China: Fed Decision Risks Global Recovery

Friday, 05 Nov 2010 11:58 AM

 

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China said the U.S. Federal Reserve needs to explain this week’s decision to purchase bonds to pump money into the world’s biggest economy or risk undermining the global recovery.

“Many countries are worried about the impact of the policy on their economies,” Vice Foreign Minister Cui Tiankai said at a press briefing in Beijing today. “It would be appropriate for someone to step forward and give us an explanation, otherwise international confidence in the recovery and growth of the global economy might be hurt.”

Cui’s remarks echo concerns raised across Asia as countries brace themselves for stronger currencies and possible asset- price inflation. German Finance Minister Wolfgang Schaeuble yesterday said the U.S. was creating problems for the world and the subject would be raised during next week’s Group of 20 leaders’ summit in Seoul.

Asian stocks rose, with the MSCI Asia Pacific Index climbing for a fifth day, gaining 1.3 percent to 135.07 in Tokyo.

The U.S. “owes us some explanation on their decision on quantitative easing,” Cui said. We hope the U.S. “will adopt a responsible position on that matter,” he said.

‘Missing the Point’

Hours after the Federal Reserve’s Nov. 3 decision to purchase $600 billion of Treasury securities, Chairman Ben S. Bernanke explained in an opinion article for the Washington Post that “this approach eased financial conditions in the past and, so far, looks to be effective again.” He also said that “easier financial conditions will promote economic growth.”

South African Finance Minister Pravin Gordhan expressed disappointment and concern about the measures and criticized the U.S. for acting unilaterally.

“Most of the $600 billion that the Federal Reserve will pump into the U.S.A.’s economy will find its way into the financial markets of emerging-market countries” and strengthen their currencies, Gordhan said in an e-mailed statement today. That will have “devastating consequences for exports.”

Cui also dismissed a U.S. proposal to push for targets to shrink current-account gaps and address global trade imbalances as “missing the point.” Treasury Secretary Timothy F. Geithner has suggested deficit or surplus targets of less than 4 percent of gross domestic product.

“The artificial setting of a numerical target cannot but remind us of the days of a planned economy,” Cui said, adding that the U.S. and China are capable of overcoming difficulties in their relationship.

‘Abnormal’ Capital Flows

Chinese central bank Governor Zhou Xiaochuan said today that while quantitative easing in the U.S. is understandable because of domestic economic conditions, the policy may not be good for the world. Conflicts between the dollar’s role at home and abroad could raise questions about the international monetary system, Zhou said at a forum in Beijing.

Several Asian governments yesterday said the Fed’s expanded monetary stimulus threatened to escalate an inflow of capital into the region. China will seek to limit the effects of “abnormal” capital flows, Zhou said today.

The International Monetary Fund last month urged Asia- Pacific nations to withdraw policy stimulus to head off asset- price pressures, as their world-leading economies draw capital because of low interest rates in the U.S. and other advanced countries.

Chinese central bank adviser Xia Bin said yesterday that Fed quantitative easing is “uncontrolled” money printing, and Japan’s Prime Minister Naoto Kan cited the U.S. as pursuing a “weak-dollar policy.” The Hong Kong Monetary Authority warned the city’s property prices could surge and Malaysia’s central bank chief said nations are prepared to act jointly on capital flows.

Goldman Sachs Group Inc. this week raised its 12-month target for Hong Kong’s Hang Seng Index of equities, saying the city has the most to gain from extra liquidity released by quantitative easing programs and China’s growth.

© Copyright 2014 Bloomberg News. All rights reserved.

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