Tuesday, February 16, 2010

China Watch, One Eye on China

China watch, from Bloomberg... Andy Xie, an independent economist I have read for over a year, is saying China needs to use a big stick instead of whispers.

"China’s efforts to slow inflation by raising bank reserve requirements for the second time in a month won’t work and the central bank needs to increase interest rates by the end of March, independent economist Andy Xie said."

"The People’s Bank of China today (2/12/2010) ordered banks to set aside more deposits as reserves for the second time in a month, increasing the reserve requirement by 50 basis points effective Feb. 25."

"Xie said it will be “very difficult” for China’s stocks to advance as the government further tightens monetary policy to slow inflation and curb bubbles in equities and property prices."
“It will be very difficult for the Chinese market to move up,” he said. “It’s not expensive but it faces tightening overhang and many companies coming to market. Both the Shanghai and Hong Kong markets will be range-bound over the next few months.”

China has firepower to deal with a crisis. The nation has the world’s largest foreign exchange reserves, at $2.4 trillion, and government debt of only about 20 percent of GDP last year, according to the International Monetary Fund. That compares with 85 percent in India and the U.S. and 219 percent in Japan.