China upbeat on growth and ability to manage risks

Chinese Premier Li Keqiang delivering a message relayed on video screens to delegates at the G20 Finance Ministers and Central Bank Governors meeting on Feb 26, 2016.
Chinese Premier Li Keqiang delivering a message relayed on video screens to delegates at the G20 Finance Ministers and Central Bank Governors meeting on Feb 26, 2016. PHOTO: AFP

Top economic officials strike positive tone at G-20 meeting amid concerns over slowdown

China says it is seeing positive signs for growth this year and has policy room and tools to manage potential risks, seeking to allay concerns over the impact of its economic slowdown and volatility on the world economy as it hosts finance chiefs from the Group of 20 nations.

Speaking at a conference on the sidelines of the G-20 meeting opening yesterday in Shanghai, China's central bank chief Zhou Xiaochuan also said normalcy will return to its currency and financial markets, thanks to strong fundamentals in the world's No. 2 economy.

"Short-term market volatility will give way to economic fundamentals. The market is sometimes more influenced by short-term factors," he said at the conference organised by the Institute of International Finance (IIF).

The People's Bank of China governor also said China's economic structure and quality has been improving under the "new normal", referring to the policy of enduring slower growth to move to a more sustainable model driven by consumption and innovation.

"Also, the latest economic data sends a positive signal over growth in 2016," he said, adding that China still has monetary policy space and tools to address potential risks.

The two-day meeting of G-20 finance ministers and central bankers in Shanghai is the first major event in China's year as the G-20's rotating president. Singapore Finance Minister Heng Swee Keat is expected to speak today.

Speaking at the G-20 opening, Chinese Finance Minister Lou Jiwei said China needed to improve its regulatory environment to boost business growth, but added that China has fiscal space to act and plans to expand its deficit. "Luckily, the Chinese economy has the policy space, and also a lot of tough issues ahead of us, so we will do our best to move forward the reform process."

The group is expected to release a joint communique today, declaring its readiness to take action if economic conditions worsen.

A key factor swaying global conditions is the state of China's economy, which this year is set to register its slowest growth since 1990.

It has also worried the world with two stock market routs since last August and a weakening yuan amid capital outflows.

International Monetary Fund (IMF) chief Christine Lagarde, speaking at the G-20 opening, said China's large capital outflows - ranging between US$500 billion (S$700 billion) and US$1 trillion last year - have posed risks to the global economy.

Chinese officials yesterday acknowledged weaknesses in China's financial system as they reiterated assurances over its economy.

Speaking at the opening, Chinese Finance Minister Lou Jiwei said China needed to improve its regulatory environment to boost business growth, but added that China has fiscal space to act and plans to expand its deficit. "Luckily, the Chinese economy has the policy space, and also a lot of tough issues ahead of us, so we will do our best to move forward the reform process."

Addressing concerns of other economies at a press conference, Mr Zhou pledged that China would not resort to competitive depreciation of the yuan "to boost our advantage in exports".

Several G-20 finance chiefs yesterday voiced the need for greater policy coordination to prevent negative spillover effects.

Bank of England governor Mark Carney said there was a need for domestic and international policy coordination as central banks were unable to boost global economic growth on their own.

Separately, the Organisation for Economic Cooperation and Development (OECD), a group of 34 economies, in a forecast of 2016 growth yesterday, urged the G-20 to draft an urgent, coordinated policy response to boost global growth.

Echoing calls from the IMF for a coordinated stimulus response, OECD chief economist Catherine Mann wrote: "Getting back to healthy and inclusive growth calls for urgent policy response, drawing on monetary, fiscal and structural policies working together."

But G-20 nations yesterday downplayed the need for more policy stimulus, such as interest rate cuts.

Speaking at the IIF conference, German Finance Minister Wolfgang Schaeuble said the debt-financed growth model has reached its limits. "It is even causing new problems, raising debt, causing bubbles and excessive risk-taking, zombifying the economy," he said.

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A version of this article appeared in the print edition of The Straits Times on February 27, 2016, with the headline 'China upbeat on growth and ability to manage risks'. Print Edition | Subscribe