BEIJING (MNI) – A Chinese government economist has lashed out at
the Federal Reserve’s latest quantitative easing move, arguing that an
influx of more dollar liquidity into the world economy will threaten its
recovery, trigger currency wars and flood emerging markets with
inflationary inflows.

Pan Zhengyan, an economist with the Shanghai branch of the Chinese
Academy of Social Sciences, said in an opinion piece published in
Thursday’s Shanghai Securities News said that further easing will lead
to fresh dollar depreciation.

“Dollar depreciation and dollar asset depreciation will attract
more funds into commodoties and resources causing a new round of price
increases in commodities and will have a large, negative impact on the
global economic recovery,” he said.

Chinese government economists have been vocal in their attacks on
monetary easing by the advanced economies, particularly the U.S. and
Japan.

Officials have been more guarded and there has been little public
commentary about the latest U.S. quantitative easing measure during the
build up to the Fed’s announcement of a fresh $600 billion in Treasury
purchases on Wednesday.

Pan’s criticisms were in line with concerns expressed over the
years by senior officials with responsibility for the domestic economy,
from Premier Wen Jiabao on down, but also reflected concerns among
emerging market officials about the impact of capital inflows in search
of yield.

“It will cause worldwide currency wars. The dollar isn’t only
flowing into the euro and commodities, but also to emergiing countries,”
he said.

“This will force countries like Korea, India and Thailand to face
the risks of controlling hot money inflows. It’s unknown if emerging
economies can defend themselves from the attack of extra dollar
liquidity,” he said.

The World Bank repeated its long-standing call Wednesday for China
to increase exchange rate flexibility, but qualified that call with a
warning that further flexibility may be inadequate.

“More exchange rate flexibility would help in detering capital
flows, although recent experience in emerging markets shows that
flexible exchange rates by themselves may not deter such inflows
sufficiently,” it said.

The People’s Bank of China warned in its latest monetary policy
report Tuesday of the risks from further easing by the advanced
economies.

beijing@marketnews.com
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