Can China reflate the world? – The Property Chronicle
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Can China reflate the world? An analysis of China’s financial and economic predicament

The Economist

With the benefit of hindsight, we have come to understand the true importance of China’s strategic policy interventions in 2009 and 2015. China’s reflationary actions had a material impact on the global economy. The question posed at a recent Halkin dinner was “Can China (still) reflate the world?” In the event of another global economic and financial downturn – an increasingly credible event – can the developed western economies rely on another burst of Chinese credit expansion to save the day?

Our speaker, economic and financial historian and global strategist Russell Napier, treated us to a no-holds-barred analysis of China’s financial and economic predicament. His conclusion is that China’s only route back to faster economic growth involves a devaluation of its currency, the RMB. China can reflate but only by devaluing its exchange rate and fuelling the forces of debt deflation in the global economy.

Since the late summer, China has changed tack on economic policy to permit a faster pace of credit expansion and more fiscal relaxation to bolster its softening economy. Russell reckons that the attempt by the People’s Bank of China (PBoC) to stimulate bank credit growth, as compared to shadow bank credit growth in the previous episode, will complicate matters further by boosting money supply growth. However, with a basic external balance – current account plus net long-term private capital inflows – close to zero, China must attract other net capital inflows (or suffer continuous depletion of its foreign exchange reserves) if it is to hold the RMB steady, whether in terms of the basket or against the US Dollar.

The Economist

About Peter Warburton

Peter Warburton

Dr Peter Warburton is director of Economic Perspectives Ltd, an international consultancy, and managing director of Halkin Services Ltd. He was economist to Ruffer LLP, an investment management company, for 15 years and spent a similar length of time in the City as economic advisor and UK economist for the investment bank Robert Fleming and at Lehman Brothers. Previously, he was an economic researcher, forecaster and lecturer at the London Business School and what is now the Cass Business School. He published Debt and Delusion in 1999. He has been a member of the IEA’s Shadow Monetary Policy Committee since its inception in 1997. He is a contributor to the Practical History of Financial Markets course run by Didasko, an education company, at Edinburgh University, and teaches occasionally at Cardiff Business School.

Articles by Peter Warburton

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