As the Chinese economy rapidly expanded, hot money flowed into the country, mostly in the form of U.S. dollars. The Chinese central bank was more than happy to take these U.S. dollars in exchange for yuan and then it bought U.S. Treasurys. This symbiotic relationship allowed China investment to expand while the United States benefited from a ready, willing and able creditor. In short, the Chinese economic expansion financed the U.S. budget deficits. That process is now going into reverse.
We know the Chinese economy is slowing, perhaps dramatically. However, whether the Chinese can engineer a soft or a hard landing is inconsequential to investors. If investment returns in China have diminished, then it is time to move money out of the country. This is exactly what is occurring and is the reason for the yuan weakness. While a weaker currency certainly benefits Chinese exporters, it is unlikely that the central planners would want a weaker currency at the expense of their own stock market.