AT first sight, the sudden (and unexpected, at least for some) decision of the People's Bank of China (PBOC, China's central bank) to allow a 1.9 per cent depreciation of the renminbi early this week may seem completely unrelated to the turbulence and crash in China's equity market over the past two months.

Indeed, the devaluation was the technical result of a change in the way the currency value is set daily, from a PBOC morning fixing around which it was allowed to fluctuate by +/-2 per cent to a fixing determined by 35 large Chinese banks that are market makers in foreign currency markets. It is therefore a positive step in the progressive financial liberalisation policy that Chinese authorities are progressively engineering.

But make no mistake: The decision and the timing are determined also by cyclical management issues, which have been made substantially worse by the recent stock market crash.