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New dose of US easing may slow China's recovery

By Wang Yanlin   (Shanghai Daily)

09:47, September 15, 2012

The third dose of "quantitative easing" in the United States, or QE3, may slow the process of China's economic recovery in the near term by denting exports and accelerating inflation, analysts said.

But the impact will be smaller than the previous two easing moves and a prosperous US market may eventually be helpful to China in the long run, they said.

Sun Lijian, an economics professor at Fudan University, said the launch of QE3 will weaken the US dollar and increase the costs for Chinese exporters who settle deals with the greenback. Also, the move may stoke commodity prices on the global market, which will spread inflationary pressure into China.

"Although this round of easing in the United States is not as aggressive as before, it still creates a lot of uncertainties and makes it more complicated for China to stimulate its economy," Sun said.

Yesterday, the central parity rate of the Chinese currency strengthened to 6.3317 against the US dollar, the highest since August 24.

The US Federal Reserve announced on Thursday the third round of quantitative easing, in which America's central bank will expand its holdings of long-term securities with monthly purchases of US$40 billion mortgage debt. It will announce a new target at the end of every month until the jobs outlook improves "substantially," as long as inflation stays in check. The Fed promised to keep short-term interest rates low until mid-2015.

The predecessors of QE3 have been criticized widely for fanning inflation around the world. The effect is the same as printing money in vast quantities.

The new round of easing is much milder, said Steven Green, an economist at Standard Chartered.

The QE1 and QE2 have worked to accelerate the yuan's appreciation, bolster prices in China, divert more speculative funds into the country and complicate China's monetary policy decisions, according to economists.

"The similar impact may be seen this time and may push China to launch more easing policies of its own," said Li Maoyu, an analyst at Changjiang Securities Co. "But it is really a dilemma for Chinese policy-makers as the inflation in the country looks like it's picking up earlier than expected."

China's Consumer Price Index, the main gauge of inflation, grew 2 percent in August, up from 1.8 percent a month earlier.

But Qu Hongbin, chief economist for China at HSBC, said the benefits of the QE3 for China may outweigh potential damage.

"The QE3 is likely to reduce the unemployment in the United States and stabilize its economy," the economist said. "A prosperous market in the world's largest economy will eventually help others, especially export-reliant countries like China."


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