China in good shape as stimulus ends in US

The US Federal Reserve ended its longrunning bondbuying stimulus program on Wednesday, with analysts saying China's economy has responded well to the expected winding down of the program.

As the "quantitative easing"program drew to an end, the US central bank had been trimming its monthly bond purchases since 2013 from $85 billion in treasury and mortgage bonds to $15 billion.

It implemented the program to hold down longterm interest rates and bolster a slow US recovery from the 2008 financial crisis.

David Dollar, senior fellow at the John L. Thornton China Center at the Brookings Institution, told China Daily in an email:"QE in the end was good for emerging markets like China. It helped the US economy to recover, and that provided stimulus to China and others through their exports."

When quantitative easing started, there was a concern that it might lead to a devaluation of the dollar, but that never happened - the currency strengthened throughout, Dollar said.

Stephen G. Cecchetti, a professor of international economics at the Brandeis International Business School at Brandeis University in Waltham, Massachusetts,

said accommodative monetary policy in advanced economies is essential to ensure strong, stable and balanced growth.

"This was good for everyone,"Cecchetti said. "Given the importance of advanced economy demand for the prosperity of emerging market economies, it is clear that they rise and fall together."

Chinese economists generally agreed that the end of quantitative easing marked the normalization of US monetary policy, which is good for the world economy.

Song Ke, director assistant of the International Monetary Institute at Renmin University of China, said: "The Fed announced the tapering plan one year ahead, so the effect has already been absorbed. This showed the Fed's responsible attitude."

Quantitative easing, despite drawing controversy in the early stages, has been effective in boosting employment as well as stock and propertymarkets in the US, Song added.

Adam Hersh, a senior economist at the Center for American Progress, a think tank in Washington, DC, said the downside for China is that such abnormally large capital flows into the country and other developing economies can cause inflationary pressures. "But China hasmanaged this OK," he said.

Upbeat news from the US economy has led to the appreciation of the dollar, marginally affecting China's foreign reserves value and international balance of payments.

China saw a net outflow of $81.6 billion under the capital account in the third quarter, while the foreign reserves value fell by $430 million, the State Administration of Foreign Exchange said on Thursday.

Guan Tao, head of the administration's Department of International Payments, said quantitative easing contributed very little to China's capital outflow. Other factors, such as the yuan's value and domestic economy, played significant roles.

Reform of the yuan exchange rate mechanism also played a role, Guan said. The People's Bank of China, the central bank, doubled the daily trading band for the yuan against the dollar to 2 percent from March 17.

The bank also gradually reduced its intervention in the foreign exchange market, meaning capital outflows will increase as the trade surplus widens.

A weaker yuan at the start of the year changedexpectationsof the currency'sonesided appreciation, undercutting Chinese firms'willingness to sell dollars for yuan and increasing their willingness to hold dollars, Guan said.

Even with renewed appreciation of the yuan in the third quarter, earlier memories remain entrenched that firms are still willing to hold dollars, Guan said.

Song said that even with the expected appreciation of the dollar, the yuan's value will be underpinned by China's economy and huge foreign reserves.

Contact the writer at zhengyangpeng@chinadaily.com.cn