China captivates the attention in the Pacific

China captivates the attention in the Pacific
This week has witnessed a new surprising decision from the People’s Bank of China, which surprised us by raising interest rates for the first time since the beginning of the crisis in 2007; this comes under a series of decisions from China, aiming to reduce the size of liquidity in the financial markets, as well as reducing lending operations to rein in inflation rates that have reached its highest in 23 months.
The PBoC decided this week to raise interest rates unexpectedly for the first time since 2007 to 5.56% from the previous reading which was 5.31%, while interest rates on deposits increased by 25 basis points up to 2.50% from 2.25%.
This action came along with a series of measures aiming to reduce borrowing as well as working on reducing liquidity in the financial market. Final latest was the decision to raise the reserved cash ratio for the six largest Chinese banks to reduce lending operation by those banks.
The decision to raise interest rates may somehow have a negative impact on China's central bank objectives, such a decision is a factor of attraction of liquidity from global financial markets that will pass into the Chinese market, especially because of the recent global equity performance that has witnessed fluctuations, encouraging more investors to transfer money to the country that is witnessing the fastest economic growth rates in the world.
Such an increase in liquidity will push inflation rates to rise again, which nullifies the Chinese central bank's objective behind raising interest rates, beside this cash liquidity will increase from increased real estate prices in China increasing the bubble currently present in real estate prices, which raises fears of its explosion causing a major crisis in the world's second largest economy.
The Chinese economy reported third quarter growth figures, where the annual GDP recorded 9.6% expansion higher than expected growth rate of 9.5% yet slowing from the second quarter’s 10.3%. Growth during the third quarter this year was the slowest this year after 11.9% during the first quarter and 10.3% in the second quarter. This confirms the negative impacts caused by high inflation rates, where during the month of September it stretched to 3.6% which is compatible with expectations being the highest level of inflation rate since 23 months.
This kind of decision confirms the Chinese government's confidence in its recovery, and also confirms fears of rising inflation and rising real estate prices in the region. This will open the doors for debate on the revaluation of the Chinese yuan during the G20 summit, which will be held in South Korea this weekend

Some oppositions between leading economies taking place in G20

Some oppositions between leading economies taking place in G20
Yesterday the US Treasury Secretary; Timothy Geithner, asked actually G20 members to limit surpluses and deficits to a percentage of output, in other words the US is requiring that countries set targets to minimize trade imbalances which was straight up rejected by other superpowers such as Japan, Germany and Russia on the opening day today of the meeting of finance ministers in South Korea