Monday, February 15, 2010

What speed should we be doing?

I was out for a Sunday drive last week when I was flagged down for speeding. I have only been pinged for speeding a handful of times in my driving career and generally it is when I get confused about the speed limit.
Sunday was no exception. I smiled ruefully when the policeman showed me the radar recording at 63km/hr, thinking they were red hot, to my dismay he told me I was in a 50km/hr zone – I had absolutely no idea.

Since mid-way through last year I realised that the Chinese Government basically determines what speed it wants its economy to grow at. While it may not be as simple as tapping on the brakes of a car, the Chinese Government has a much greater capacity than most other economies to control its speed.On Friday, the Chinese surprised the market by again hiking the reserve requirement (the amount of money they must set-aside – this effectively limits lending capacity) for its banks. Stock and commodity markets knee-jerked lower in response.
But we now hear that the Chinese economy might have been expanding at even a faster rate than originally thought at near 11%, up from an 8.7% expansion last year. Rebounding exports, up for a second month in January, are now boosting the Chinese economy that relied on its own stimulus-fueled investment and consumption for growth last year. What we are seeing is prudent economic management - this should not pose a threat to global growth.
China supplanted Germany as the world’s biggest exporter last year and is poised to replace Japan as the No. 2 economy behind the US in 2010.
A strong China means a strong Aussie economy – it is no coincidence that both the Aussie and Chinese economy are outperforming growth expectations. As global investors recognise China’s ability to manage its economy, the Australian economy and the $A will again be sought after. The recent dip in the $A relates more to a lack of understanding about China’s capabilities than anything else.

No comments: