It's not just about the United States.
China's move to devalue its currency may give its export-driven economy a short-term boost. But as China continues to invest heavily in emerging economies around the world, it will also help boost profits from those ventures, earned in weaker local currencies, when those earnings are brought home.
Global stock markets were sucker-punched this week by Beijing's surprise move to let the value of its local currency, the yuan, sink abruptly against the dollar, after gradually rising over the last five years. The nearly 4 percent drop was the biggest wince 1994.
But over the last few years, China's currency has been steadily gaining strength against the dollar—and the local currencies of trading partners around the world—many of which have become targets for heavy Chinese investment.
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"You have to look at the Chinese currency in the context of all other currencies," Marc Faber, publisher of The Gloom, Boom & Doom Report, told CNBC. "Over the last few years, the yuan has appreciated against the dollar, and the dollar has appreciated against just about anything in the world."
That appreciation erodes the value of profits from Chinese investments in companies around the world when they're transferred back home and converted into Chinese yuan.
For decades, China has been a powerful magnet for hundreds of billions of dollars in capital investment from around the world. But the tide of capital flow appears to be turning.
Now, as China's once-red-hot domestic economy slows down, the government and Chinese state-owned companies have stepped up a heavy flow of investment in a wide range of new ventures around the world.
There's little reason to believe that this week's currency devaluation will slow China's investment around the world, which just topped $1 trillion over the last decade, according to data collected by the American Enterprise Institute.
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The flow of outbound investment from China to the rest of the world is growing faster than the foreign direct investment coming in. In the first five months of this year, China's outbound direct investment surged to nearly $45 billion, according to Reuters, approaching the level of foreign direct investment inflows. Outbound investment jumped by 47 percent in the same period, while inbound grew by 11 percent from a year earlier.
With a massive, upwardly mobile population, China was once seen by the developed world as a massive marketing opportunity for a wide range of products—from industrial equipment to luxury handbags. But the long-expected slowing of China's economic growth has dampened the enthusiasm of some foreign investors. The recent plunge in China's stock market has prompted further caution.
China's economic slowdown has also prompted Chinese companies to widen their search for the best rates of return on their investment. And many see greater opportunities outside their country than they do at home.
The shift in money flows comes as Beijing has encouraged local companies to look for opportunities to find investments outside the country and become more competitive globally.
The slowdown in China's once scorching growth comes as no surprise. A decade ago, few observers of its then-double-digit annual growth believed that pace was sustainable over the long term. But there is little consensus over how Beijing's 30-year experiment with state-managed capitalism will adapt to a more mature phase of economic expansion.
Chinese factories—the center of Beijing's promise to lift millions of Chinese out of poverty—have struggled recently with higher labor costs, slower foreign demand, and excess capacity. In some cities, the urban building boom that was engineered by the Chinese government to house a historic relocation of hundreds of millions of rural residents—the largest peacetime migration in human history—has stalled.
In some bubble housing markets, the ensuing bust has left many aspiring middle-class households holding a money-losing asset. Many households aspiring to middle-class wealth lost their life savings in the recent plunge in the Shanghai stock market. In response, Beijing has unleashed a wave of short-term stimulus measures, including a government intervention in the stock market that's designed to stem a dizzying collapse in share prices.
While moving to spur growth at home, Beijing is also pinning its hopes on a decade-long wave of investments that include massive infrastructure projects in parts of the world under-served by modern roads, railways and telecommunications.
For example, China has committed $40 billion to set up a Silk Road infrastructure fund to finance the construction of its One Belt, One Road plan to boost trade and extend its global influence.
The plan is designed to create a modern Silk Road Economic Belt through Central Asia, west Asia, the Middle East, and Europe and a 21st century Maritime Silk Road that would tie together Southeast Asia, Oceania and North Africa via shipping routes across the South China Sea and the Indian and South Pacific Oceans.
