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.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:
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.”
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.