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Economy prepared for turning of US policy tide

By Tan Haojun (Global Times)

08:43, June 26, 2013

With US Federal Reserve Chairman Ben Bernanke recently signaling that the country's monetary easing measures may soon come to an end, many have wasted no time putting forth speculations that China is on the verge of a hot money exodus which could wreak havoc with its markets.

Of course, an improving US economy will definitely lure more capital into the country. However, this does not necessarily mean that investors will pull their money out of China en masse. And as for claims that an outflow of speculative money will devastate China's financial market, such views are too alarmist to be viewed seriously.

In spite of events taking shape elsewhere in the global economy, China is still one of the most promising markets in the world. As a developing country with a rapidly expanding economy, China remains an appealing target for investors.

Although growth may be cooling somewhat, the local market's solid fundamentals will likely continue producing returns for investors over the long run.

Investors also can't rule out the possibility of further yuan appreciation. As long as there is a chance to profit off a rising yuan, it seems doubtful that China will suffer from mass capital flight. Over recent months, we've seen the yuan hit several new highs against the US dollar - the latest record being set on June 14 - as the People's Bank of China continues lifting the currency's midpoint to new heights. There is still little on the horizon to suggest that the central bank will reverse this trend any time soon.

While some hot money withdrawals are inevitable for China at this stage of the global economic cycle, such drains are nothing to panic about.

Actually, China could probably use a respite from foreign cash inflows to deal with some of the problems caused by redundancy in its money supply.

Meanwhile, the fact that China's financial and capital markets are still strictly supervised by the government should offer local market players further peace of mind as well. After all, the government's active role in the economy means it should be relatively easy for China to offset any adverse reactions to capital migration with timely policy action.

In other words, China has little to fear from the impending conclusion of the US's easy money policies. After decades of the development, China's economic foundation is strong enough to withstand such a shock.

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