will happen, and China's leaders probably don't know either.”

One worry at the moment is that the Chinese move may set off a global currency war.

“While it is too early to say whether this is the beginning of a sustained devaluation of the yuan, other central banks may be forced to follow suit and that may trigger a fresh round of currency weakening around the emerging world,” Rajeev De Mello, head of Asian fixed income at Schroders in Singapore, told Reuters’ McGeever.

Vietnam widened the trading band around the dong Wednesday and “other Asian governments may also be tempted to weaken their currencies to make their goods more attractive,” writes Steve Herman for Voice of America.

“If Thailand, Indonesia, Malaysia, Vietnam all decided they were going to win or gain market share by making their currencies significantly cheaper, then it’s the average citizens who pay the cost of that policy decision because they pay more for imported goods,” Glenn Maguire, chief Asia-Pacific economist at ANZ Bank, tells Herman.

Somewhat lost in the fray of falling stock prices and a possible currency war is the fact that “the U.S. and other trading partners have long called for the [Chinese] government to loosen its tight grip over the country's currency valuation, saying the decision hurt foreign competitors and gave Chinese exporters an unfair price advantage,” as the Los Angeles Times’ Julie Makinen and Samantha Masunaga point out in a concise summary of “what you need to know” about the devaluation.

The International Monetary Fund, which has also called for China to let market forces prevail, “welcomed” the news but said that it would have “no direct implications for the criteria used in determining” whether it will be included in the in the IMF’s basket of reserve currencies down the line, Bloomberg’s Edna Curran reports.