While the United States Federal Reserve took decisive action to revitalize its financial markets, economists in China viewed such moves more gloomily and said the trough is yet to come.
The Fed announced late Sunday several steps to deal with the worst credit crunch in decades, including broadening the types of assets that can be put up as collateral to get emergency lending.
The Fed also raised the frequency of some auctions being used to get loans to banks from every other week to weekly.
"At first glance it means the Fed is taking action to add liquidity to the financial markets," said Lu Zhengwei, chief economist at Industrial Bank, yesterday. "However, I really doubt the actual impact of such moves in the short term. It means a signal that the worst time is yet to come rather than offering a quick dose of recovery."
The moves came as Lehman Brothers, one of the largest and oldest US investment banks on Wall Street, filed for bankruptcy protection. Merrill Lynch, another Wall Street titan, offered itself in a fire sale to rival Bank of America. AIG, the insurance giant, is planning to sell some major assets in the thirst for capital.
The triple whammy came just one week after the US Treasury confirmed it was taking control of American mortgage agencies Fannie Mae and Freddie Mac.
"The previous recovery attempts had little impact for a real turnaround and the latest move may not be an exception," Lu said. "For the US economy, the worst time is yet to come. What's worse, the downturn is not restricted in the States."
The snowball is growing – contraction concerns are uppermost in the major economies including the European Union, Japan and the United Kingdom.
Japan's economy shrank 3 percent last quarter, the steepest contraction since 2001, while Europe is also teetering on brink of recession.
"Can China stay away from the slowdown of its major trade partners? I don't think it is the case," said Lu.
Lu also said the rise in China's domestic demand is very likely to ease under the current circumstances, a view backed by Hua Qi, an investment consultant with an overseas firm in Shanghai.
"The implication of the US financial turmoil is that the credit crisis is yet to come to an end," said Hua. "Hold back on your investment plans, no matter stock or real estate because the worst time is yet to come. The best option may be to put money in banks or buy some bonds," Hua said.
(Xinhua News Agency September 17, 2008)
