In his latest column, the UK Telegraph’s influential finance columnist Ambrose Evans-Pritchard sticks his neck out and says he thinks that “Gothic warnings of a Chinese collapse this year will look silly by Christmas.”
That’s because faced with economic and financial market headwinds, Beijing has abandoned its determination to break the back of the property bubble and “the Communist Party has now reverted to stimulus as usual”.
“The local government’s issued almost $200bn of bonds over the two months of July and August,” he wrote. “Beijing coyly describes its fiscal spending as ‘proactive’. Turbo-charged would be another way of putting it.”
Evans-Pritchard highlighted that the “property crash is already a memory” and new home prices in China’s largest cities are starting to heat up. That’s more important than the shenanigans on the Shanghai stock exchange, he says, because “Moody’s says real estate in all its forms makes up a quarter of Chinese GDP.”
The move to devalue the RMB this month is not the precursor of a currency war, nor a path to massive devaluation of the RMB. Rather, Evans-Pritchard said it is an “insurance policy against at further rise after a 22pc jump in the trade-weighted exchange rate since mid-2012.”
Equally China won’t pursue a beggar-thy-neighbour exchange rate policy because it would lead to the type of capital flight China needs to avoid and “send a deflationary shock through a fragile global economy”.
The time to worry is not now, he says. The “August scare of 2015 is a false alarm” because China, much like the West in the post-GFC world, has a monetary war chest it can deploy to steady the economy if required.
He highlights “the Reserve Requirement Ratio (RRR) for banks is still 18.5pc”.
“The PBOC can slash this to 6pc – as did in the late 1990s – flooding the system with $3 trillion of liquidity. It can even go to zero in extremis.”
Think QE, Chinese style.
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