While the US is probably not as displeased with the UK about this latest trip to China than it was with the UK’s decision to join the AIIB, which many perceive as a challenger to the World Bank, it is probably safe to say that it doesn’t warm the cockles of their heart. Eespecially coming, as it does, a few days after the US Federal Open Market Committee’s decision to keep interest rates on hold, largely as a result of external factors – in particular the August’s volatility engendered by Chinese growth concerns.
As my colleague Alex Sebastian argued on Friday, the decision to include external considerations in its monetary policy decision sets a dangerous precedent for the US as it is arguably the first time such a thing has occurred. And, it serves to highlight once more just how important China now is.
Tom Beckett, CIO at Psigma, put it even more bluntly in a commentary on Monday saying the firm believes that the Fed will achieve the necessary confidence levels to boost rates later this year because China, Dr Yellen’s preeminent current concern, should start to see a cyclical economic upswing into the year end.
“This view was confirmed by two meetings with China specialists last week, who (sadly for them) shared our view that an amelioration in the property market and enhanced infrastructure spending will provide a timely, if temporary boost. A ‘wag’ in the office asked me on Friday if this meant that China was now in de facto control of US monetary policy; I replied that it was only fair given they own the whole of the US Treasury market.”
While the last comment may be tongue in check, given the manner in which markets cowered at the prospects of slowing Chinese growth, it is no wonder that the UK seems to be hedging its bets somewhat and backing two runners in this race.
The US may well be closest to raising interest rates in the short term, there is no doubt that we are moving from a unipolar to a multipolar world. And, in a few years’ time the recent volatility and the seismic shifts in global economic power that are behind it may well be viewed as the clumsiest passing of a baton since the 2008 Olympics.
