The Banking and Strategy Initiative

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Managing Inflation and Credit Policy : The China way

Hong Kong from inside the Bank of China Building
Image by Ray Devlin via Flickr

Why China is a global enigma worthy of continuous emulation and deserving its predicted long term successs is easy to comprehend if you put together the different pieces we have presented over the past two years at Advantage zyaada. The media now has on record a multi pronged strategy beyond most large democracies who claim to have overcome threats of depression, deflation, irrational super-inflation and credit defaults that drove the entire economy to a halt.

Multi pronged regulation, Multi tiered state controls, State driven pragmatism

Not only do the Chinese banks listen to the People’s Bank of China when it recently raised reserve requirements, it also listens to the China Bank regulatory commission to streamline processes, international regulation and even local acquisitions are locally vetted by Government arms. China has three different state investment vehicles till date of which CIC is already invested in the US Lifestyle Economy and is now busy in Brail holding up real estate candidates and becoming a key player in the new President’s plans  as Brazil’s real estate becomes thrice its size in the next to years to 10% of the state Economy (GDP)

Even when the banks started 2010 in an ebullient mood, China laid down a diktat asking the erring banks to correspondingly hold greater reserves,Big banks still are subject to a 19% reserve requirement and other small and medium players a 15.5% reserve rate On the ground even as the real estate bubble seemingly puts the scare in Chinese leadership centrally over 100 city governments locally continue to hurtle forward almost doubling local economies on new real estate investment in loans that look threatening but also getting a significant piece of the $80 bln FDI in China

The latest inflation rate of 5.1% may scare investors for the short term, but they can see controls in place that can dent hoarding and bring prices back/hold them at a steady level. Where forex surpluses are dwindling and focus is shifting to creating local demand each of its 100 local cultures are bringing a strength and fortitude to the Chinese model while increasing wages and costs rather than being a bottleneck become a vent for clearing local and regional inequity. Even for increasing global trade in Chinese currency and bootstrapping the state denominated Yuan’s first few free trade transactions in the not too distant future, China has analternate window in Hongkong where it can increase the availability of its currency without effecting a significant policy decision changing the nature of the beast.

The leading global consumer

Apart from all its choice of vehicles to make localised and deep impacting change, China also has the strict underpinnings in all its trade to try and becoming a material first among equals with all its trading partners and its global market for commodities makes it almost as strong as the U S A of the twentieth century. When it sneezes, commodity prices dip in unison and trade settlements in the trillions worths  commodities transactions held hostage to default engineered by the belligerent state customers from the people’s republic. IT negotiates from a position of strength

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