India must be prepared for the development of a two-speed world

A recent blog by multilateral financial institution International Monetary Fund alerted emerging economies to impending volatility as the US Fed begins to tighten its monetary policy. Some Wall Street banks also expect the Fed to accelerate rate hikes to offset rising inflation expectations. The World Bank’s flagship report, Global Economic Prospects, also has a note of warning: “[Emerging market and developing economy] Policymakers also face the challenges of increased inflationary pressures, spill-overs from potential advanced-economy monetary tightness and a constrained fiscal space.”

The world has a reason to be okay with the Fed’s strong intentions. The effects of the wave could affect markets and economies, especially those left vulnerable and vulnerable to the economic shock of the pandemic. Still, people are paying little attention to another set of signals emanating from China’s central bank, the People’s Bank of China (PBOC), which has expressed its desire to move in the opposite direction and actually loosen its monetary policy. is indicated. While opinions may differ on the extent to which PBOC policies will affect the global economy, India should be prepared for a two-pronged global economy: a tightening by the US Fed and a gradual Chinese loosening.

PBOCs began December by reducing reserves, which banks are required to hold by 50 basis points (its second during the year) with the central bank, which released additional liquidity into the system, followed by a 5-basis-points increase in benchmarks. was cut. Injecting additional liquidity through lending rates and then market operations. Result: Commercial banks were forced to reduce lending rates. New bank credit in China touched 19.95 trillion yuan, or $3.1 trillion, during 2021, more than the UK GDP. China watchers expect some more PBOC action this year. What size this will be is anyone’s guess, but the PBOC sent a clear message at its 2022 work conference: “Using multiple monetary policy tools, [PBOC] Maintain adequate liquidity at reasonable levels, ensure steady growth of aggregate credit, increase support for the real economy, and keep money supply (M2) growth and overall financing for the real economy (AFRE) generally consistent . nominal GDP growth…and keep the exchange rate basically stable at an adaptive and equilibrium level.”

The question is, should India worry about China’s moves or should it focus only on the US Fed? One thing to note here: Despite all the rhetoric, China is one of India’s major trading partners, sometimes the largest and sometimes second only to the US. This is not going to change anytime soon and China’s rate action is only making money cheaper for its manufacturing sector. Therefore, it might make sense to have a look at the Beijing headquarters of the PBOC.

The decisive move by China’s central bank sends a deep signal of its willingness to move in completely opposite directions from other advanced economies if its actions benefit citizens.

Increasingly, China’s conflicting moves point to a desire to position itself as another pole that has effectively become a unipolar world. China appears eager to step into the void created by the break-up of the Soviet Union in 1988-91. And although Vladimir Putin is actively seeking a return to former glory for Russia, which is universally acknowledged as a formidable nuclear power, the country’s lack of financial strength stifles Moscow’s aspirations.

In contrast, China’s bold ambitions have been evident for some time now. Consider the March 2021 meeting between the Chinese (represented by top diplomat Yang Jiechi and state councilor Wang Yi) and the US (by Secretary of State Antony Blinken and National Security Adviser Jake Sullivan): an expected diatribe against China’s repression by the US delegation After giving human rights and aggression in international waters, the Chinese side allowed it to last for more than 15 minutes, against the usual protocol of limiting opening statements to two minutes. China’s top diplomat Yang Jiechi called on the US to set its human rights record straight, citing Black Lives Matter, and said the US should stop pushing its version of democracy to the rest of the world: “… The problem is that the United States has long exercised jurisdiction and repression and increased national security through the use of force or financial hegemony, and this has created barriers to normal trade activities, and The United States is also persuading some countries to launch attacks on China.”

Without deciding who was right or wrong, diplomat Yang’s belligerence is indicative of how China might engage with India over a border problem or other sticking points. Perhaps, it makes sense to shift our attention away from the metaverse to the synovers being built in the neighborhood.

Rajrishi Singhal is a policy advisor, journalist and author. His Twitter handle is @rajrishisinghal.