How Will China Prevent Imported Monetary Policies Manifesting Itself in Runaway Inflation Expectations?
It’s an old debate, which is resurfacing again. Only recently, China enthusiast, Jim O’Neill (when he’s not preparing bids for his beloved Manchester United via the Red Knights) mentioned that he thought “something was brewing” with respect to the Yuan and its potential appreciation. O’Neill doesn’t shy away from making bold calls – I like that. But this does not jibe with our perception of China gradualist policy implementation. I’ve always felt that, rather than one-off shocks to their mercantilist machine, China would consider a more sophisticated approach. Stephen Jen, a guy I used to follow closely when he was the chief FX strategist at Morgan Stanley, puts his own flavor on predictions: “China is taking steps in the right direction, but the policies so far aren’t adequate,” “It will require a multi-faceted policy approach to deal with such a big, and sometimes volatile, economy. We expect rate hikes, and we expect a policy change” I agree, I think it will require, or rather, it w
