What impact will Fed interest cut have on China's economy?

What impact will Fed interest cut have on China's economy?
Sep 23, 2007 22:55
DREAMLIFE Points: Join Date: Sep 5, 2007 Status: offline	In order to deal with the cridit crisis and possible economic recession, the US Federal Reserve declared to cut the interest rates 50 basis points from 5.25% to 4.75%. It is the first time US has cut its interest rate since 2003. Encouraged by this move, the Dow in New York stock market increased a lot. Meanwhile, global shares enjoyed great jumps. On the other hand, US dollar dropped a lot. It went its lowerest downturn in 15 years. So far, It is unknown that whether the Fed will continue to lower its interest rate. Some experts analyzed that dollar will be faced more severe drop if interest cut goes on. On other hand, RMB will face more pressure of appreciation. What's more, China' economy will be affected by the interest cut. Recently, China has always been trying to curb its inflation risk and overheated economy by raising its interest rate. But the result was not satisfying. If the Fed continues to cut its interest rate, obviously China's economy will be affected. In your opinion, what impact will the Fed interest cut have on China's economy? Looking forward to your shrewd views or opinions.

Sep 23, 2007 22:55

DREAMLIFE
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Join Date: Sep 5, 2007
Status: offline

In order to deal with the cridit crisis and possible economic recession, the US Federal Reserve declared to cut the interest rates 50 basis points from 5.25% to 4.75%. It is the first time US has cut its interest rate since 2003. Encouraged by this move, the Dow in New York stock market increased a lot. Meanwhile, global shares enjoyed great jumps. On the other hand, US dollar dropped a lot. It went its lowerest downturn in 15 years.

So far, It is unknown that whether the Fed will continue to lower its interest rate. Some experts analyzed that dollar will be faced more severe drop if interest cut goes on. On other hand, RMB will face more pressure of appreciation. What's more, China' economy will be affected by the interest cut.

Recently, China has always been trying to curb its inflation risk and overheated economy by raising its interest rate. But the result was not satisfying. If the Fed continues to cut its interest rate, obviously China's economy will be affected.

In your opinion, what impact will the Fed interest cut have on China's economy? Looking forward to your shrewd views or opinions.

Sep 24, 2007 01:25

AL32
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Join Date: Sep 11, 2007
Status: Offline

My guess, and I'm no economic guru here, is that both the US housing and stock market will slowly but surely recover.
The Fed's interest cut (or hikes) always created a punctual reaction in the stock markets but no very tangible major or long term effect.
The current US$ weakness may play in favor of more (US) exportations and less importations, so Chinese exportations and economy -since the Chinese trade surplus with the US is so high- might suffer until that US high-risk mortgage crysis resorbs itself.
I also believe that the US economy is still very strong no matter what the alarms we get from the Fed and their stock markets...so it's just a question of time before everything gets back as it was.

Although, I really do not know what to expect about the Chinese stock market. Surely, China's economy has been developing rapidly and constantly for years, but its stock market just looks like a gold rush to me and it is mind puzzling to think about what its future will hold.

Woohoo!!!! 100 points in TCG in less than 2 weeks; can I cash in on any of these ?!?

Sep 24, 2007 01:47

APAULT
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Join Date: Mar 11, 2006
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There is still a view that the USA matters! OK I am exaggerating, let me restate that... There is still a view that the USA matters as much as it used to. Remember the old saying, 'when the US sneezes the rest of the world catches a cold'. Sure the USA is the largest economy but it's not going anywhere. It is held back by social and political problems. So it has a fixed size and relatively stable trade patterns with the rest of the world. On the other hand some new economies led by China are generating new trade. China is not going to stop growing for some time yet and its new trade (and India's etc) is what is leading the world economy now. If the USA stopped production tomorrow of course we would all feel it. But a few hiccups because of the sub prime housing market problem (ie overly risky loans by ever greedy lenders) in the USA is not going to bring down the rest of the world. Thank you the new developing world. All we have to do now is fix the problem of the environment.

Unfortunately many world stockmarket traders have not woken up to this and still sell on the first sniffle in the USA and panic on a sneeze. The problem is that other traders follow suit and sell because they know how the first group reacts and then we have a far more significnt fall in share prices. Share prices typically reflect an underlying value but the flustuations are based on a very small number of the owners of those share deciding they must sell. For example, a 10% drop in a share price may occur with 99% or more of the shareholders not selling but being patient and waiting for the panic merchants and speculators to wipe their noses and get back to back to basics (or as with all hyperchondriacs, look for the next potential sneeze).

Thirdly, the small impact it might have on China's economy is exactly hat China wants - you said that we have increased interest rates to try and slow the economy and reduce inflation. Thank you Mr Bush for helping us!!

Sep 24, 2007 21:54

ICEBERG
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Join Date: Sep 10, 2007
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As Dreamlife mentioned, RMB will face more pressure of appreciation. This is not good to solve the trade imbalance issue between US and China. Forcing the appreciation of RMB is a way used by US to relieve the Sino-US trade imbalance. If Fed continue to cut its interest rate, the efficacy of forcing the appreciation of RMB to relieve the Sino-US trade imbalance may be impaired. Meanwhile, more foreign exchange will flow into China. This might make the problem of excess liquidity more severe. China needs to work very hard to cope with its inflation risk.

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