October 28, 2004

I haven't had an economic post in a long time

China raises lending rate for first time in nearly a decade

Was just reading this on Drudge, and I started thinking to myself, "why would they do that". The answer, I believe is three pronged, the article covers two of them - being:
1) Effective interest rates (back out inflation) are almost at zero
- While that, seen through a US investors eyes, is interesting - it's not all that interesting for an Asian investor. Take a peek at Japanese lending rates, they're below inflation. The gov't does that intentionally to spur investment in the private sector (and real estate).
2) For those of you who *haven't* noticed gas prices going absolutely ape-shit over the past year - a good part of it has to do with China's way rampant oil usage which is (no pun intended) fueling their economic boom. The government is raising rates to try and maintain some semblance of "sustainable growth" for US investors who are antsy to break into the Chinese market - as they're the "next big market" in terms of autos/computers/electricity - just about anything you can think of.
3) This is the one that nobody seems to be paying attention to. Their currency is pegged to the dollar. The implications of which mean that since the dollar is depressed, their currency is artificially depressed as well - leading to chinese "things" being cheap on the int'l market - which tends to lend to people buying cheap things. With the US elections around the corner, and Bush's chances of re-election looking better and better the Chinese might be trying to get a leg up by pre-emptively raising interest rates.
With the election as close as it is - the markets are sure to react either way when the official results are announced. With that kind of volatility in play, it's about damn time the Chinese used the opportunity to change their (almost) decade old monetary policy.

In any case, I've already written too much rambling shit on this one topic - so I'll leave it at that - it's just something *I* found interesting. *shrugs*

Leave a comment if you guys (all 2 of you) want more economic musings.