Bank of America - Merrill Lynch China economist Ting Lu writes that QE3 overall will render China more benefits than costs when China is being hit by too rapid growth slowdown, risk of depreciation and capital flight, falling raw material prices, and policy paralysis as a result of leadership transition. The house see the following potential channels for QE3 to positively impact the Chinese economy: Rising global commodity prices could encourage Chinese manufacturers to increase stock after destocking for many months; expectations of rising inflation and asset prices in the future might convince potential home buyers to buy homes; worries on RMB-USD depreciation will almost surely be alleviated, reducing the incentive of capital flight; Last but certainly not least, a stronger recovery of the U.S. economy and global economy would aid China's export growth. BOA-ML adds, the major risk of QE3 to China could be Chinese policymakers' over-reaction to inflation worries.
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