Sat, Nov 06, 2010 page10

• China says US Fed bond move may hurt others

  • AP and AFP, BEIJING
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  China’s central bank chief said yesterday that the US Federal Reserve’s move to inject money into the US economy is understandable because of its slow recovery, but still might hurt the rest of the world.

  Meanwhile, a senior Chinese official yesterday rejected a proposal by US Treasury Secretary Timothy Geithner to set targets to rein in global trade imbalances, ahead of the G20 summit.

  Speaking at a business conference, Chinese central bank Governor Zhou Xiaochuan (周小川) said he would not comment on arguments for or against the Fed’s plan to buy Treasury bonds, but he said the debate highlighted the need for reforming the international financial system.

  

  A bank teller counts stacks of US dollars and yuan at a bank in Huaibei, Anhui Province, on Thursday.

  PHOTO: AFP

  The Fed announced this week that it would sink US$600 billion into government bonds over the next eight months to lower long-term interest rates in an effort to revive economic growth.

  “If the domestic policy is optimal policy for the United States alone, but at the same time it is not an optimal policy for the world, it may bring a lot of negative impact to the world. There is a spill over,” Zhou said.

  “We have to solve this problem by reforming the international currency system,” Zhou said, who gave no details on policy reforms.

  Some governments have expressed concern that lower US interest rates will result in more money flooding into their markets seeking higher returns, pushing up exchange rates and hurting exports by making their goods more expensive.

  Zhou said he understood that the Fed’s mission was to target the health of the US economy, helping to create employment and keeping inflation low.

  “We have a slower recovery of the economy, high unemployment and low inflation. Under these circumstances, from that perspective, when we have a policy for a very low rate that is very close to zero, and for quantitative easing, it is reasonable. We can understand ... under current circumstances, of course,” said Zhou, speaking at a conference organized by Caixin, a leading Chinese business magazine.

  The central bank chief also said China’s controls on capital flows should shield the country from any possible upsurge in speculative “hot money” triggered by the Fed’s move.

  But Chinese Vice Foreign Minister Cui Tiankai (崔天凱) yesterday rejected the US proposal to assign a specific limit for their current account surpluses or deficits — 4 percent of GDP — to rein in global trade imbalances, Dow Jones Newswires reported.

  “The artificial setting of a numerical target cannot but remind us of the days of a planned economy,” Cui said. “We believe a discussion about a current account target misses the whole point. If you look at the global economy, there are many issues that merit more attention — for example, the question of quantitative easing.”

  The comments by Cui, China’s top negotiator on G20 issues, could set the stage for a difficult summit next week in Seoul, with efforts to reduce destabilizing imbalances high on the agenda.
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