When the US and the rest of the world are in a rate-cutting frenzy, China cannot alienate itself and hold its rates perpetually. Thus, it is a question of when will China do it instead.
In order for our readers to understand this better, it is best that the readers read and understand the rationale and logic of China not reducing its interest rates at this moment.
https://sg-stock.blogspot.com/2019/06/china-has-started-to-sell-us-treasuries.html
What had China done insofar to stimulate its economy after the US cut the FED rates?
China had implemented the new LPR and reduced the RRR.
http://sg-stock.blogspot.com/2019/08/why-is-renminbi-rmb-depreciating-again.html
http://sg-stock.blogspot.com/2019/09/china-has-just-cut-banks-rrr-by-50bp.html
Please read our post on RRR to understand its impact.
http://sg-stock.blogspot.com/2019/05/how-china-rrr-cut-will-impact-its.html
China does not have runaway inflation, so China can afford to cut its interest rates. However, China is not doing it now. Why?
If you think that China doesn't cut its interest rates because of its simmering inflation, then I must say that you are wrong because you do not understand China's economic structure well enough.
The properties constitute a large part of the people's assets and the property sector is the Achilles heel of China. Therefore, any disruption to the property sector will disrupt the economy severely.
As we can see, China has been trying to avoid any disruption to the property sector by implementing LPR and reducing RRR instead of cutting its interest rates because these 2 policies have minimal impacts on the property sector.
China will only cut its interest rates after it has figured out how to rein in the property prices with new property policies and measures because cutting the interest rates will create a buying frenzy to inflate the property prices. A skyrocketing property market will create social unrest and China is trying to maintain stability in the country.
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2 comments:
"China does not have runaway inflation"
This is due to moderately strong interest rate policies and deleveraging e.g. cracking down on shadow banking & infrastructure assets financing & property controls.
Over the past many months, China has reneged on shadow banking & infrastructure financing to boost economy & jobs.
Inflation has been creeping up month by month, and quarter by quarter.
"after it has figured out how to rein in the property prices"
Doesn't take anything to rein in property prices. Singapore can do it (and has done it) with just 2-3 hours notice -- faster than open mobilisation some more. 🤣
Do you really think it's so easy to manage an US $14T economy with 1.4b people?
China has many different provinces growing at different rates and the property prices are different in tier 1, tier 2 and tier 3 cities.
How can you compare SG with China? Does SG have so many tiered cities?
SG can implement property policies and measures effectively and efficiently because these can be applied across the board easily.
When China cuts interest rates, all provinces and cities are affected regardless of their economic growth and properties prices. Thus, it is not as simple as you assumed.
Anyway, time will tell who is right and who is wrong. Cheers!
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