The Fed announced yesterday that it would taper its asset purchase program to $US75 billion a month, down from $US85 billion a month.
Many analysts have warned that this could be bad for emerging markets hurting their currencies and stock markets.
But Bank of America’s Ting Lu expects that the Chinese economy will be immune to the impact that QE had on other emerging markets, because of some of the economy’s strengths.:
- Sustained current account surplus
- Low foreign debt
- Huge foreign exchange reserves
- High savings, high investment and high capacity in manufacturing
- Capital control
- A large economies with limited dependence on exports
- A government which does not need to ramp up subsidies to maintain its ruling.
Of course one could point out that the Chinese economy has its own weaknesses like its rising debt levels, high investment to GDP ratio, excess capacity, shadow banking, and a large pool of non-performing loans.
To this, Ting writes that “China’s high savings level and conservative balance of payments give it a a lot of room for economic restructuring when some other emerging economies exhaust themselves with flip-flop short-term measures to fend off balance of payments crises.”