China, China, China!
by Rebecca Wilder
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
crossposted with Newsneconomics
China’s monetary policy not only may have done it more harm than good: Harmful Currency Undervaluation? a change might also be too little too late: There will be much more hardship soon with a looming Chinese collapse bigger than the Soviet Union’s.
I have been trying to figure out if this monetary move by china is related to the recent 30 year treasury auction that did not go so well.
http://market-ticker.denninger.net/archives/1959-30-Year-Auction-A-Solid-F.html
Not to take anything away from this post, but so as to compliment and expand this post, anyone who has not yet read Brenda Rosser’s latest piece on China, is missing an important part of the puzzle: http://econospeak.blogspot.com/2010/02/global-imbalances-are-statistical.html
It is also all too common for MSM sources in this country not to recognize the importance of the new China-ASEAN trade agreement, and the forthcoming ASEAN+3 Emergency Fund. I suppose that wishful thinking is easier than self-examination, or, perhaps wishful thinking sells during these difficult times for readers and media outlets alike.
Brenda said I could cross post her piece…thanks for the reminder.
Hi rl love,
Brenda’s comment on the data is interesting. It’s very difficult to get a knowhow for what is going on, given the limited availability of credible data. The opaqueness of Chinese data is inhibitive to trade flows just by itself. Her stuff is good – I hope that she continutes her commentary of China on a regular basis.
Rebecca
Rebecca,
Yea, she is really getting to the bottom of a multi-dimensional mind-blower. The post that I provided a link to is her latest, the one that Rdan got permission to post is excellent also:
http://econospeak.blogspot.com/2010/01/currency-quarrel-with-china-is.html
What my mind has stumbled onto is that the Chinese hold the keys to the ASEAN markets. These represented 13% of global trade before removing a complicated web of barriers. But whether MNCs are given access to these markets via the China platform is, so far as I know, up to Chinese Leaders. So the recent sanctions and the trade drum pounding of late is saying: “if the value of the dollar is made to fall, we are in a position to move forward without the US”. And if the Chinese deny access of the MNCs to the ASEAN markets, that leaves enough market share for China so as to offset their dependence on US markets ( this where Brenda’s separating of the interests in China is integral).
The Chinese are clearly wary of another Plaza Accord type of restructuring that has most of humanity paying for Wall Street’s blunders. They also surely know that we will ‘lose the most’ in a trade war because global consumers will side with China and vote via expenditures. China has already won partly, because we have not been taking responsibility for our reserve currency role, and we have been abusing our privileges for too long. Once the actual benefits of a weak yuan are specifically assigned to what specifically benefits only the Chinese, and then if that is seen as separate from what benefits the MNCs, a rising yuan is of so little consequence that if the rising costs to US consumers is also considered, this all seems to add up to this: The US is trying to provide an excuse for a falling dollar. Or at the very least this is what the Chinese are worried that the the US is trying to do. Naturally, the average global citizen will eventually know that the fall of the dollar came at their expense and the US must cast as much blame as possible on the Chinese. But it seems the Chinese are well ahead of the game. Americans though only hear the “yuan up” side of the story, but the “dollar better not go down” side of the story is getting plenty of play in Asia. Interesting stuff. ~ray