China’s currency, the yuan, is now trading at levels lower than those reached after a shock August devaluation.

One dollar buys 6.5 renminbi today, compared to around 6.4 when the currency hit new lows in the summer.

The moves in foreign exchange markets have been linked to comments from the People’s Bank of China, China’s central bank, on 11 December 2015 that it would move away from its pegged currency arrangement with the dollar.

Instead, it will use a basket of currencies including the dollar, euro, Japanese yen and 10 other currencies.

Bearish Societe Generale analyst Albert Edwards, whose predictions are not the investment bank’s house view, has long argued a Chinese depreciation is likely and would add further pressure on countries around the world struggling with deflation.

Depreciation of China’s currency makes it cheaper for other countries to import its products, causing downward pressure on prices in other markets. This can make businesses outside China less profitable, leading them to cut jobs.

These conditions have historically proved bad for stocks and good for high quality bonds. This was the case in the 1990s Asian Financial Crisis and in 2008-2009.

China is under pressure because regional trading rivals have already aggressively depreciated their own currencies to gain an export advantage. Japan’s yen has lost 40% of its value against the dollar since 2012.

China bulls argue the country’s rebalancing towards a more high technology, consumer economy will lead to a more advanced economy capable of sustainable growth.

They also point out that despite its volatility China’s stock market is one of the best performing in 2015. Leading indicators for the country’s economy have started to firm somewhat, according to Henderson (HGG) economist Simon Ward.

We argued China’s currency peg was under pressure two months ago in our story China’s ‘dirty float’ could be set to sink (22 Oct 2015).

Despite a topsy-turvy 2015, there are signs China’s economy may be starting to stabilise. Fidelity China Special Situations (FCSS) is one way to play a turnaround.