If the prospect of the Chinese renminbi’s entry into the basket of currencies composing the special drawing right was supposed to insulate it from the whims of speculation, no one appears to have told the foreign exchange traders.

Yesterday, after data showed Chinese exports in November sharply lower over the year on the back of weak external demand, the renminbi dropped to its lowest level in four years. Earlier this week, it emerged that Chinese official foreign exchange reserves registered their third-largest monthly decline on record in November.

Beijing is discovering that symbolic achievements such as admission to the SDR basket are less important than having a sustainable growth model. China is trying to effect a hugely difficult balancing act between short-term growth and long-term stability. In the face of capital outflows and downward pressure on the currency, it must steer an uneasy course between the two.

Having long ago announced its intention to shift from an economy led by investment and exports to one driven by domestic and particularly consumer demand, China has been overtaken by events. A slowdown in global export demand, and a general sell-off of emerging market currencies, have assisted the first goal, on a cyclical rather than a structural basis. But they have done little to help the second leg of growth in consumer demand and domestic services.

In August, in response to pressure on the currency, China allowed the renminbi to fall and announced that henceforth it would follow a more market-determined pattern. To the extent that it was a true move towards a freely floating currency, this was a decision in the right direction. However, it would have been much better taken in calmer times, looking like principle rather than expediency. Since then, the renminbi has continued to operate in an atmosphere of uncertainty over how far the natural pressures of buying and selling will be allowed to operate.

There is some good news. First, whatever excitable currency warriors might think, China is clearly not embarking on a deliberate competitive devaluation to boost manufacturing exports. A fall in the currency accompanied by a rapid decline in foreign exchange reserves is evidence of policymakers trying to manage a devaluation rather than engineering one.

There is also tentative evidence that domestic demand may be responding to the multiple cuts in interest rates and reductions in banks’ reserve requirement ratios that the People’s Bank of China has implemented. Although imports dropped by 8.7 per cent in dollar terms last month on a year earlier, the fall was smaller than expected, suggesting stronger demand sucking in goods from abroad.

Beijing had better hope that such signs of life continue. China is in an unenviable position, albeit one largely of its own making. Having unbalanced its own economy for decades while external conditions — buoyant demand and rapid capital inflows — were supportive, it is attempting to reverse that in a much more unfavourable environment. Its next immediate challenge is to manage the aftermath of the US Federal Reserve’s decision on interest rates next week, especially if, as markets expect, borrowing costs are raised.

This week’s news was not terrible for China: it shows an economy in awkward transition with policymakers trying to cushion the blow. Yet with its room for manoeuvre reduced by weak global demand and skittish investors, Beijing will need luck as well as judgment to continue the process.