how-us-quantitative-easing-is-impacting-china

How US quantitative easing is impacting China

The Fed's quantitative easing policy sets the stage for liquidity expansion and monetary easing in China, but will also result in lower returns on China's investments in US Treasuries.

With Beijing keeping a stable renminbi policy against the US dollar, China will import the effects of the Federal Reserve's quantitative easing QE policy. This is positive for Chinese liquidity and asset markets. The US QE affects China's monetary policy and liquidity via the trade and investment return channels

  • When QE weakens the dollar and Beijing pursues a stable RMBUSD policy, the renminbi will follow the dollar and depreciate in trade-weighted terms. This will help ease China's monetary conditions.
  • When QE lowers the US government bond yields, this will lower the Chinese central bank's return on investment in the US. This will, in turn, help solidify the monetary easing...
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