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China on Global Crash:
Something `We Never Experienced Before'

March 6, 2008 (EIRNS)—China is faced with economic and financial challenges the nation "never expected and experienced before," PBOC Zhou Xiaochuan emphasized several times during today's economic press conference in Beijing. One key issue will be the effects of Washington's inflationary reaction to the crisis, and the effect this will have on the world, and China itself, which is already urgently trying to curb excessive liquidity. China must watch this closely, Zhou said, since the "impact will go far beyond our experience and existing knowledge."

During the press conference, broadcast on China's official CCTV, Zhou spoke about to the "U.S. subprime crisis," in answer to journalists' questions, but said that the problem is much wider. "There will be further indirect impact from the U.S. subprime mortgage crisis on China's economy in the future. It cannot be underestimated, since what lies ahead is far beyond [our] previous experience," Zhou said.

Even on the subprime collapse itself, "We are not aware of the whole picture," Zhou said. While the direct effect of subprime investment losses on China's own banks is containable, there are much bigger ramifications. What happens in the U.S. will affect world trade, and this will have an impact on China, including via trade with Europe. U.S. measures "against the downturn," such as its "expansionary" [i.e., inflationary] monetary policy and interest rate cuts, are going to affect China and its own policies. If the excessive liquidity in the global financial system "gets worse," this will affect China, he said. China is already urgently trying to curb excessive liquidity, a lot of which comes from its huge trade surplus with the U.S. "We have to monitor the situation," Zhou said. "We need to understand it. Many impacts will go far beyond our experiences and existing knowledge."

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