China currency reform or competitive devaluation?

There are two schools of thought on why China chose to act now. One is that the country is merely moving towards a market-based exchange rate mechanism, given its hopes for SDR inclusion, RMB internationalization and capital account liberalization. The timing was probably influenced by the PBoC's wanting to prevent further RMB appreciation in REER terms as a possible Fed hike nears in September. After all, the RMB has appreciated 15-20% on most REER models in the past few quarters, as other currencies have lost ground against the USD. 

The other school of thought (which includes many vocal investors) attaches a deeper meaning to the move. These investors believe that China is pulling the'competitive devaluation' trigger because the economy is slowing more quickly than official data imply. As per this narrative, authorities are throwing in the towel; they have tried propping up stock markets, new infrastructure investments, and cutting local rates. They are now turning to a weaker currency. Not coincidentally, investors in this camp are often skeptical of official Chinese statistics.

Due to following reason Barclays argues that China is turning to competitive devaluation to boost exports.

• First, to move the needle on exports meaningfully, given soft external demand, the RMB would need to slide at least 20-30% against the USD. This would mean that China has publicly reversed its attempts to rebalance away from an export-led economy. And it could spark a response from China's trading rivals, blunting the effect. 
• Second, China's current account surplus is over 3% of GDP. Competitive devaluation would lead to protests of mercantilism/currency manipulation from US politicians, especially in a presidential election cycle. Third, if a 20-30% devaluation is the goal, a better approach might be to do it in one stroke to limit capital outflows, which have accelerated in recent quarters.