Tuesday, October 4, 2022

The Biggest Problem China Faces Isn’t Real Estate

 What happens to the Chinese economy when interest rates increase in the United States?

  • Sovereign currency policy faces the intractable dilemma of what economists call the "impossible trinity."
  • Countries can have a fixed exchange rate, free capital flow, or sovereign monetary policy but must choose only two of three.
  • China implemented a quasi-fixed exchange rate which is effectively a U.S. dollar index, with tightly controlled capital flows, and a semi-sovereign monetary policy
  • For most of the period since 2000, the Chinese and US economies have been highly correlated
  • This allowed Chinese interest rates to follow the US interest rates and enjoy a period of low-cost money
  • Now that the Fed is raising interest rates, what impact will this have on China
  • The days of easy money flows to China are over
  • Investors have soured on China as an investment destination for a range of reasons

https://www.theepochtimes.com/the-biggest-problem-china-faces-isnt-real-estate_4763171.html

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