Chinese Media Say Don’t Fear the Fed as Impact Is ‘Controllable’

  • No. 2 economy remains resilient amid falling yuan and outflows
  • Xinhua churns out six commentaries, urges prudent rate rises

Chinese state-run media rolled out several commentaries assuring readers that Federal Reserve rate increases won’t roil the world’s No. 2 economy as the yuan fell to an eight-year low and government bonds headed for the biggest weekly decline in seven years.

"Some are concerned that the move will add more depreciation pressure to the yuan, and quicken capital outflow," People’s Daily wrote in a commentary on Friday. "In fact, there’s no need to over-worry about it" because the exchange rate longer term will be decided by economic fundamentals, which are resilient, the Communist Party’s flagship paper said.

The state-run Xinhua News Agency churned out six commentaries on Thursday to soothe jitters over the Fed. The yuan is still stable against a basket of currencies, and the public shouldn’t "blindly" exchange it for dollars, one analysis said. Higher U.S. rates won’t have a major influence on China’s stock market, an opinion writer said.

The effort to downplay financial and economic risks came after Fed officials raised interest rates Wednesday for the first time this year and forecast a steeper path for 2017 increases. While China’s foreign currency reserves, the world’s largest, fell the most since January last month, indicators from retail sales to manufacturing to inflation still show broad resilience.

State media also said the Fed should be mindful of its influence. It’s advisable for U.S. policy makers to attach full importance to possible spillover effects and coordinate with other major economies on policy, Xinhua said in a commentary. The Fed should prudently handle the pace of rate hikes and help support the global economic recovery, it said.

The Fed rate hike may pressure the yuan and spur capital outflows, weighing on equity and property markets, Yi Xianrong, a Qingdao University professor and former Chinese Academy of Social Sciences researcher, commented Friday in Xinhua’s Economic Information Daily.

Chi Lo, senior China economist at BNP Paribas SA in Hong Kong, said rising U.S. rates could present a headache for the People’s Bank of China as it tries to balance competing goals. It wants to keep interest rates low and liquidity ample to help meet economic growth objectives during China’s structural transition, but policy makers still want a stable yuan, so will intervene to prevent the currency from falling too much, he wrote in a report Friday.

"Rising U.S. rates will narrow the interest rate differential between China and the U.S., thus putting pressure on capital outflows from China and the renminbi exchange rate," he wrote.