The Influences Of The US Quantitative Easing Monetary Policy On China’s Economy

Quantitative easing (QE) is a monetary policy and was first used by Japan in thepractice in2001. Faced with the constraints of Zero Interest Policy and theinefficiency of the traditional easing monetary policy, quantitative monetaryexpansion inject sufficient liquidity into the whole financial system, in order tostimulate economic recovery. Since the end of2008, in order to maintain the stabilityof financial system, the United States had implemented two rounds of quantitativeeasing policy. The quantitative easing monetary policy implemented by the UnitedStates is no doubt hope to stimulate the U.S. economic recovery, and solve someeconomic imbalances, so as to reduce the pressure of the medium-term andlong-term economic growth. However, The United States is the only superpower ofthe world, and the US dollar is the key currency in today’s international monetarysystem, so that large-scale continuous quantitative easing monetary policy is boundto have profound impact on the world economy. China’s financial market still hassome problems.China is an emerging market country which has a higher rate ofreturn on investment and more investment opportunities, is bound to face a widerange of impact and influence.Based on the existing theoretical research, This paper systematically analyzesthe impact of quantitative easing monetary policy taken by the United States onChina’s economy, since the outbreak of the financial crisis. This paper first analyzesthe background of the US quantitative easing monetary policy.Through thecomparative study of Japan’s "quantitative easing" policy, this paper points out thatthe experiences and lessons of Japan’s loose monetary policy, and analyzes thepositive results achieved by the US quantitative easing monetary policy.After that this paper mainly introduces the influences of the fed’s continuousquantitative easing policy on China’s economy.The US policy quantitative haveimpacts on the Chinese economy mainly from the channels of trade, rising prices and exchange rates. The following have a positive impact: the recovery of the U.S.economy; the growth of domestic consumption which would benefit China’s exportsto the United States. The following have a negative impact: first, the rises ofInternational commodity prices produce a great pressure of imported inflation toChina. Second, due to the inversion of the United States and Chinese interest rates,large amounts of investment capital flow into China, which caused assets turninginto bubbles, and become a major force behind the deterioration of inflationexpectations. We should focus on vigilance caused by the short-term internationalcapital asset bubble, to prevent the market turmoil and even crisis caused by reversalof capital flows. Third, the weakness of the US dollar bring a greater devaluationrisk to China’s huge foreign exchange reserves which have priced in dollars widely.And it also resulted in a greater threat to the security of China’s foreign exchangeassets.In the long run, the solvency risk of the U.S. treasury bonds which is asChina’s foreign exchange reserves major investment gradually increase. This is notconducive to China’s foreign exchange reserves management. And the weakness ofthe US dollar also can give the greater appreciation pressures for RMB, is notconducive to the reform of RMB exchange rate formation mechanism, and also tothe China’s export trade because of the RMB higher real effective exchange rate.Fourth, the spillover effect of US monetary policy weaken the effect of China’scentral bank monetary policy, and create the expected effect of China’smacroeconomic policies can not be brought into full play.The end of this paper gives the proposed countermeasures in the face of such asituation. Response to the U.S. quantitative easing monetary policy, China shouldpay attention to "inside and outside”, including adjusting the structure of exports andmaintaining the basic balance of the external balance of payments; controllinginternal inflation, to prevent the economy from local overheating and undercooling.and China should actively promote the process of internationalization of the RMB.This is also the best method to deal with depreciation of the dollar in the long run.