Get your house in order, G20 told

PUBLISHED : Saturday, 24 September, 2011, 12:00am
UPDATED : Saturday, 24 September, 2011, 12:00am


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China yesterday urged the major developed economies to deal with their worsening sovereign debt problems after meeting the rest of the BRICS countries in Washington.

The Ministry of Finance also called on the other BRICS countries - Brazil, Russia, India and South Africa - to deepen co-operation in trade, investment and finance as they braced for the challenges and risks emerging in the global economy.

'We should urge major developed countries to maintain financial stability and keep the momentum of economic recovery to strike a balance between realising short-term economic growth and making fiscal system adjustments in the mid- to long term,' the ministry said in a statement on its website.

'Major developed countries should also properly handle the sovereign debt problem and reduce the negative spill-over impact resulting from their policies and channel more global financial resources to developing countries.'

The statement came a day after the G20 major economies issued a statement vowing to 'take all necessary action' to preserve the stability of banking systems and financial markets 'as required'.

The G20 statement, which coincided with the start of the World Bank-IMF annual meetings in Washington, helped to minimise losses on Asian markets.

The Hang Seng Index closed at a 12-month-low, down 1.36 per cent at 17,668.8 after dropping as much as 3 per cent earlier in the day.

In London, the FTSE was up 25.20 points, or 0.5 per cent, at 5,066.81. It ended the week down 5.6 per cent, wiping GBP81 billion (HK$975.34 billion) off its value. Frankfurt stocks were up 0.63 per cent. In the US, the Dow was down 0.09 per cent in afternoon trading, having lost more than 6 per cent this week. The Nasdaq was down 0.6 per cent, and more than 5 per cent for the week.

Emerging economies were given little choice but to support the G20 direction, but there were doubts about the extent the BRICS economies would yield to political pressure to help settle sovereign debt in Europe and the US. China, the world's second-largest economy, is expected to place its domestic needs first.

Societe Generale's chief Asia-Pacific economist, Yao Wei, said China was aware of the need to help ease the crisis. But providing a liquidity boost would complicate issues at home for China, including dealing with inflation and an economic slowdown.

'We expect China to buy European sovereign bonds, though it is not likely to publicly commit to a certain amount,' Yao said.

China is not the only BRICS nation to have qualms about providing funds to stabilise the global financial system. India's central bank has already voiced its concern over the dilemma between the demand for resources at home to reduce poverty, and giving money to a multilateral institution to restore global stability.

Alicia Garcia Herrero, chief economist at BBVA, was more optimistic about BRICS co-operation with the developed countries.

'Everyone is a victim. The sooner that is realised, the better,' she said. 'It is not about the US, Europe, or the G20. It's about the world. It is in nobody's interest, including China, to let this current volatility continue.'


This month's drop in the MSCI Asia Pacific index. The regional measure fell 2.1 per cent yesterday amid fears over Europe's debt crisis