The U.S. is set to ramp up its stimulus efforts as it passes the Biden Administrations' $1.9 trillion covid relief package. China, however, is preparing to curb spending. The People’s Bank of China will begin to close the faucet as money market liquidity, government bond issuance, and private credit growth all taper. In a typical slowdown, one could expect major changes for China. However, economist Carol Liao and Pimco strategist Gene Frieda believe this could be different. The Biden stimulus package will boost demand in the U.S. and developing markets. This could be a stabilizing force for China, particularly in the commodities markets. The yuan looks more attractive as currency movements can lag credit swings. Finally, U.S. tariff relief could be promising for the country's currency.
FINSUM + Magnifi: Chinese markets appear to be sluggish in response to lower stimulus and other factors. But there are a variety of reasons including U.S. stimulus that bearish investors are overplaying their hand when it comes to China.
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