The impact of tight interdependence continues apace in the global economy. Now it’s Europe-China. The eurozone jitters are having a demonstrable impact on China and its economic policy.
What seemed to have been a ‘done deal’ - permitting greater flexibility on the renminbi-dollar exchange rate - appears to now unlikely – at least till the end of the year. The declining value of the euro – in the face of the debt crisis in Europe – has put the China revaluation on hold apparently. A declining euro is putting pressure on Chinese exporters and making Chinese goods less competitive. China experienced for the first time in almost 6 years a trade deficit of some $7.24 billion and officials anticipate a decline in China’s overall surplus of some 30 percent for the coming year.
Meanwhile Germany is flailing over the euro crisis and unilateral actions have both upset markets and angered other euro partners. Germany announced – without apparently any discussion with its partners – that it had banned naked short selling of eurozone sovereign debt and sovereign credit swap instruments. The unexpected announcement appears to have done two things: signaled to the market that things may be worse than most observers thought; and it appears to have angered Germany’s partners who have publicly come out to announce that they were not following suit and banning these trades.
The impact of interdependence shows itself ever more clearly in the global economy.