BNY Mellon Fixed Income Manager Sees Currency Appreciation, Higher Inflation, Faster Wage Growth Affecting Competitivenes

LONDON and NEW YORK, January 19, 2012 — China's best plan for sustaining high growth rates would be to transition from its export-led growth model to one driven by consumption, according to a white paper by Standish Mellon Asset Management Co. LLC, the fixed income specialist for BNY Mellon Asset Management.

The report notes that China's economic success has sustainable roots, including high domestic savings, strong foreign direct investment, and general openness to international trade.  Other factors in China's favor cited by the report include low labor costs, a relatively strong central government balance sheet, and an entrepreneurial culture.

However, the report also makes clear that the population is aging and the surplus of labor is gradually disappearing.  In addition, the report points to rising wages, which could impact China's export competitiveness versus its Southeast Asian neighbors.  According to Thomas D. Higgins, global macro strategist and an author of the report, other factors that might slow down China's export-driven economy include its relatively immature financial markets, allocation of capital by state agencies instead of the markets, and the rising environmental costs of rapid growth.

"China has attempted to address its challenges by rebalancing the economy away from exports and investment and toward consumer spending," said Edward Ladd, chairman emeritus of Standish and a co-author of the report.  "It also has introduced financial reforms aimed at gradually liberalizing interest rates and increasing the flexibility of the exchange rate.  Progress on these fronts has been challenging, while the old growth model based on export and investment is becoming less viable."

One key factor that could increase the emphasis on consumer spending would be expanding the social safety net, increasing the probability that households will not need to save as much for retirement income and healthcare as the population ages, the report said.  The transition to a new country leadership, expected to happen in 2012, also could set the tone for future policies, according to Standish.

Copies of the report are available at: http://us.bnymellonam.com/core/library/documents/knowledge/Viewpoints/sStandishChina.pdf

Standish Mellon Asset Management Company LLC, with approximately $86 billion of assets under management, provides investment management services across a broad spectrum of fixed income asset classes. These include corporate credit (investment-grade and high-yield), emerging markets debt (dollar-denominated and local currency), core / core plus and opportunistic (U.S. and global) strategies.  Standish also offers full service capabilities in Insurance and liability driven investing. The firm also includes assets managed by Standish personnel acting as dual officers of The Dreyfus Corporation and The Bank of New York Mellon.

BNY Mellon Asset Management is one of the world's leading asset management organizations, encompassing BNY Mellon's affiliated investment management firms and global distribution companies. Information about BNY Mellon Asset Management can be found at www.bnymellonam.com.

BNY Mellon is a global financial services company focused on helping clients manage and service their financial assets, operating in 36 countries and serving more than 100 markets.  BNY Mellon is a leading provider of financial services for institutions, corporations and high-net-worth individuals, offering superior investment management and investment services through a worldwide client-focused team.  It has $25.8 trillion in assets under custody and administration and $1.26 trillion in assets under management, services $11.8 trillion in outstanding debt and processes global payments averaging $1.5 trillion per day.  BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK).  Additional information is available at www.bnymellon.com and through Twitter@bnymellon.

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