China wants to avoid capital-outflow and real-estate
bubble... No doubt, it has reduced the bubble-fear by a consistent monetary-policy
since 2010, which deflated it, but high interest-rates, later, choked demand
which is the reason behind falling growth-rate... If China wants to increase
its growth-rate it must reduce interest rates, but capital outflow, in search
of higher returns would reduce investment in the economy, more in favour of the
US dollar, but Chinese have already overinvested in the US and US dollars...
More, Chinese money in the US will not reward them because the US is already
capital rich... The desire for higher interest-rates in the US (probably) would
not materialise because the US interest-rates are already rock-bottom and the
economy is going through the liquidity-trap, means interest-rates will remain
where they are for an indefinite period... So, Chinese money-flowing in US may
not be rewarded as expected anytime soon... Moreover, when Chinese money flows
to the US, it means more money-supply, lower interest-rates and a depreciating
US dollar... The whole point is that the time is not right for investment in the
US economy or Chinese money will have to wait longer for better dollar and
interest-rates... China is falling in to
inflation again and again, means it also needs to improve supply-side (like
INDIA) so that inflation remains under control and bubbles deflated... INDIA
and China are almost on the same page as far inflation is concerned...
No comments:
Post a Comment