The central financial institution of China announced over the weekend that its biggest banks must hold more cash in reserve, the fourth time in 2011 the reserve ratio has been increased. The move is a try to curb Chinese inflation that is emerging as a significant threat to a global economy reliant on cheap Chinese exports. Meanwhile, Donald Trump, pandering for a presidential bid, proposed a 25 percent tariff on Chinese imports that was roundly ridiculed by economists.
Control is being lost
By requiring that banks once again raise their deposit reserve ratio, China’s central bank has been trying to cool down the nation’s overheating economy by raising rates of interest and reducing the amount of cash accessible for loans. The reason for the announcement appears to be from the report on China’s economy. It is growing at the fastest rate in the world at 9.7 percent annually. The economy growing has created inflation. The Chinese government doesn’t like that. The price for food or for gas went up a lot. Also, the home costs have become too high. The food price increase has been controlled by Beijing by threatening the companies not to raise costs. There have also been more subsidies given for agriculture. The government has also raised wages, which has contributed to China’s mounting inflation issue.
The world worried about Chinese rising prices
Too much of China’s economic growth, according to analysts, is due to inflationary government spending on real estate development and multi-billion dollar infrastructure projects for instance roads and railways. Some predict that regardless of the government’s tries to douse the flames, China faces a rate of inflation approaching 5 percent for the next decade. Such high inflation threatens China’s position as the dominant global source of manufactured goods. For things shipped overseas, companies are starting to want more due to the increase in Chinese wages and production. The U.S. and Europe will not purchase from these companies with more costly things. Instead, other countries could be looked to. A contracting Chinese economy could hurt lots of companies that count on China. This would contain both General Motors and General Electric.
U.S. and China would not get along so well
China has failed to stop the economy from overheating. Now, the pressure to have the yuan to rise in value is coming down even harder than ever on Beijing. Donald Trump, posturing for a possible GOP presidential bid, is pushing a 25 percent tariff on Chinese imports. Most suggest this can be a bad idea. Tariffs are not the right answer. Trump’s tariff would most likely set off a trade war between the U.S. and China that would damage the global economy. The U.S. inflation would go up even more with a 25 percent tariff making Chinese goods more costly in the U.S. It might make China really angry. This might mean no more trading for the U.S. with China, hurting the economy. A Chinese appeal to the World Trade Organization would get rid of the tariff easily anymore.
Information from
New York Times
nytimes.com/2011/04/18/business/global/18yuan.html?_r=1&emc=eta1
Associated Press
money.msn.com/business-news/article.aspx?feed=AP&date=20110418&id=13322016
CNN Money
money.cnn.com/2011/04/17/news/economy/trump_china_trade_war/index.htm
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