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Economic & Monetary Policy - Essay Example

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There is some debate as to whether or not China is doing enough in terms of shoring up its economy in the face of unprecedented slow growth and whether or not its recent monetary policy changes are enough to get the Chinese economy back on the road to the levels of growth that…
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Economic & Monetary Policy
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Download file to see previous pages Steel prices have been found to have fallen of a cliff, an indication of weakening demand generally. China’s response had been to try and prop up the economy by a host of measures, including reducing reserve requirements for banks and cutting interest rates in 2014, all moves that no doubt are meant to encourage lending and to spur growth by providing liquidity to the market (Wildau, 2015; Roach, 2014). At the same time, the government has moved to tweak the asset holdings levels of banks in order to allow for banks to shore up its own lending portfolio and allow property developers, ordinary consumers, and a host of government corporations to avail of liquidity to finance purchases and investments, as well as loan repayments. The problem being foreseen is that as the liquidity levels grow, so do pressures on the interest rates downward, and so do the pressures on the currency to devalue, as more liquidity translates to a cheaper currency due to its greater availability. There re concerns that such moves may not work s China intended, because from experience past moves to inject liquidity resulted in the use of such new money to finance activities related to speculating on property and taking bets on the stock market, rather than for the purposes of expanding production and investing in real capital expenditure projects that drive growth in the long term (Deng et al., 2014; The Economist Newspaper Limited, 2014). The opinion from the market is that China should do more to shore up the economy by ensuring a fundamental shift away from a reliance on loans to finance growth, and a reliance on exports, towards making domestic consumption a bigger driver of growth (Reuters, 2015; Bradsher, 2015; Fernald et al., 2014).
In Japan the conditions are different from China’s in terms of the problems of the economy and the monetary policies that have been instituted ...Download file to see next pagesRead More
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