After the Fed cut interest rates, a large influx of foreign capital into China? At the critical moment, Yellen's tone changed, and the US media declared that China was not the Soviet Union. What is the impact on China after the Fed cuts interest rates? When it comes to China-US economic and trade cooperation, how has US Treasury Secretary Yellen's tone changed?
With the Fed cutting interest rates aggressively by 50 basis points, ending a four-year cycle of rate hikes, the pace of foreign capital outflows from the United States is also increasing. This was marked by a broad rally in the Asia-Pacific region this week and the "best performance" of Chinese equities in nearly a decade.
Data show that after the United States cut interest rates, the RMB ordinary stock (A-share) index rebounded from 2,700 points to more than 3,000 points, and Hong Kong stocks also rose significantly, reaching an astonishing 4%. In an environment where the total U.S. debt continues to climb and the federal fiscal balance is struggling to make ends meet, the Fed's decision to cut interest rates is understandable. What is really surprising is why a large amount of foreign capital has poured into the Chinese market after the start of the sharp interest rate cut cycle, driving the A-share index up?
Some analysts believe that this situation occurs because the Fed's interest rate hike policy failed to achieve the expected results, that is, it did not blow up global assets, but failed its harvesting plan. In this case, the United States market, where inflation is still high and unemployment is still rising, is undoubtedly difficult to satisfy investors.
After all, for these investors, instead of focusing on United States, which often provokes "tariff wars" and curbs the development of other countries' advantageous industries, it is better to choose China, which has a more "firm" exchange rate and a sustained and steady development of the domestic economic situation. You know, even under the Biden administration's vigorous suppression of sanctions, China has still made remarkable achievements in chips, semiconductors, electric vehicles and other fields, which means that the future development potential of the Chinese market is higher than that of United States.
What's more, as soon as the Federal Reserve announced the interest rate cut, the People's Bank of China made three heavy blows: a comprehensive RRR cut, an interest rate cut, and a reduction in the interest rate on existing housing loans, which not only stabilized the RMB exchange rate, but also significantly boosted market confidence, proved the credibility of the Chinese market to global investors, and further accelerated the speed of capital inflow into China.
For such an outcome, I believe that the Fed is not unprepared, and the Biden administration will certainly not sit idly by and watch further capital outflows. Against this backdrop, Democratic and Republican presidential candidates hyped up tariffs on China, claiming that only this could "save United States manufacturing."
On the other hand, U.S. Treasury Secretary Janet Yellen said that although the United States Commerce Department's behavior of imposing high tariffs on Chinese electric vehicles and other goods has caused bilateral trade tensions to continue, the relationship between China and the United States is now "closer". Yellen asserted that despite the fierce competition, the United States and China have found a way to "constructively discuss and resolve their differences," which has brought the relationship between the two economies closer.
Some analysts have pointed out that the reason why Yellen made such "outrageous" remarks that the tariffs did not affect Sino-US relations is that today's United States still needs to rely on China's help, and refusing to adjust its strategy toward China and allowing bilateral economic and trade relations to deteriorate will only expose United States to the risk of damaging its own leadership and interests.
In an article entitled "Washington Must Change Its Strategy toward China," the United States "Foreign Policy" website said that during the Cold War, the Soviet Union was an isolated and resource-rich economy, and its industrial and economic strength was far inferior to that of United States." On the other hand, China is a large country integrated into the global economy, accounting for 17% of the world's total economic output, and is the main trading partner of more than 150 countries and regions.
Therefore, the article concludes that the United States cannot treat China in the same way it did with the Soviet Union, as it did during the Cold War. On the contrary, the next United States administration needs to recognize the importance of developing Sino-US relations and maintain engagement and dialogue with China, because strategic containment will only make United States and its allies bear more risks, and is not conducive to United States economic development and the stability of the global economic environment.