Chinese Government Enacts Forceful Policies to Combat Downturn

http://www.bloomberg.com/apps/news?pid=20601110&sid=afIkX076rzJc

http://www.bloomberg.com/apps/news?pid=20601110&sid=a0srzs9UtTNM

http://www.bloomberg.com/apps/news?pid=20601110&sid=aWZ05kCKPm5s

As the world grapples with an economic downturn, the Chinese government has enacted policies that will promote freeing up capital within the economy. The Chinese central bank has already cut interest rates five times in 2008 to the current 5.31% level and the government has scrapped lending quotas and pressed banks to support its 4 trillion yuan stimulus package. The Bank of China plans to sell as much as 120 billion yuan worth of bonds to raise capital to be used as credit, in addition to other corporate entities plans to raise as much as 100 billion yuan. China doesn’t appear to be facing the same credit scarcity problems affecting the West as mainland banks gave out a record 1.62 trillion yuan and 800 billion yuan worth of loans in January and February respectively.

There appear to be signs of a recovery as the official manufacturing index rose for the third straight month in February along with increased retail spending and electricity consumption, all positive signs.

My Opinion: China will certainly not be as badly affected as the U.S. or European nations. Chinese banks are amongst the world’s healthiest and are in a position to responsibly encourage lending to boost a staggering economy. While the government avoided announcing any additional stimulus package for the country, easing of regulations with respect to raising capital is an encouraging step that will have positive ramifications to the economy.

The government also recently announced its intention to keep the yuan at a stable level, implying it will not allow any wild fluctuations and thus removing the threat of foreign exchange risk to Chinese corporate entities. With forward looking plans and ambitious ideas, China is poised to do what it takes to restart its economy as fast as it can.

1. U.S. banks a bargain? See the following Bloomberg article about Trust Preferred Securities … http://www.bloomberg.com/apps/news?pid=20601110&sid=a3e_k0Gedi9k Trust Preferred Securities are a hybrid security with characteristics...
2. End of Carry Trade a Positive Sign for Japanese Exporters? http://www.bloomberg.com/apps/news?pid=20601110&sid=a.6u.EHUlfm8 My Opinion: With interest rates at rock bottom levels across the world and asset levels plummeting to record...
3. China May Maintain Fast Growth Amid Crisis, P… Oct. 6 (Bloomberg) — China’s financial system is safe amid a deepening global crisis and the world’s fourth-biggest economy...