Ministers and central bank heads from the world’s top 20 economies yesterday sought to bolster market confidence in the global economy, despite mounting alarm about the fallout from China’s slowdown.
Also preoccupying the economic supremos from the G20 was the monetary policy of the US Federal Reserve, with economists warning a rate rise at its next meeting later this month could deal a heavy blow to emerging markets already mired in trouble and, in some cases, recession.
China rattled markets in the middle of last month with a sudden devaluation of its currency, amplifying concerns about its slowing growth and leading to panic selling on markets.
Photo: Reuters
Sources close to the talks told reporters that it is highly improbable China will be specifically mentioned in the final communique — which was to be published after press time last night — after two days of talks in Ankara.
US Secretary of the Treasury Jack Lew pressed his Chinese counterpart on the sidelines of the meeting to improve communication of economic policy and refrain from “competitive devaluation” of its currency to gain advantages for Chinese exporters.
In a strongly worded statement, a US treasury spokesperson said Lew also noted that it was important for China to signal that it will allow market pressures to drive the yuan “up as well as down.”
Indicating the issue would dominate Chinese President Xi Jinping’s (習近平) visit to Washington later this month, Lew said his trip would “be an opportunity to make progress on issues vital to our economic relationship.”
The Chinese central bank on Aug. 11 devalued the yuan by nearly 2 percent, surprising markets and raising concerns about the effects of China’s economic slowdown.
In Ankara, People’s Bank of China (PBOC) Governor Zhou Xiaochuan (周小川) told the meeting that a stock-market bubble in his country had “burst,” according to Japanese Minister of Finance Taro Aso.
Another official at the talks said Beijing had presented the nation’s situation as a new normal.
“It wasn’t enough,” Aso told reporters. “They may have tried to be constructive, but they weren’t detailed enough.”
Aso said he was left dissatisfied by the discussion.
He told reporters it had not been constructive, though Canadian Minister of Finance Joe Oliver said the exchange was encouraging.
“China is definitely trying to play a constructive role,” Oliver said in an interview. “It is the second-largest economy in the world and so when it slows down, it has global implications. That is I think what we are dealing with.”
China’s decision to revalue the yuan as it tried to contain the stock market turmoil caused the currency to drop the most in 21 years, triggering exchange-rate declines elsewhere in the emerging world on concern a weaker yuan would hurt countries exporting to China.
“No one can predict exactly on the market volatility, but I’m confident that the renminbi exchange rate will be more or less stable around the equilibrium level,” PBOC Deputy Governor Yi Gang (易綱) said in an interview as he went into Friday’s session. “The Chinese economy’s fundamentals are fine.”
A long shadow has been cast by uncertainty over the monetary policy of the Fed, which has held its benchmark federal funds rate at zero since 2008 to support the US economy’s recovery from a recession.
While economists say the robustness of the US economy could justify a rate hike, the so-called lift-off from zero would suck up liquidity badly need by troubled emerging markets. Key emerging markets are already in severe trouble, in particular Brazil and Russia.
The Institute of International Finance, a global association of financial institutions, said the recent decline in equity and currency values in several emerging markets “has reached crisis proportions.”
Even if the Fed were to postpone the mooted rate hike until later this year “it would provide only short-term relief,” it added.
The Financial Times reported yesterday that the final G20 communique would strike a “reassuring” note and even forecast an increase in global growth.
An official taking part in the discussions said that the communique would be “realistic.”
A source close to the negotiations indicated there had been a degree of discord over the tone of the communique at the meeting.
Washington was keen on a statement with an optimistic tone but the IMF was more prudent and some emerging markets did not even want there to be mention of a global economic “recovery,” the source said.
Additional reporting by Bloomberg
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