The Bank of Japan did its bit for Sino-Japanese relations on Wednesday by publishing a paper which calls on Chinese policymakers to do what Tokyo did in the 1970s and rebalance their economy.
Accordingly to the paper, written by two BoJ economists, Chinese growth has relied too heavily on investment. This has meant that workers have failed to get their fair share of the spoils from rising profits. It has also limited job creation in urban areas and contributed to a decline in productivity growth. Plus it’s bad for the environment.
So what is to be done? There are two lessons to be learnt from Japan. Read more
Large Chinese lenders will need to keep a fifth of their deposits with the central bank from March 25, after the People’s Bank of China announced an increase in reserve requirements. Individual banks that are lending too much might be targeted with further specific measures. Small-medium banks are probably now required to hold 16.5 per cent of loans, though, as ever, this is unclear from the Bank’s statement.
Domestic inflation seems a much likelier explanation for the recent appreciation of the yuan than American pressure. Many commentators have referred to the Chinese “bowing to pressure” or otherwise implied that the authorities have – without apparent trigger – capitulated to Western pressure. A quick look at the timing suggests otherwise. China is in the middle of a tightening extravaganza, raising interest rates and reserve requirements to tackle inflation. A strengthening yuan can have exactly the same effect, by making imports cheaper. Timing is only circumstantial evidence, of course, but it is something. 
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