China upps the Fed's QE2 ante by introducing new currency provisions and markets signal rate increases in the offing

China is tightening the rules on foreign investment into China. QE2 is really screwing with the international system. During the depression we had a trade war, now unfortunately the danger seems to be in a currency war, with the Federal Reserve of the United States throwing the first punch, via Bloomberg:
The State Administration of Foreign Exchange will introduce new rules on currency provisioning and tighten management of banks’ foreign-debt quotas, the regulator said in a statement on its website today. The government will also regulate Chinese special-purpose vehicles overseas and tighten controls on equity investments by foreign companies in China, it said.

...“Some international funds will flee from dollar assets because of the Fed’s easing, and China’s SAFE is trying all means to plug loopholes in possible channels for hot-money inflows,” said Zhao Qingming, a senior analyst at China Construction Bank Corp. in Beijing, the country’s second-largest lender.

...“The strengthened controls on hot money can’t change the yuan’s trend of appreciation,” said Isaac Meng, an economist at BNP Paribas SA in Beijing. “The yuan will continue to appreciate as the Fed easing prompts more capital inflows and China’s economy grows faster than the U.S.”

Via Reuters:
Analysts and traders took the yield increase as a sign that the central bank could raise rates again, or increase banks' required reserves.

"The auction yield itself already suggests a possible rate hike is coming soon," said a senior trader at a Chinese bank in Shanghai. "Previously, rises in the auction yield of one-year bills often pointed to a quick follow-through rate hike."

Analysts said the central bank wants to prevent a flood of cash from generating runaway inflation and price bubbles in asset markets, particularly stocks and property.

China Ministry of Finance website (you have to translate)
Markets signal China to continue raising rates


Popular posts from this blog

October retail sales come in strong, especially auto sales

Tea Party Buffalo Pictures

How to spot a fake Tea Partier