Thursday, December 4, 2008

The new China direction - inward


Comments from Lou Jiwei, chairman of CIC, the SWF of China, suggests that the focus of China will be inward. "If China can do a good job domestically that is the best thing it can do for the world" We should not expect China to use its large wealth build-up to save the West.

However, increased consumption in China will be good for the global economy. Lending rates have been cut four time since mid-September. A massive fiscal spending policy has also been announced. Nevertheless, it may not be a big factor in 2009. Internal growth has to substitute for the export revenues of the last decade but changing consumer behavior will take time. Export firms on the China coast have been devastated with declines in orders. We can see the fall-off in global exports when you look at the Baltic freight rates, off over 90% from highs.

The currency has also stopped appreciating and has actually seen a reversal in the last few days. A similar slowdown occurred last year after the credit crisis problems in August. Do not expect any currency appreciation anytime soon. China is going to follow its own policies and not be swayed by the G7.

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