The Chinese government no longer fears the Fed.
In early 2016, turmoil on China’s equity and currency markets dented confidence in the country’s economic policymakers. Foreign currency reserves were falling at an unprecedented rate and Beijing worried that any increase in US rates would further accelerate capital flight from China.
But the US Federal Reserve did not follow through on expected rate rises, in part because of the situation in China. The reprieve gave the People’s Bank of China time to implement capital controls, which slowed capital flight, while a credit surge in early 2016 stabilised economic growth. As Jeremy Stevens, China economist for Standard Bank, puts it: “Last year the PBoC got an assist from the Fed.”
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