China Govt Econ Attacks Fed's Q.E., Warns Dlr Fall To Hurt

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.