QE and China: China is protesting too much about reckless money-printing. The Communist Party’s official newspaper has even described the Federal Reserve’s decision to inject $600 billion into its financial system as a form of “currency manipulation”. Yet China has less to lose from so-called quantitative easing than most. Stoking ire in the developing world against America looks like a convenient way of diverting global anger away from its own currency games.
The Fed’s QE programme may hurt some unlucky countries. First, dollars seeking higher yields than can be found in the West may push up asset prices. Second, unwanted currency appreciation may leave emerging market export sectors less competitive. As the dollar has fallen from over-supply, the Brazilian real, Thai baht and Korean won have duly risen.
Yet China is an odd spokesman for other developing countries. It shares the common bait of high growth and rising asset prices. But its currency remains all but pegged to the dollar — it has strengthened just two percent since June, from what already looked like a position of cheapness. Other currencies have risen sharply.
The further the dollar falls, the more China’s exporters stand to benefit, at the expense of other developing nations. Monthly data due on Wednesday is likely to show a strong bounce back in China’s trade surplus, to $26 billion.
China’s capital controls too may make other countries’ problems worse. Unable to get into the world’s number two economy, investors are likely to try anywhere else with similar characteristics. Thailand and Korea look like targets, as do Taiwan and Indonesia. Capital controls can prove contagious, largely because they divert hot money to countries that don’t have them.
Not that QE is an unalloyed good for China. The excess money may work in a third way: by bidding up global commodity and energy prices, and pushing up inflation in China too. But as global leaders prepare for their G20 summit in Seoul this week, the current bout of QE bashing looks like a way for Beijing to divert attention from its own contribution to global imbalances.