'Tapering' of QE by US would benefit world: Economists

Updated: 2013-11-21 23:51

By GAO CHANGXIN in Shanghai (China Daily)

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If the United States stopped printing money, it would benefit China and the rest of the world, economists said, although they doubt the world's biggest economy will do so.

The US Federal Reserve said in the minutes of its last meeting on Wednesday that it could begin to scale back its so-called stimulus program at one of its next few meetings.

It added that the "tapering" would happen only if economic conditions allow it, but it is widely believed the minutes send a signal the central bank may be getting closer to cutting back its unprecedented bond-buying program, known as quantitative easing, which has been sending floods of funds into emerging markets including China.

If the US were to stop meddling in the market, that would be good news for China, said Zhou Hao, a Shanghai-based economist with Australia and New Zealand Banking Corp. Capital inflow will ease and Chinese banks won't have to print as much money to buy inbound dollars, thus alleviating inflation and money supply growth. And that fits perfectly into the government's plan to deleverage the economy.

Money supply caused by fund inflows was 441.6 billion yuan ($72 billion) in October, second only this year to the 700 billion yuan in January, according to data published by the Chinese central bank. And the data have generally stayed buoyant ever since the US started asset purchasing shortly after the financial crisis.

"The US recovery is far from strong at the moment. I don't think they will sacrifice themselves for the general well-being of the rest of the world," said Zhou.

"That is just not consistent with the way the US does things."

The Benchmark Shanghai Composite Index lost 0.04 percent on Thursday to 2,205.77 points. Most other Asian stocks also fell on concern of fund outflows caused by Federal Reserve tapering.

Chinese companies, especially cash-hungry developers, have already been busy issuing bonds this year, in case the Fed's market exit pushes rates up.

Last week, Dalian Wanda Group Co Ltd, China's largest commercial property company and the world's largest cinema chain operator, was said to be planning a US dollar bond offering of $300 million to $500 million. Chinese developers had already issued $17.88 billion in debt as of Oct 20, while the figure for the full year of 2012 was only $8 billion, according to a recent report by Moody's Investors Service, a credit rating agency.

Recovery in the US is still at best mild. Dariusz Kowalczyk, an economist with Credit Agricole CIB Asia Research, wrote in a research note on Thursday that the US top-line Producer Price Index likely fell 0.3 percent in October, dragged down by lower natural gas prices. Price pressures in the core PPI should also be limited in line with recent trends, likely rising 0.1 percent.

The November Philadelphia Fed Business Outlook Survey, an index that tracks manufacturing conditions in the Philadelphia Federal Reserve district, likely declined to 21.0 from 22.3, pointing to weakening industrial activity.

"What the Fed is going to do is not stop stimulating. It's finding a different way to stimulate that is more effective," said ANZ's Zhou.

The Fed's quantitative easing programs already have amounted to $3 trillion, but they're not having the desired effect on the economy

Since the fourth quarter of 2010, the Fed's balance has expanded by $1.44 trillion. A total of $1.422 trillion — 99 percent — of that expansion has simply stayed at the Fed, locked up in the basement vault, in the form of excess reserves.

One way to make quantitative easing more effective is to extend the forward guidance on short-term rates, such as telling the world that Fed funds will remain near zero for a long time, said DBS Bank Ltd, a Singaporean lender, in a report on Thursday.