Tags: china | economy | commodity | commodities

China Central to Next Move for Recovery

Sunday, 20 Feb 2011 01:46 PM

Should China hit the brakes hard? And what if it did?

Federal Reserve Chief Ben Bernanke, under fire from U.S. politicians on the right and from foreign governments struggling with rising inflation, flat out said so this past week.

Rapidly rising food and energy prices are a problem, but one foreign governments have the tools solve on their own, Bernanke told the G-20 nations.

“The maintenance of undervalued currencies by some countries has contributed to a pattern of global spending that is unbalanced and unsustainable,” Bernanke said.

Translation: Raise your own rates, and let your currencies appreciate, if you are worried about too many dollars coming in. Most took the criticism as a direct hit on China, which has loudly complained about the Fed’s massive new round of money printing.

Frankly, it’s in your interest, Bernanke went on to say.
“Emerging-market economies have a strong interest in a continued economic recovery in the advanced countries, which accommodative monetary policies in the advanced economies are designed to promote,” he said.

China has been tightening, raising bank reserve ratios by another half a percent, raising down payments require on housing speculators, and limiting how many homes investors can buy in some cities.

"It's likely that the central bank will raise (reserve replacement ratios) each quarter. So we expect another rise in March,” Lu Zhengwei, an economist at Industrial Bank in Shanghai, told Reuters. "Currently, China's economic growth is strong and inflation pressures are big. It's necessary to continue to manage liquidity.”

Meanwhile, the investment bank Morgan Stanley has laid out what might happen to assets around the world in what it terms the unlikely event of a China crash.

Not surprisingly, commodities like copper and oil would take a hit, reports MarketWatch, citing the bank’s report. Copper is trading around $4.50 a pound, a shocking price compared to 80 cents a pound most producers were used to for decades. Oil has broken about $102 on unrest in the Middle East, but demand in the emerging world, where growth is still high, plays a role, too.

Expect Chinese stocks to bow under the pressure, but also currencies like the Australian dollar, which are commodity linked dollar alternatives, according to the bank.

It’s fear of a rough landing in China, and its knock-on effects across the rest of the world, that prompted the G-20 this weekend to put in long hours to come up with a way to measure the imbalances in world trade and currency exchanges.

The agreement is only a beginning, but an important one. China cannot quickly allow the yuan to appreciate without risking a backlash at home as exporters lose business, nor can it easily force the United States out of Bernanke’s avowed path of holding rates low until a U.S. recovery is secure.

International Monetary Fund Managing Director Dominique Strauss-Kahn told the Associated Press that the deal among the G-20 was unlikely to succeed.

"What I was worried about — I'm sorry to say — materialized: which is that it's more difficult than it was before to have people agree," Strauss-Kahn said.

"When they were really scared, they were happy to find a consensus. Now that many believe — wrongly — the crisis is behind us and they have domestic concerns . . . they're less concerned by multilateral coordination."

© 2017 Newsmax Finance. All rights reserved.

   
1Like our page
2Share
StreetTalk
Should China hit the brakes hard? And what if it did? Federal Reserve Chief Ben Bernanke, under fire from U.S. politicians on the right and from foreign governments struggling with rising inflation, flat out said so this past week. Rapidly rising food and energy prices...
china,economy,commodity,commodities
547
2011-46-20
Sunday, 20 Feb 2011 01:46 PM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved