China currency move calms hard landing fears

by Jack Bibey | Saturday, Apr 14, 2012 | 253 views

With the weekend reform of the currency regime , the remaining doubts  of  China successfully steering past the hard economic landing have been thwarted. As the markets were questioning if the worst economic slowdown since the 2008 crisis will enter the a sixth quarter after the data released on Friday showed weakest growth in three years  below the official 7.5 % target .

By shifting the yuan trading rules , China has given the strongest signal about the growth downside having diminished and the potential threats are manageable . Some of the reforms are as full of risk as messing with the currency because the faith in its soundness links it to economic stability.

All the concerns over  China heading  into a rough period have been calmed down . The move completely indicates that the government is in line with and comfortable with the direction in which the economy is moving.

The investors across the globe certainly needed some good news after the markets worldwide  were hit by the slow growth data posted by China and the renewed fears of risks pertaining to the debt-plagued euro zone .

The timing of the move , the politics behind it and the diplomacy involved are all under focus after the big decision to turn yuan into a global currency which has doubled the size of the trading band against U.S dollar by one percent . But it will be the economies of the move which are most crucial as it will impact the future of 200 million jobs in  the factory sector which directly depend upon foreign trade.

Beijing seems to be happy with the yuan’s value and exporters seem to be in good condition to deal with the government’s relaxation of the grip.  During the crisis of 2008 the government had tightened the yuan to shield its economy . But the current move  brings confidence that the indications of the first quarter GDP data – the increase in steel production , and in automobiles , cement and machinery beside the recovery of the sales of household appliances – has a broad foundation .

The bank lending also grew by 25 % beyond the forecasts by the analysts to 1.01 trillion yuan . This means that there is monetary easing and the 800 billion of the new credit is being put to use . During the crisis period China had rolled out 4 trillion yuan as stimulus for supporting the economy and encouraging the local authorities to go on a borrowing spree. But this time around the government has taken the route of stability and a tightening of policy .

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