{"id":2765,"date":"2010-10-21T17:13:30","date_gmt":"2010-10-21T17:13:30","guid":{"rendered":"https:\/\/blogs.transparent.com\/chinese\/?p=2765"},"modified":"2017-12-22T09:16:09","modified_gmt":"2017-12-22T13:16:09","slug":"inflation-%e9%80%9a%e8%b4%a7%e8%86%a8%e8%83%80","status":"publish","type":"post","link":"https:\/\/blogs.transparent.com\/chinese\/inflation-%e9%80%9a%e8%b4%a7%e8%86%a8%e8%83%80\/","title":{"rendered":"Inflation and Interest Rates (\u901a\u8d27\u81a8\u80c0\u8ddf\u5229\u7387)"},"content":{"rendered":"

If you’ve been following news out of China recently, issues of inflation or \u901a\u8d27\u81a8\u80c0 (t\u014dng<\/a> hu\u00f2<\/a> p\u00e9ng<\/a> zh\u00e0ng<\/a>), have been making most major media network headlines<\/a>. Just a few days ago, China’s Central Bank, \u00a0in an surprise announcement, decided to raise interest rates or \u5229\u7387 (l\u00ec<\/a> l\u01dc) by .25 percentage points in an effort to stymie growing inflation. Note here the gramatical pattern for discussing\u00a0percentages in Chinese where one must first\u00a0begin with\u00a0\u767e\u5206\u4e4b (b\u01cei<\/a> f\u0113n<\/a> zh\u012b<\/a>) followed by\u00a0a numerical amount\u00a0to represent the\u00a0percentage. Literally it translates as “out of one-hundred parts…”.\u00a0For example \u767e\u5206\u4e4b\u5341 equals “10%” in Chinese.<\/p>\n

While a .25% increase is rather minute compared to the hikes in interest rates (or cuts) that occur within most dynamic financial market economies (such as the US), this is a big deal for a country with an artificially devalued currency, and strict monetary policy. China’s currency or \u8d27\u5e01 (hu\u00f2<\/a> b\u00ec<\/a>) has been pegged to a basket of currencies, most notably the US dollar, Euro and Japanese Yen in hopes of making Chinese exports more competetive and\u00a0cheaper to foreign markets. This policy has led to conflict among political actors and businesses who want a “fair footing” in the global exports game. These are the same clowns that led to the Asian Financial Crisis, so I believe China’s official stance has been “cry me the yangse river” and let us deal with our own sovereignty and financial policy.<\/p>\n

Yet in the wake of the growing inflationary concerns (the consumer price index rose 3.6 percent from the previous September!), not to mention\u00a0foreign pressure from the US and EU, China\u00a0is\u00a0now\u00a0adjusting financial policy for two main reasons:<\/p>\n

First this allows for the Chinese\u00a0government to bolster domestic markets while simultaneously allowing greater purchasing power (due to increase in value to\u00a0the Renminbi) for its citizens.\u00a0The concern here is that\u00a0the Chinese\u00a0economy is “overheating” (10.3% GDP or \u56fd\u5185\u751f\u4ea7\u603b\u503c (gu\u00f3n\u00e8i sh\u0113ngch\u01cen z\u01d2ngzh\u00ed<\/em>)\u00a0growth just last quarter and 9.6 in the most recent third quarter) and needs to cool off, allowing for\u00a0stable development.<\/p>\n

Secondly\u00a0by adjusting interest rates, the CCP is signifying a willingness to eventually\u00a0revalue their currency and allow it to appreciate or \u6da8\u4ef7 (zh\u00e0ng<\/a> ji\u00e0<\/a>) against other currencies. This is an important step, especially considering the coming CCP, US and EU elections that have nations considering “tit-for-tat” trade embargoes and tariff measures if the Chinese currency doesn’t revalue. This is good not only for China, which is looking to improve its domestic markets, but for the rest of the world\u00a0as a\u00a0whole, allowing for greater competitiveness among markets while we pull ourselves out of this recession.<\/p>\n

The CCP central bank is expected to continue these slight .25% increases in interest rates in hopes of staving off growing inflation concerns while still promoting GDP growth around 9%. When foreign stock markets\u00a0openned\u00a0the day after the \u00a0interest rate hike, initially stocks plummetted amid concerns of an increase of the cost of doing business in China and the rippling effects across the global market. Yet in the last few days, markets have rallied, making up the ground lost and even gaining in the short term. Further, the US dollar has gained in value, making Chinese held assets more valuable.<\/p>\n

It looks like the market\u00a0“bears” and pessimists need to revalue their own claims about Chinese monetary policy and realize that what’s good for China often is good for the global financial and trade market. After all China is just as intertwined and emeshed in the global financial system as\u00a0any other\u00a0large nation-state actors. Is this the begining of a Chinese global financial policy? Stay tuned.<\/p>\n","protected":false},"excerpt":{"rendered":"\"\"

If you’ve been following news out of China recently, issues of inflation or \u901a\u8d27\u81a8\u80c0 (t\u014dng hu\u00f2 p\u00e9ng zh\u00e0ng), have been making most major media network headlines. Just a few days ago, China’s Central Bank, \u00a0in an surprise announcement, decided to raise interest rates or \u5229\u7387 (l\u00ec l\u01dc) by .25 percentage points in an effort to…<\/p>\n

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