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Busch: All China, All The Time

There are a number of articles out overnight all pertaining to China actions in their economy and in their approach to the rest of the world. The NYT reports on a massive reversal in US Treasury purchases by the Chinese in the first quarter .

Readers of this column know this is what we were expecting due to the massive drop off in exports. However, the unique tweak to the story is that China actually sold bonds heavily in January and February. This coincides with the warnings from the Chinese leadership that they were uncomfortable with the financial policy of the United States. For all those that thought the warnings were just talk, the Chinese are clearly backing up their words with action.

China is also going to ensure that it's economy has ample liquidity for growth. The People's Bank of China will implement moderately loose monetary policy and maintain the continuity and stability of policy. On it's website, the PBOC pledged ample liquidity to ensure money supply and loan growth to meet economic development needs. There had been some concern that the rapid growth in loans would prompt the central bank to pull back on providing monetary stimulus. This should ensure that loan growth will continue until the Chinese feel confident that the floor had been placed under the economy.

On April 15th, the Chinese State Council will meet to discuss a new stimulus package according to the Oriental Morning Post. The new package will be focused more on the consumer with social welfare spending and consumption targeted. Also, China Securities Journal reported today, the government will issue some “guideline” policies and continue to use fiscal and taxation measures to spur an expansion.

Over the weekend, Chinese Premier Wen Jiabao said that the Chinese economy showed signs of better than expected positive changes in the first quarter as a result of the economic stimulus package adopted by China Xinhau News reported. He said that domestic demand rose on a sustainable basis with investment in fixed assets increasing rapidly, and consumer demand grew steadily. He noted that the trade surplus was lower from the same period of last year, but that exports grew on a month-on-month basis in the three-month period.

These stories show a consistent pattern of action by the Chinese government to stimulate growth and to back up their words with actions. This has led to a currency rally in those countries that are closely linked to China namely Australia and New Zealand. The investment theme of buying those companies/currencies that sell to China appears to be making a strong comeback. For the future, I originally believed that the Chinese stimulus would abate after the second quarter. However if this consistency is kept up, we should see it spill over into a stronger and more consistent growth pattern for the rest of the year.

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Andrew Busch
Andrew Busch

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Andrew B. Busch is Global FX Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece andreach him here and you can follow him on Twitter athttp://twitter.com/abusch .