Emerging markets should copy China: World Bank chief

Developing nations need to follow Beijing's lead and apply economic reforms, says Jim Yong Kim

PUBLISHED : Thursday, 19 September, 2013, 12:00am
UPDATED : Tuesday, 23 January, 2018, 11:45am

World Bank president Jim Yong Kim has urged emerging-market economies to emulate Beijing's reform drive despite the risk of rising volatility as the US Federal Reserve begins to scale back its US$2.8 trillion quantitative easing programme.

"We would say now it's really a good time to move forward on reforms," Kim said in Beijing yesterday.

"Despite volatility in emerging markets and increasing interest rates, the Chinese government has made it clear it would continue with reforms. This is precisely what emerging markets should do."

Expectations that the Fed will begin to taper quantitative easing, introduced to revive an American economy devastated by the 2008 financial crisis, have raised the US treasury yield curve by about 100 basis points in recent months, raising the cost of capital around the world.

On the mainland, money market rates soared at the end of June, partly due to an abrupt drop in capital inflows that coincided with a period of global volatility. The liquidity lock-up saw Beijing push ahead with further interest rate reform, continue to press for industrial restructuring and approve plans for a free-trade zone in Shanghai.

Kim said emerging countries should "think hard" about any weaknesses exposed by tapering, "whether in business environment or fiscal policy", and begin moving on those reforms.

"It often happens when the interest rate is low and there is growth, some countries don't think they need to make reforms," he said. "When things get difficult, they think they can't make reforms."

Beijing announced late last month that a free-trade zone will be set up in Shanghai to spearhead reforms in trade, investment, finance and government administration.

Cai Jinyong, chief executive of the International Finance Corp, the World Bank's private-sector lending arm, said it would be glad to share experience with Beijing in the construction of the zone, and advise clients on investing on the mainland.

"Many financial institutions, especially those from developed countries, are expected to flood to Shanghai once the free-trade zone is in operation," Cai said. "IFC would be glad to offer advisory services for clients to enter the Chinese market."

Together with the World Bank, Beijing is working on a reform blueprint to put China on a stable footing as it seeks to become a wealthy economy and escape the middle-income trap.