The Federal Reserve will raise interest rates again this week. Is your product export affected?

The Federal Reserve is expected to raise interest rates again this week, but most analysts expect the Bank of China to stay put, because China's capital controls seem to have effectively curbed capital outflows.

China is no longer afraid of the Federal Reserve.

At the beginning of 2016, China's stock market and foreign exchange market were in turmoil, which made all parties' confidence in China's economic policymakers decline. Foreign exchange reserves are falling at an unprecedented rate, and Beijing is worried that any interest rate hike by the United States will further aggravate China's capital flight.

However, the Fed did not raise interest rates according to the original guidelines, which was partly to take into account the situation in China. This gives the People's Bank of China (PBoC) breathing space, gives it time to implement capital controls, slows down capital flight, and the credit surge in early 2016 stabilizes economic growth. Just like Jeremy &bull, an economist at Standard Bank in China; Jeremy Stevens said: "Last year, the Bank of China received assistance from the Federal Reserve."

The Bank of China does not need such help this year. It is expected that the Federal Open Market Committee (FOMC) of the United States will decide to raise the benchmark interest rate — — This will be the second rate hike since March this year and the third rate hike since December last year — — Thereby further narrowing the spread and bond yield difference between the world's two major economies.

Most analysts expect that the Bank of China and China the State Council, which is in charge of approving the adjustment of China's benchmark interest rate, will stay put. "At present, China needs to keep interest rates stable," said Yu Yongding, a well-known economist in China and a former adviser to the Bank of China. "There is no need to follow the Fed."

The People's Bank of China lowered the one-year deposit rate from 3% to 1.5% six times in 2014 and 2015, but it has not been adjusted since then. At the same time, since December 2015, the US Federal Funds Rate has been raised from 0.25% to 1%, and it is expected to increase by 25 basis points this week. After the Federal Reserve raised interest rates in March, the yield difference between China's 10-year sovereign bonds and US's 10-year treasury bonds decreased from 150 basis points in December 2014 to less than 80 basis points, but it has widened since then.

In addition to China's effective capital controls and strong year-on-year growth in gross domestic product (GDP) — — It reached 6.9% in the first quarter & mdash; — In addition, the People's Bank of China has proved that it can tighten monetary conditions through short-term open market operations.

The day after the Fed raised interest rates in March, the People's Bank of China raised the lending rates of short-term reverse repurchase agreements and medium-term loan facility (MLF) by 10 basis points.

When the Bank of China announced the reasons for these actions at that time, it mentioned the lower real interest rate, the improvement of corporate profitability and the Fed's interest rate hike. After years of deflation, the ex-factory prices of industrial producers, which just turned positive in September last year, rose significantly, making it easier for enterprises to repay the principal and interest of debts.

"China has been able to use other tools recently," Yu Yongding said. He added that the expected Fed rate hike had already been revealed to the market. "This move will not have much market impact."

According to officials of the Bank of China, the interest rates facilitated by reverse repurchase agreements and medium-term loans are more effective than expected, because the yield curves of 5-year and 10-year China government bonds reversed for the first time in April, while the issuance of corporate bonds fell to a record low in May. Last month, the net financing amount of corporate bonds was negative 217 billion yuan, because the amount of bonds due far exceeded the new issuance.

"Bank of China officials are very worried that the decline in bond issuance will affect economic growth," said a person familiar with the internal considerations of the People's Bank of China.

"China's short-term interest rates have risen a lot, and (stricter) financial regulation means that the financial situation has actually been tightened," Andrew Batson, head of China research at Gavekal Dragonomics, wrote in a recent briefing. "The Bank of China is unlikely to be eager to see interest rates rise further."

The effectiveness of China's capital controls (tightening the examination of companies and individuals' purchase of foreign exchange or overseas remittance) has given the Bank of China another reason to be less worried about the US interest rate hike. For most of this year, the exchange rate of RMB against the US dollar has remained around 1 US dollar against 6.9 yuan RMB, but since the end of last month, the exchange rate of RMB has risen by 1.4%, which is an unusual surge for the carefully managed RMB.

As a result, Andrew Polk of Trivium, a Beijing-based consulting firm, said, "the Bank of China has guided the expectations of the outside world to rise". At the end of last year, many analysts predicted that the RMB would fall to at least 1 US dollar against 7.3 yuan RMB.

Originally, if the RMB weakened, it would inevitably aggravate bilateral trade tensions. The turmoil since Trump took office for several months has also supported the strength of the RMB. Expectations for the Trump administration's ability to deliver on tax reform and infrastructure stimulus measures have been lowered, which has weakened the dollar. Since January this year, the exchange rate of the US dollar against the euro has fallen by nearly 8%.
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