Brexit fears in and China worries out for G20 finance chiefs’ meeting in Chengdu

There has been a world of change since finance ministers and central bankers from the world’s biggest 20 economies met in Shanghai in February. Aside from the failed coup in Turkey and the terror attack in Nice, Britain voted to leave the European Union, Japan raised the prospect of renewed easing, and banking risks stalked Italy. But the Chinese hosts of this weekend’s meeting in Chengdu of G20 finance chiefs and central bankers, led by People’s Bank of China governor Zhou Xiaochuan and Finance Minister Lou Jiwei, would probably find it a bit easier to chair the talk-fest than they did five months ago, when fears about China growth and its currency were intense, analysts said. While the global economic outlook remains gloomy despite February’s joint pledge by member countries to use fiscal, monetary and structural policies, China has been doing quite well. The International Monetary Fund revised down global growth forecasts but ticked up its China estimates. China’s Premier Li Keqiang to host talks with global trade and finance leaders before G20 central bank governors’ meeting The gathering in Chengdu, an inland city best known for its spicy food and giant pandas, is expected to target ongoing economic issues in the global economy. At the top of the list would be the implications of Brexit for Britain, the European Union, and the rest of the world, said Scott Kennedy, a China project director at the Washington-based Centre for Strategic and International Studies. The yuan fears that roiled global markets late last year and early this year “have largely fallen silent”, and concerns about massive capital outflows, stock market volatility and imminent financial crisis had ebbed, Kennedy said. Most people are pretty comfortable about the China outlook Tim Condon, ING Tim Condon, head of Asian research at ING in Singapore, said China was “off the radar screen” and Chinese officials could “get through this meeting without having to stand up to reassure the rest of the world that everything is OK in Beijing and China”. “At this point, especially after last week’s [China second-quarter economic] data, most people are pretty comfortable about the China outlook,” Condon said. “People are not looking at China as a source of anxiety. People are looking at Europe, at Japan … at Brexit.” Despite lingering structural problems of overcapacity and debt, China reported 6.7 per cent growth for the second quarter, the same pace as in the first quarter. And while the Chinese currency has weakened against the US dollar by about 2.5 per cent since the February G20 meeting, there’s little sign of panic. In fact, China’s foreign exchange reserves grew last month. Global economic growth prospects gloomy, commerce minister tells G20 trade leaders meeting And the International Monetary Fund on Wednesday revised down economic growth forecasts for Britain, the United States and Japan this year, but it raised its growth forecast for China. Chengdu will be the first gathering of global finance chiefs since the shock Brexit vote a month ago, and the focus this time will be “implications and possible policy response” of the referendum, China International Capital Corp economists Yu Xiangrong and Liang Hong wrote in a research note. On the exchange rate front, the gathering was likely to underscore the previously agreed common policy of “no competitive devaluation”, they wrote. And, in light of the G20 summit in Hangzhou in September and the yuan’s formal inclusion into the IMF’s Special Drawing Rights basket in October, China was unlikely to permit any significant yuan depreciation to rock the boat. The G20 is an emerging platform for global governance but it has no binding power over its members and does not have a secretariat, making it hard to generate concrete action. Because monetary policies are hitting the limits … there will likely be a general shift in focus back to fiscal stimulus Stephen Li Jen Stephen Li Jen, managing partner at London-based research firm and hedge fund SLJ Macro Partners, said Brexit and associated risks, as well as the exhaustion of monetary policy easing might give some countries an “excuse” to be more aggressive on fiscal stimulus. “Because monetary policies are hitting the limits … there will likely be a general shift in focus back to fiscal stimulus,” Jen said. Even if there was a trend of more countries opting for stimulus, it did not change the fact that “the G20 is terrible at coordinating with each other”, he said. “The membership is simply too big and broad for genuine policy coordination,” Jen said. In Shanghai, G20 to mount multifront attack on global trade slump Louis Kuijs, head of Asia economics at Oxford Economics in Hong Kong, said Chengdu was worth watching for the light it might shed on “what should we expect from things like Brexit and what policy steps” should be taken. “It’s still quite useful just to talk and explain as there’s a lot of misunderstanding about economic policy and economic development in other countries … [Policymakers] still find it worth to actually attending such meetings because talking helps – even it doesn’t lead to anything concrete,” Kuijs said.