QE comes to China (almost)

How does one say ‘Quantitative Easing’ in Mandarin? We better learn quickly. It is coming. Well, almost. China has not reached the zero-bound in interest rates. It has room to do so, before printing money to buy bonds. It is doing something similar to what the European Central Bank did in 2011 (or, 2012?). Wall Street Journal has a breaking story on it. I had flagged it (sort of) in my MINT column last week. A detailed piece will be up in Pragati soon.

PBoC is giving Long-Term Repo loans to banks. Purpose is to bail out local governments. At least, on paper. Ambrose Evans-Pritchard is right to call it QE-lite. There could be other considerations. The fact that the People’s Bank of China (PBoC) is resorting to this could also be due to the fact that the economic picture, beneath the 7% officially reported GDP growth rate, could be rather worse. Apparently, Lombard Street thinks that the QoQ GDP growth rate in 1Q2015 was negative! [Link]. There is even a nice chart of that, in the above link.

Now, China yuan depreciation/devaluation is almost inevitable (or, a foregone conclusion). So, India will not be sweating the rupee weakness of April and might want more. Personally, willing to stick my neck out and say that China is not in control of its markets or macro much.

Patrick Chovanec has a very good tweet. Worth pondering over, in America:

The outdated narrative of China-as-unstoppable-economic-juggernaut still dominates US political discussion. Wake up, folks. [Link]

Just as an aside, read this brilliant/classic piece on how BHP/Rio Tinto got China’s steel production (and, hence the demand for iron-ore) spectacularly wrong. This should be a staple case-studiy in all management programmes around the world:

It’s a lazy number, which has taken on a life of its own.” Another insider, who asked to remain anonymous but has direct knowledge of when and why the forecast was adopted, says it was little more than a “slogan”. “It was external propaganda which became internal policy.” ….. Garnaut argues Australia suffers from a “circularity of elite communication” [Link]

In the light of the above tweet by Patrick Chovanec, perhaps, even American elites on China suffer from circularity of (or, incestuous) communication.


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