With China’sdhfalling property glut threatening to turn into a Bruce Willis disaster movie (where’s Hans Gruber?), Chinese leaders are jittery about growth. No surprise that the central bank slashed interest rates in November. Look for more cuts in 2015. With Europe slipping into deflation and oil prices plunging, Chinese leaders are far more worried about a Great Recession than a Great Inflation.

What about the dollar/yuan exchange rate? The Shanghai equity market has soared to a 3-year high, catapulted higher by the November Shanghai-Hong Kong link allowing foreign investors to directly buy Shanghai shares. Therefore, money has sloshed to the mainland. In addition, the US equity rally has inspired worldwide equity buying. After all, if bank interest rates are near-zero throughout the world, where else are you going to put your money? (In the old days, you could stuff it into a mattress. But nowadays too many people have those dense Tempur-pedic memory foam mattresses that you can’t tear open.)

I’m not convinced the rally in stocks will drive the yuan higher. First, President Obama does not seem to care about the exchange rate anymore, and my old friend Tim Geithner is gone from Treasury. Therefore, foreign pressure for a stronger yuan evaporates. Second, with Europe and Japan sputtering, China can’t afford to give up the yuan’s undervalued status. November export data looked flabby (released today). Third, US interest rates will rise in 2015, attracting capital from abroad. Fourth, if a 30% rally in Shanghai shares since October could not drag the yuan firmly higher against the dollar, that’s good evidence that the yuan is not ripe for a rip-roaring rally in early 2015.

China’s slumping economy is hitting auto sales, despite lower interest rates. In September and in October, sales inched forward at a 3% annual rate. Chinese auto brands have built too much capacity (utilization is about 68%). Despite the soggy mainland economy, US auto firms are adding capacity in China.

If Beijing leaders want to juice car sales, they could make it easier for car buyers to finance their purchases. Right now about 80% of buyers show up with cash. In the US, only 15% pay cash. So there’s an easy way out for Chinese automakers:  just lobby President Xi to make Chinese dealers more like U.S. dealers — more financing and more markups for undercoating and floor mats.

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