Made in America May Be Stamped on China Stimulus
Beijing is watching the Federal Reserve’s moves very closely. They may hold the key to a successful recovery at home.
When China defers to the US.
Photographer: SOPA Images/LightRocket/Getty Images
Jerome Powell isn’t losing much sleep over China's economic woes, absent a steeper turn south that jeopardizes the robust performance of the US. The feeling is far from mutual. Beijing is showing every sign of watching the Federal Reserve chair closely. Prospects for a meaningful boost to the economy hinge to a significant degree on what transpires at America’s central bank. Specifically, when Fed officials opt to cut interest rates and by how much.
Efforts by China to juice its economy have met with disappointment. Grand-sounding plans, such as encouraging state-backed enterprises to buy stocks, and government pledges to stabilize markets, aren't doing much to boost confidence. A key equity index sank to a five-year low on Friday. On the whole, initiatives have been cautious and vague. Muddling through seems to be the objective. Absent a decisive shift by the Fed, China has limited room to maneuver, in part because officials fear pronounced weakness in their currency, the yuan. The People’s Bank of China can make the odd cut in borrowing costs, but the effect is likely to be muted. Punitive regulatory measures, such as tightening trading restrictions on institutional investors, will only sap confidence.