China has a larger space to maintain growth
- By Mei Xinyu
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E-mail China.org.cn, September 9, 2015
Granted, if dollar-denominated primary product prices drop and there is a home currency collapse vis-à-vis the dollar, primary products denominated in the former may still rise. However, this situation only tends to occur in emerging markets like Brazil.
As China enjoys a continuous trade and current account surplus, its currency may only see a modest fall, if any, against the dollar. Moreover, China's capital flow is mainly direct investment from the less volatile physical economy, thus adding to Renminbi stability.
Emerging markets with chronic trade and current account deficits like Brazil may get stuck in a vicious cycle of large-scale flight of capital and sharp currency depreciation, prompting them to face the dilemma of maintaining growth and stemming inflation.
Even worse, countries like India and Brazil are forced to maintain a high interest rate and reserve ratios as well as tighten monetary policy to attract investment. Brazil's central bank lifted the SELIC rate for the seventh consecutive time on July 29, 2015, against the backdrop of lackluster growth of only 0.1 percent in 2014 and an expected reduction of 1.49 percent this year.
In contrast, the PBOC again loosened its monetary policy on Aug. 25, 2015 by cutting both the interest rate and reserve ratio, a move showing the country's ability to maintain economic growth.
The writer is a researcher with the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce.
The article was written in Chinese and translated by Guo Yiming.
Opinion articles reflect the views of their authors only, not necessarily those of China.org.cn.
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