On Thursday (January 14), incoming President Joe Biden revealed his administration’s US$1.9 trillion stimulus package that aims to combat the COVID-19 situation in the United States and to help improve the hard-hit US economy. But what does this mean to China and perhaps the world economy?
One would expect the Chinese economy to improve because of this plan because of the US’ high demand for Chinese products. However, the People’s Bank of China (PBOC) is not taking this plan to be advantageous. Mr. Chen Yulu, the deputy governor of the PBOC stated on Friday (January 15) that China and the PBOC should take caution when Biden’s plan comes into place. He explained in a recent media briefing, the dangers that Biden’s plan would bring to not only China’s economy but the world’s too.
He said, “One is the departure from the fundamentals of the real economy in the international financial market, with increasing volatility. The second is that, with loose global liquidity, the direction of cross-border flows is increasingly volatile. Third, the pandemic has had an unprecedented impact on the economy, and the debt risk of low-income countries will rise further, which may further affect the progress of the global economic recovery.”
According to the South China Morning Post, analysts are worried that the plan could introduce more inconstancy in money flow in China, because of speculative hot money going into yuan-denominated assets. China continues to strictly control fund flows to maintain a steady currency exchange rate, which keeps its exports competitively priced.
Even though the Chinese economy is already taking necessary precautions to fight against the negative impacts that Mr. Biden’s plan may bring, we would have to wait and see if the repercussions were as damaging as speculated or if it brings us advantages as well.
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