News / Asia

Ahead of G20, China Urges Caution in Fed Policy Tapering

China's Vice Finance Minister Zhu Guangyao (file photo)
China's Vice Finance Minister Zhu Guangyao (file photo)
Reuters
— The U.S. Federal Reserve must consider when and how fast it unwinds its economic stimulus to avoid harming emerging markets, although the impact on China could be more limited compared with some other countries, senior Chinese officials said on Tuesday.

The warning by China's Vice Finance Minister Zhu Guangyao and central bank Vice Governor Yi Gang came as economies from Brazil to Indonesia struggle to cope with capital flight as U.S. interest rates rise ahead of an expected tapering off in the Fed's bond buying program that unleashed liquidity across the world.

“The U.S. economy is showing some positive signs and is recovering gradually and we welcome this,” Zhu told a briefing ahead of G20 leaders' summit in Russia next week.

“But the United States - the main currency issuing country - must consider the spill-over effect of its monetary policy, especially the opportunity and rhythm of its exit from the ultra-loose monetary policy,” Zhu said.

Apart from being a leading emerging market, China has a major stake in the direction of Fed policy as one of the biggest creditors to the United States. A substantial portion of its foreign exchange reserves - the world's biggest by far at some $3.5 trillion - are invested in U.S. government, agency and corporate debt.

Financial markets are fretting that the U.S. Fed might decide to reduce its monthly bond buying when it meets on Sept 17 and 18. Fed Chairman Ben Bernanke said in June the bond buying program could be halted by the middle of 2014.

The prospects of the Fed reining in its stimulus comes as China's economic growth slows down to its weakest pace in two decades, partly as the government tries to reduce its reliance on exports in favor of domestic consumption.

Zhu said China faced a severe economic environment at home and abroad, but it would keep economic policies stable.

China will refrain from providing fresh stimulus and he predicted the economy was on track to grow around 7.5 percent this year - in line with the government's target.

The government will instead quicken structural adjustments, including efforts to reduce with factory overcapacity, he said.

Speaking at the briefing ahead of the G20 meeting in St Petersburg on Sept 5 and 6, Vice Governor Yi Gang said how nations might cope as developed economies tighten monetary policy will be a focus of the G20 meeting.

“On monetary policy, the focal point [of G20] will be on how to minimize the external impact when major developed countries exit or gradually exit quantitative easing, especially causing volatile capital flows in emerging markets and putting pressures on emerging-market currencies,” Yi said.

“The impact on China will not be obvious compared to other emerging economies - the yuan will be stable and monetary policy will be stable,” he said.

Analysts said Yi was probably referring to China's capital controls and its foreign currency reserves, which provide cushions against economic shocks.

“Not only China has capital controls, it also has piles of FX reserves and current account surplus, these are the advantages for China to weather the Fed tapering,” said Minggao Shen, China economist at Citigroup in Hong Kong.

China keeps a tight grip on capital account transactions, but there are many loopholes, especially through trade flows, analysts say. So China's economy could face some pressure from capital outflows, they say.

A $100 billion foreign-currency fund being discussed by countries that make up the BRICS grouping of Brazil, Russia, India, China and South Africa will be set up in the foreseeable future, Yi said, adding that China would provide “a big share” of the funds but he did not give details.

“It will not exceed 50 percent,” he said.

The BRICS' leaders have agreed to set up the fund to help ward off currency crises. It is expected to be formally launched at a BRICS summit in Brazil next year.

You May Like

Diplomats Work to Extend Israeli-Palestinian Cease-Fire

US Secretary of State John Kerry, diplomats from France, Britain, Germany, Italy, Turkey and Qatar gathered in Paris Saturday to discuss crisis More

Photogallery US Defense Department Warns of Arms to Eastern Ukraine

‘Imminent’ delivery of Russian rocket launcher poses threat to civilians, US says More

Video Researchers: Africa Genetically Modified Crops Held Back by Scaremongering

GM crops offer best hope of increasing productivity and coping with climate change in Africa, according to co-author of Chatham House report More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Astronauts Train in Underwater Labi
X
George Putic
July 25, 2014 7:25 PM
In the world’s only underwater laboratory, four U.S. astronauts train for a planned visit to an asteroid. The lab - called Aquarius- is located five kilometers off Key Largo, in southern Florida. Living in close quarters and making excursions only into the surrounding ocean, they try to simulate the daily routine of a crew that will someday travel to collect samples of a rock orbiting far away from earth. VOA’s George Putic has more.
Video

Video Astronauts Train in Underwater Lab

In the world’s only underwater laboratory, four U.S. astronauts train for a planned visit to an asteroid. The lab - called Aquarius- is located five kilometers off Key Largo, in southern Florida. Living in close quarters and making excursions only into the surrounding ocean, they try to simulate the daily routine of a crew that will someday travel to collect samples of a rock orbiting far away from earth. VOA’s George Putic has more.
Video

Video Not Even Monks Spared From Thailand’s Junta-Backed Morality Push

With Thailand’s military government firmly in control after May’s bloodless coup, authorities are carrying out plans they say are aimed at restoring discipline, morality and patriotism to all Thais. The measures include a crackdown on illegal gambling, education reforms to promote students’ moral development, and a new 24-hour phone hotline for citizens to report misbehaving monks. Steve Sandford reports from Bangkok.
Video

Video Virtual Program Teaches Farming Skills

In a fast-changing world beset by unpredictable climate conditions, farmers cannot afford to ignore new technology. Researchers in Australia are developing an online virtual world program to share information about climate change and more sustainable farming techniques for sugar cane growers. As VOA's Zlatica Hoke reports, the idea is to create a wider support network for farmers.
Video

Video Airline Expert: Missile will Show Signature on Debris

The debris field from Malaysia Airlines Flight 17 is spread over a 21-kilometer radius in eastern Ukraine. It is expected to take investigators months to sort through the airplane pieces to learn about the missile that brought down the jetliner and who fired it. VOAs Carolyn Presutti explains how this work will be done.
Video

Video Treatment for Childhood Epilepsy Heats up Medical Marijuana Debate

In the United States, marijuana is classed as an illegal drug by the federal government. But nearly half the states have legalized it, to some degree. Proponents say some strains of marijuana might have exceptional health benefits, for treating pain or inflammation in chronic conditions such as cancer, multiple sclerosis and epilepsy. Shelley Schlender reports on a strain of medical marijuana developed in Colorado that is reputed to reduce seizures in childhood epilepsy
Video

Video Airbus Adds Metal 3D Printed Parts to New Jets

By the end of this year, European aircraft manufacturing consortium Airbus plans to deliver the first of its new, extra-wide-body passenger jets, the A350-XWB. Among other technological innovations, the new plane will also incorporate metal parts made in a 3-D printer. VOA's George Putic has more.
Video

Video AIDS Conference Welcomes Exciting Developments in HIV Treatment, Prevention

Significant strides have been made in recent years toward the treatment and prevention of HIV, the virus that causes AIDS. This year, at the International AIDS Conference, the AIDS community welcomed progress on a new pill that may prevent transmission of the deadly virus. VOA’s Anita Powell reports from Melbourne, Australia.
Video

Video IAEA: Iran Turns its Enriched Uranium Into Less Harmful Form

Iran has converted its stockpiles of enriched uranium into a less dangerous form that is more difficult to use for nuclear weapons, according to the United Nations’ Atomic Energy Agency. The move complies with an interim deal reached with Western powers on Iran's nuclear program last year, in exchange for easing of sanctions. Henry Ridgwell reports for VOA from London.

AppleAndroid