How Much Smarter Can the Chinese Get?
Thursday, April 27th, 2006
By Michael Lombardi, MBA for Profit Confidential
This morning, unexpectedly, China raised interest rates. The People’s Bank of China (the central bank of China) raised rates 27 basis points on loans to 5.85%. This is the first time China has raised interest rates since 2004.
The Chinese economy grew at a whopping 10.2% in the first quarter of this year. Investment in factories and roads jumped 30% in urban areas in the first quarter. It is said that China has the fasting growing economy in the world.
But, this is just how smart the people running China’s economic machine are: While China announced this morning it was raising rates on loans, it left rates on deposits unchanged. Hence, if you want to borrow money in China, the one-year lending rate is 5.85%. But if you want to deposit Chinese yuan in Chinese banks, you’ll only get 2.25% on your money–the deposit rate was left unchanged.
Why? My bet is that the Chinese government does not want the yuan to be an attractive currency. Low rates of returns on currencies do not make them attractive. No. The Chinese would much rater have a strong U.S. dollar because they export so much to America. Smart move.
China now joins North America and Europe in raising interest rates this year. The pressure in now on Japan to rates. and I believe they will.
China has given a clear message–they want to keep growth in control; they will raise interest to cool the economy; they want to keep the value of the Chinese yuan down. They have also given another clear message: China will raise rates although inflation is under control. China’s inflation rate is expected to be only 2% this year.
It’s official now. Interest rates all over the world are rising. Although the U.K. was the first to raise rates a couple of years ago, the U.S. was the first industrialized country to aggressively raise interest rates. The U.S. will also likely be the first country to stop rate increases. Hence, I’m only forecasting a couple of more U.S. Fed rate hikes before the Fed takes a break raising interest rates so they can see what effect the higher rates will have on the economy.
Next Post: As Tensions Mount, So Do Oil Prices
Previous Post: Company Is Both Helpful and Successful
Tags: chinese economy, interest rates, U.S. dollar
Tweet
Sign Up for PROFIT CONFIDENTIAL and
receive a FREE copy of our exclusive report:
"A GOLDEN OPPORTUNITY FOR STOCK MARKET INVESTORS"
We respect your privacy and
will never share your e-mail address.
Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
