In 2015 and 2016, China’s exchange rate was struck by unprecedented volatility, which does not get appropriate attention from an early warning perspective. The dependent variable of this research is the currency debasement of the Chinese yuan, which took place in August 2015, together with the revision and the subsequent alterations in the exchange rate regime, as well as the entailed capital flow volatility. The independent variables are three analytical dimensions, namely fundamental, policy-induced and institutional vulnerabilities.

I analyse why China was less severely affected by financial crises over the past forty years relative to other emerging markets and developing economies. By drawing on lessons from past financial crises, I shed light on the notion that China had advantages along those three dimensions which made the country less vulnerable to financial crises, in particular to excess volatility in China’s currency. I hypothesise, however, that certain variables of these dimensions have changed, thus leading to increased fragilities of China in the second half of 2015 and 2016.