After the National People’s Congress

CHINA FINANCIAL - Report 21 Mar 2017 by Michael Pettis

Special points to highlight in this issue:
• There have been many arguments proffered over the past several years in favor of both depreciating and stabilizing the RMB and in favor of both raising and lowering Chinese interest rates.
• From a purely economic point of view, the benefits for China of RMB depreciation are limited, while the benefits of a stable currency are substantial. Most importantly, a depreciating currency reverses the limited amount of economic rebalancing China has enjoyed since 2012.
• From a purely economic point of view, the benefits for China of lower interest rates are limited while the benefits of higher interest rates are substantial. As with a depreciating currency, lower interest rates reverse the limited amount of economic rebalancing China has enjoyed since 2012.
• Speculative markets are intrinsically volatile, and the higher they rise, the more difficult it is for governments to stabilize them. Chinese real estate prices in certain parts of the country may have reached the point at which they can only either continue to rise sharply or to fall violently enough to all but guarantee government intervention.

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