'China should not follow US on rates'
(Reuters)
Updated: 2006-08-07 14:04
China should not follow in the footsteps of the United States by starting a
cycle of interest rate rises, former central bank adviser Li Yang said in an
article published on Monday.
"Although people having this idea recognise the close relationship between
the U.S. and Chinese economies, they are missing a significant difference in the
two countries' economic fundamentals," Li wrote.
The Federal Reserve has raised U.S. interest rates at 17 consecutive
meetings, each time sparking a heated debate among economists and researchers
about whether China should match it. Over the same two years, China has raised
rates just twice.
By keeping a gap between the two nations' rates, China is alleviating
pressure for the yuan to appreciate, Li, a professor at the Chinese Academy of
Social Sciences, the government's top think-tank, wrote in the China Securities
Journal.
Moreover, the United States has a deteriorating savings rate and is facing
inflationary pressure, whereas in China savings are much larger than investment
and price increases have been tame.
"Against this macroeconomic background, it's by no means fair to conclude
that China needs to dance to the tune of the U.S. in adjusting interest rates,"
Li wrote.
China raised its benchmark lending rate by 0.27 percentage points in April,
to 5.85 percent, to curb investment growth.
However, Li said China might need to keep capital spending relatively high to
sustain rapid economic growth because it was difficult in the short term to
boost domestic consumption and exports were facing increasing trade frictions.
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