Are currency movements and capital outflows the relevant lever for China problems?

Maybe so:

There are some benefits to a weaker currency, such as more competitive exports. But with China’s current account surplus having shrunk from 10 per cent of gross domestic product in 2007 to just 2 per cent now, net outflows have a bigger impact on currency markets.

“[Policy makers] need the renminbi to go down, but that then unlocks Pandora’s box,” says Ms Choyleva. “If you exclude the exchange rate gains there’s nothing much left to invest in China.”

Kevin Lai, head of Asian economic research at Daiwa, believes the moves to guide the renminbi higher last week by the People’s Bank of China are a sign that authorities are “deeply concerned” the recent trickle of capital outflow could become a damaging flood – especially if the US Federal Reserve’s unwinding of asset purchases entices capital out of emerging markets including China.

The PBoC has for years expanded its balance sheet as foreign capital flowed in, he explains. Now, with capital beginning to flow out China’s central bank is being forced to add cash to the economy without the underpinning of US dollar inflows. That, in turn, is contributing to renminbi weakness.

His forecast is for a further 8 per cent fall in the Chinese currency against the dollar by the end of 2015, to Rmb6.83 from Rmb6.21 now, pushing back down through the 18-month lows plumbed in recent weeks.

“If the renminbi keeps going down, the market will demand a real answer and start pulling money out. That is the worst fear of the PBoC,” says Mr Lai.

That is Josh Noble from the FT, there is more here.