New | China an increasing source of global shocks, IMF says
IMF says global markets must prepare for volatility emanating from China's reform, with the trigger for future shocks anybody's guess
When the United States sneezes the world catches a cold, goes an old saying in financial markets. The International Monetary Fund could be working on a new credo: when China hiccups, the world shakes.
"If you think about China over the last 10 years or so, it has absorbed many global shocks, and that has helped the global economy in many ways," Shaun Roache, the IMF's resident representative in Hong Kong, said at a Fitch Ratings conference in Hong Kong on Wednesday. "To some extent, China may become the source of some of these shocks. And these shocks should be welcome because they are part of China's adjustment."
Beijing's four trillion yuan (then HK$4.54 trillion) stimulus package in late 2009 was surely welcomed in picking up some demand during the worst days of the global financial crisis.
The new message is that global markets - welcoming or weary - must prepare for the volatility emanating from China's reform process. Some have been felt already but the trigger for bigger shocks to come has economists guessing.
China is experimenting with greater and greater volatility across asset classes, said Andrew Colquhoun, Fitch's head of regional sovereign ratings. More than ever, the domestic dabbling is spilling over into global markets.
In June 2013, the central bank refrained from pumping liquidity into China's interbank market, causing rates to soar and generating panic in China's domestic equities markets while also shaking up market sentiment in the United States and Europe.
Last month when the central bank let the price of the yuan fall by more than 2 per cent to the US dollar over a two-day period, the MSCI All World Index closed down 1 per cent. London's FTSE 100 lost 1.4 per cent the same day and metals prices plummeted.