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QE3 to bring short-term pain to China
By Wang Yanlin |
September 14, 2012, Friday
|
Online Edition
Online Edition
THE third dose of "quantitative easing" in the United States may slow the process of China's economic recovery in the near term by denting China's exports and worsening its inflation, analysts said.
But the impact will be smaller than the previous two easing moves and a prosperous US market may eventually be helpful to China's performance in the long run, they said.
Sun Lijian, an economics professor at Fudan University, said the launch of QE3 will weaken the US dollar and thus increase the costs for Chinese exporters who settle deals via the green back.
Also, the move may stoke commodity prices on the global market, which will cast inflationary pressure on China.
"Although this round of easing in the US is not as aggressive as before, it still creates a lot of uncertainties and makes it more complicated for China to stimulate its economy," Sun said.
The Federal Reserve announced on Thursday a third round of quantitative easing, in which the American central bank will add US$23 billion of mortgage bonds to its portfolio by the end of September, a pace of US$40 billion in purchases each month. It will then announce a new target at the end of every month until the outlook for the labor market improves "substantially" as long as inflation remains in check. Also, the Fed promised to keep short-term interest rates low until mid-2015.
The predecessors of QE3, or QE1 and QE2 launched in November of 2008 and March of 2009, have been criticized widely for fanning inflation around the world. Some economists called them rogue actions as the US took advantage of the US dollar as a dominant global reserve currency to save its economy at the cost of the rest of the world.
But Qu Hongbin, chief economist for China at HSBC, said the benefits of the QE3 for China may outweigh the potential damages.
"The QE3 is likely to reduce the unemployment in the US and stabilize its economy," Qu said. "A prosperous market in the world's largest economy will eventually help others, especially export-reliant countries like China."
But the impact will be smaller than the previous two easing moves and a prosperous US market may eventually be helpful to China's performance in the long run, they said.
Sun Lijian, an economics professor at Fudan University, said the launch of QE3 will weaken the US dollar and thus increase the costs for Chinese exporters who settle deals via the green back.
Also, the move may stoke commodity prices on the global market, which will cast inflationary pressure on China.
"Although this round of easing in the US is not as aggressive as before, it still creates a lot of uncertainties and makes it more complicated for China to stimulate its economy," Sun said.
The Federal Reserve announced on Thursday a third round of quantitative easing, in which the American central bank will add US$23 billion of mortgage bonds to its portfolio by the end of September, a pace of US$40 billion in purchases each month. It will then announce a new target at the end of every month until the outlook for the labor market improves "substantially" as long as inflation remains in check. Also, the Fed promised to keep short-term interest rates low until mid-2015.
The predecessors of QE3, or QE1 and QE2 launched in November of 2008 and March of 2009, have been criticized widely for fanning inflation around the world. Some economists called them rogue actions as the US took advantage of the US dollar as a dominant global reserve currency to save its economy at the cost of the rest of the world.
But Qu Hongbin, chief economist for China at HSBC, said the benefits of the QE3 for China may outweigh the potential damages.
"The QE3 is likely to reduce the unemployment in the US and stabilize its economy," Qu said. "A prosperous market in the world's largest economy will eventually help others, especially export-reliant countries like China."
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