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Fed Tapering Has Limited Impacts on China, UBS Economist Says

09-12 15:26 Caijing
Countries like India and Indonesia have been roied with great volatilities amid signals from the Fed that it will end its superloose monetary policies.

Wang Tao, chief China economist at UBS AG said tapering of Federal Reserve's ultra-easing policies has limited and indirect effects on China after recent turbulences in emerging market triggered worries over the world's second largest economy.

It's unlikely that China would be spooked like other emerging markets, Wang said Wednesday at a press conference. Countries like India and Indonesia have been roied with great volatilities amid signals from the Fed that it will end its superloose monetary policies.

Extent of effects of Fed's anticipated tighter monetary polices on developing countries depends on their ways to finance debts, not levels of debts, Wang said, adding the money China borrowed mostly comes from domestic deposits, rather than outside liquidities.

Tight capital controls leave deposits largely inside the country and keep it away from short-term capital flows.

Foreign capital only accounts for roughly 2 percent of the outstanding capitalization of China’s stock markets and even less of the bond markets while foreign capital plays more important roles in capital markets of India and Indonesia.

Both countries are highly reliant on foreign capital which represents as much as 40 percent, and 30 percent of India and Indonesia's market capitalization respectively.

China has been able to remain independency of its currencies over the last few years and has the ability to hedge against potential great volatilities with multiple monetary tools, Wang noted. 

Scaled-back quantitative easing measures, however, will still impact China indirectly through trade activities as its currency remains strong against currencies of emerging markets and demands from those markets slow down, said the UBS economist.

She estimated positive effects brought by recoveries in developed countries could outpace negative impacts from a slowdown in emerging markets.

Wang also upgraded his forecast on China's GDP growth for the third quarter and the full year to 7.7 percent and 7.6 percent based on recent higher-than-expected August data.

She expected recovery in the world’s second largest economy to ease in the following fourth quarter as slowing credit growth in June is likely to have an impact on the real economy. 

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