Saturday, February 13, 2010

China, China, China!

Why does the world care about Chinese monetary policy? In short, the ten countries below enjoy 60% of China's import demand ($1.3 trillion annualized in December 2009), where the % are listed in the legend.

The globe is watching Chinese policy. The People's Republic of China raised bank reserve requirements another 50 bps yesterday - its second such measure since January. From the NY Times:
China’s central bank moved late Friday to reduce lending to companies and individuals by requiring large commercial banks to increase the amount of cash they park with the central bank. The move, which came earlier than most economists had expected, was meant to slow China’s breakneck economy and inflation.

and later...

Fears that China’s move Friday would slow global growth sent share prices sliding across Europe and pushed New York markets lower when they opened, though they recovered some of the losses.
China’s commercial banks have become important lenders to the rest of the world as American banks have considerably reduced lending.

“The timing is a surprise,” said Qing Wang, an economist in the Hong Kong office of Morgan Stanley, referring to the central bank’s action...

... Jing Ulrich, the managing director and chairwoman of China equities and commodities at J. P. Morgan, said,
“The message coming out of China has been quite clear — policy makers are becoming more concerned about containing inflationary expectations and managing the risk of asset price bubbles as a result of last year’s aggressive expansion of credit.”
Less credit = smaller growth rates. And it's not just "markets" that are worried about the slowdown of the Chinese economy. On Feb. 2, the Reserve Bank of Australia referred to China directly in its policy statement:
In Asia, where financial sectors are not impaired, recovery has been much quicker to date, though the Chinese authorities are now seeking to reduce the degree of stimulus to their economy.
And Feb. 11, the Bank of Korea, in its monetary policy statement, referred explicitly to the European crisis as cause for concern:
There still, however, remains uncertainty as to the economic growth path due to the risk of government debt crises in some European countries.
Trade, i.e., external demand is very much on the mind of global policy makers. Global trade is rebounding, but US import demand has not recovered fully. And until global domestic demand is a sure-fire boost to economic activity - not just an inventory cycle - policy makers will consider carefully the external factors (i.e., exports from China, for example) when making fiscal and monetary decisions.

Rebecca Wilder


  1. Ruthless entrepreneurs in Imperial cloaks.

  2. It is rather interesting that other governments are "worried" that China would do something to control inflation/growth rates. Isn't that what they are supposed to do? Funny how it is ok for the rest of the world but not China.

  3. On closer inspection (reviewing what happens when "Play" is pressed) I see that China has attained an excellent form of equalty-preserving growth. Is it sustainable? Can we do better?

    Lets hope the conservationists replace the non-fiscal "conservatives in name only" in economics as well as ecology.

  4. Wait a second. If China increased bank reserve requirements because they wanted to fight inflation, what are we doing paying interest on reserves at all?!

  5. chinese monetary policy is an oxymoron...they could raise rates to 100pct and it wouldn't matter b/c foreign flows would chase those rates...but the pboc would have to neutralize those flows due to their currency peg. as a result, monetary policy is whatever the us fed is doing.


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