Sustained CNY depreciation may trigger more capital outflows

Though only capturing the first-round affects, the exercise suggests that for a more meaningfully impact on growth, the currency would need to depreciate by around 20-30%.

However, such a large devaluation could have adverse confidence effects related to financial stability issues. International experiences suggest that persistent currency depreciation will add to the pressures of asset selloffs and large capital outflows. 

"While China still enjoys significant capital controls, there are already signs of increasing capital outflows since June following the stock market crash, and the trend is expected to become more entrenched in Q3. This will tighten domestic liquidity and drive up onshore interest rates", says Barclays.