Q&A
- +1
Sheena Chestnut Greitens, Oriana Skylar Mastro, Yukon Huang, …
{
"authors": [
"Yukon Huang"
],
"type": "other",
"centerAffiliationAll": "",
"centers": [
"Carnegie Endowment for International Peace"
],
"collections": [],
"englishNewsletterAll": "",
"nonEnglishNewsletterAll": "",
"primaryCenter": "Carnegie Endowment for International Peace",
"programAffiliation": "",
"programs": [],
"projects": [],
"regions": [
"East Asia",
"China"
],
"topics": [
"Economy"
]
}
Source: Getty
Other
Downturn in China
The cut in China’s bank reserve ratio by 50 basis points signals that the risks of a major economic slowdown are now of greater concern to Beijing than an overheated economy.
By Yukon Huang
Published on Dec 4, 2011
What is the importance of the Chinese government’s announcement to reduce the reserve requirement ratio in order to encourage banks to lend?
The cut in China’s bank reserve ratio by 50 basis points signals that the risks of a major economic slowdown are now of greater concern than an overheated economy. China has been doing well in moving to a “soft landing.” Inflation has fallen steadily and growth has also moderated. But Beijing has been hesitant in moving to more accommodating policies for fear that the underlying forces that could lead to an overheated economy have not been fully addressed.
Two things have changed to accelerate the timetable. The seemingly intractable financial crisis in Europe has convinced the leadership that the consequences could be much worse than envisaged. But politically more alarming, reports of dramatic falls in exports and its impact on firms in Guangdong have raised the prospect of labor unrest.
Two things have changed to accelerate the timetable. The seemingly intractable financial crisis in Europe has convinced the leadership that the consequences could be much worse than envisaged. But politically more alarming, reports of dramatic falls in exports and its impact on firms in Guangdong have raised the prospect of labor unrest.
Read more
Beijing will be hard pressed to deal with something bigger than the crash of 2008. It has not yet fully dealt with the negative repercussions of the last stimulus package implemented largely through the financial system. While that program is credited with preventing a major downturn, it has weakened confidence in the banking sector.
While further monetary relaxation is likely, China has less flexibility in using either interest or exchange rate adjustments to support its objectives. Deposit rates remain strongly negative. Ironically, at a time when the United States is putting pressure on China to let the renminbi appreciate, the concern now is that exports are falling too fast. While market forces might suggest a stable or even depreciating exchange rate, China could feel uncomfortable diplomatically in deviating from its stated intentions for a gradual appreciation.
Beijing may be forced to resort to fiscal policies to deal with downside risks this time around, even though budgetary options are far more cumbersome to work with.
This answer is adapted from an op-ed, China’s new fears of a downturn, published by the Financial Times on December 1.
While further monetary relaxation is likely, China has less flexibility in using either interest or exchange rate adjustments to support its objectives. Deposit rates remain strongly negative. Ironically, at a time when the United States is putting pressure on China to let the renminbi appreciate, the concern now is that exports are falling too fast. While market forces might suggest a stable or even depreciating exchange rate, China could feel uncomfortable diplomatically in deviating from its stated intentions for a gradual appreciation.
Beijing may be forced to resort to fiscal policies to deal with downside risks this time around, even though budgetary options are far more cumbersome to work with.
This answer is adapted from an op-ed, China’s new fears of a downturn, published by the Financial Times on December 1.
About the Author
Yukon Huang
Senior Fellow, Asia Program
Huang is a senior fellow in the Carnegie Asia Program where his research focuses on China’s economy and its regional and global impact.
- What to Watch When Trump and Xi Meet in Washington
- Three Takeaways From the Biden-Xi MeetingCommentary
Yukon Huang, Isaac B. Kardon, Matt Sheehan
Recent Work
More Work from Carnegie Europe
- Planetary Power: Geoengineering and the New Geopolitics of Climate InterventionResearch
Geoengineering is becoming a geopolitical question as much as a climate one. The way states and the private sector pursue these technologies, assess risks, and drive research increasingly appears focused on gaining a strategic edge. In a field where governance in lagging behind, Europe should keep track of the geopolitical implications if it is to develop effective regulatory frameworks.
Olivia Lazard, ed.
- Taking the Pulse: Does the EU Have a France Problem?Commentary
With its public finances in shambles, the far right polling at 35 percent ahead of the 2027 presidential election, and a growing protest movement, is France’s crisis a threat to the EU’s geopolitical awakening?
Rym Momtaz, ed.
- The EU’s Middle-Power PuzzleCommentary
While the EU and European governments are embracing the much-lauded middle-power moment, this entails three difficult conundrums.
Richard Youngs
- The Scramble for Europe. Russia, China, and Turkey Challenging Regional OrderBook
Europe is facing rising populism internally as well as external pressures from Russia, China, Turkey, and the United States.
Dimitar Bechev
- Taking the Pulse: Can the EU Stare Down China on Trade?Commentary
The European Commissioner for Trade is headed to China. But after President Xi’s bridge-building visit to Washington, can a more isolated EU overcome Beijing’s stranglehold on critical raw materials? Who will blink first?
Rym Momtaz, ed.
