According to VOA, interest rate hikes in Western economies, including the United States, could bleak China’s economic growth outlook.
The U.S. Federal Reserve Bank (Fed) ‘s decision to increase the interest rate means that the U.S. dollar will have a higher rate of return, and the U.S. will attract more capital. This could expose China to the risk of capital outflows and foreign exchange fluctuations, with consequences for the already struggling economy of the world’s most populous country.
VOA cited data from the People’s Bank of China showing that foreign investors reduced their holdings of Chinese bonds by 13.3 billion dollars in June. At the same time, the renminbi showed a downward trend against the U.S. dollar.
Due to the impact of the pandemic, China still maintains an easy monetary economic policy, with low borrowing rates to stimulate economic activities.
Alicia Garcia Herrero, chief economist for Asia-Pacific at Natixis, told VOA that China’s economic outlook is bleak, and stimulus measures are needed. The Fed’s interest rate hikes would complicate the Chinese regime’s economic policies.
The Zero-Covid policy has worsened the Chinese economic recession. The country’s GDP fell 0.4% in the second quarter as against 4.8% in the first quarter. International financial organizations say China cannot achieve its GDP growth target of 5.5% this year.
The International Monetary Fund (IMF) cut its economic forecast for China by 3.3% in its World Economic Outlook Report released last week. This is down from the 4.4% forecast in April.