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Bit rate: falling, China’s economy will tighten Russia

Ставка бита: падающая экономика Китая затянет Россию

The people’s Bank of China (PBOC) for the first time in five years, has decided to reduce the discount rate. Beijing forced to soften its monetary policy, because it can not support the growth of its economy at the same level. While China’s slowdown may reduce the volume of trade turnover between our countries, which will adversely affect the growth of the Russian economy, experts predict.

The people’s Bank of China decided, for the first time in three years to reduce the key interest rate. It remained unchanged in 2015.

Thus, the interest rate for one-year mid-term loan borrowing (MLF) will be reduced from 3.3% to 3.25%. This is stated in the press release of the regulator.

The slowdown in the economy and trade conflict with the United States forced the Chinese Central Bank to take easing measures of monetary policy.

Earlier, the Bank of China lowered reserve requirements for commercial banks and allowed the yuan to decline against the U.S. dollar.

Did not like the American President Donald Trump. He has repeatedly said that Beijing is fighting against the US through devaluation of the yuan. Reducing the rate of its currency, China reduces the cost of its goods on international markets and makes US products less competitive.

The first major depreciation of the yuan occurred a few days after the US President Donald trump announced the entry from September 1 duty of 10% on goods from China worth $300 billion In that time, the yuan reached a record low of 7 yuan per $1.

So investors are in full voice talking about the fact that China began to use the yuan as a tool in trade disputes with the United States. At this point, the Chinese currency is not in a hurry to grow and is around 7.04 yuan per $1.

In the near future Beijing overall pledged their financial institutions to maintain a moderate monetary policy, which will not be “neither too hard nor too soft.”

China adopted a controlled slowdown: a slowdown in GDP growth to 7% for the transition to a new stage of development, says chief strategist of the company “Univer Capital” Dmitry Alexandrov.

In China now slowing down demographic growth, structural changes in the economy accumulate, reducing the workforce – all these factors affect the economy, he explains.

China’s future is connected with the transition to a new model of economic development, which was announced in 2008, based on the domestic market, the priority development of high-tech industries, changes in the system of income distribution in society, the creation of the social security system and many other innovations, he said.

Changing nature of economic interaction between China and Western countries. With the entry of Beijing to the number of States with average level of income the role of the world Assembly plant gradually begins to decline, says Alexander.

Relatively low-tech and labor-intensive industries gradually transferred to Indonesia and Vietnam. To sustain economic growth in the context of the gradual loss of price competitive advantage and, ultimately, to survive, China needs to become an independent exporter of high-tech products manufactured by Chinese companies under Chinese brands, that is a true rival of the leading developed economies.

Thus, although moderate growth in China is good in the long run, it has a negative impact on some countries, especially commodity exporters, including Russia, concludes the analyst.

Thus, the slowdown of the Chinese economy is a problem for Russia, says Forever Avakian, an analyst of the company “BCS”. China buys a large number of Russian products, especially oil and gas. According to the FCS,

China’s share in Russia’s exports in 2018, made up 12.46%, while the share in import of Russia — 21,92%. On a share in Russian exports and imports in 2018, China took first place among our trading partners.

In addition, the slowdown of the Chinese economy may lead to a decrease in investments of Chinese companies in Russia, adds Avakian.

However, their proportion and not so high. Most direct investment projects in our country in 2018 received from companies in the United States. This is evidenced by a study of investment attractiveness of European countries auditing and consulting company Ernst&Young (EY). Next on the list of companies from Germany, China and France.

But the total investment from China to Russia accumulated in 2018, amounted to only $3.2 billion — or just 0.6% of the total volume of all foreign investments.

© 2019, paradox. All rights reserved.

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