Will Joe Biden’s US$1.9 trillion ‘American Rescue Plan’ be a boon for China, or could excessive liquidity lead to financial trouble?

Name: China GDP: economy grew by 4.9 per cent in third quarter of 2020
Uploaded: 2021-01-15T14:00:13.000Z
Duration: 1 min 47 s
Description: China GDP: economy grew by 4.9 per cent in third quarter of 2020

Latest US coronavirus stimulus package would put even more liquidity into global economy, and much could end up in China, where investment returns are promising

Analysts say US president-elect’s proposal could further boost Chinese exports, but they also warn of hot money inflows creating dangerous asset bubbles

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Chen Yulu, deputy governor of the People’s Bank of China, says the central bank must stay vigilant as it aims to “strictly prevent and control external financial risks”. Photo: Weibo

Orange WangandAmanda Lee

Published: 10:00pm, 15 Jan 2021Updated: 12:06am, 16 Jan 2021

US President-elect Joe Biden’s newly outlined US$1.9 trillion stimulus package looks to have global implications – prompting China’s central bank to call attention to growing external risks to its economy and that of the world at large.

If Biden’s plan is successful in spurring American growth, analysts say it could eventually increase already strong US demand for Chinese products. But the People’s Bank of China (PBOC) is taking a more cautious outlook.

Responding to questions about the potential impact on China of Biden’s proposed aid package, Chen Yulu, deputy governor of the PBOC, said on Friday that the central bank must stay vigilant as it aims to “strictly prevent and control external financial risks”.

And he went on to outline what he said were three main risks facing the global economy.

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China GDP: economy grew by 4.9 per cent in third quarter of 2020

“One [external risk] is the departure from the fundamentals of the real economy in the international financial market, with increasing volatility. The second [risk] is that, with loose global liquidity, the direction of cross-border [capital] flows is increasingly volatile,” Chen said at a media briefing, referencing speculative “hot money” – short-term investments in financial products that can move out of the country rapidly.

“Third, the pandemic has had an unprecedented impact on the economy, and the debt risk of low-income countries will rise further, which may further affect the progress of the global economic recovery.”

In light of these risks, Chen said, China’s policy focus “is still to adhere to the principle of domestic priority and continue to do our job”, adding that China will maintain continuity in its economic policies, improve the supervision of its financial system, and strengthen coordination with other countries through platforms such as the Group of 20.