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Friday, July 06, 2007

Chinese monetary policy - no magic bullet

Surjit Bhalla has repeatedly suggested that Rakesh Mohan be sent to a re-education camp in China in order to learn how to do Chinese-style monetary policy. It is felt that China is reaping a free lunch of high exports growth based on a distorted exchange rate. In Business Standard yesterday, Jahangir Aziz and Kalpana Kochhar argue that Chinese monetary policy isn't the role model it's made out to be.


  1. China's economic growth is so fantastic that both its success and failure will be seen as a great surprise. It manages to keep low inflation, low interst rates and a weaker currency, something unbelievable.

    But, underneath the bamboo bars may lie a power oven waiting to explode. No one knows the future of the hugely unhealthy Chinese banks. And China does all the same mistakes of Japan of 1990s. It experiences huge and unreasonable stock market growth that is divorced from fundamentals, coupled with a flawed currency policy and unproductive banks, and over reliance on exports, it could risk into a great recession.

    It would take a great Chinese collapse to silence the experts of the fallacies of following China in currency manipulation, just as the fall of Soviet convinced Indians in 1991 of how stupid communism and over controls were.

    A Chinese collapse, though painful for everybody in the short term, could become good for everybody by giving more balance in world economy by shaving over liquidity and keeping interest rates at a right level.

  2. Let me tell you that as much as you may think about China's growth, it is equally important to focus on brittleness of Chinese economy. China cannot operate in a lacuna when the boundaries between world economies is increasingly diminishing. Just wait for couple of years and you will witness the fall of a great economy called China.
    I have been quite vocal about china on my blog for past couple of months :)


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