China economy

Chinese central bank chief says economic fundamentals are strong

Yi Gang also tells meetings of IMF and World Bank that financial leverage is ‘under control’ as IMF warns trade tensions, debt load threaten world economy

PUBLISHED : Sunday, 22 April, 2018, 6:26pm
UPDATED : Sunday, 22 April, 2018, 10:40pm

China’s economic fundamentals are strong and it has sufficient policy tools to guard against systemic risks, central bank governor Yi Gang said, as the IMF cautioned that the world economy is under threat from trade tensions and heavy debt burdens.

“In 2017, China’s non-financial leverage ratio increased slightly, the corporate leverage ratio declined somewhat and leverage in the financial sector was brought under control,” Yi said on Saturday during annual meetings of the International Monetary Fund and World Bank in Washington, according to Xinhua.

Beijing has prioritised containing financial risks, after years of debt-fuelled growth put China’s economy on what the IMF previously called a “dangerous and unsustainable” trend.

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In statements carried on the People’s Bank of China website, Yi reiterated recently announced measures to open the financial sector, which would “be implemented either in the next few months or by the end of this year”.

The IMF’s policymaking committee said on Saturday that a strong world economy was threatened by increasing tension over trade and countries’ heavy debt burden. Longer-term prospects were clouded by sluggish growth in productivity and ageing populations in wealthy nations.

In a statement at the end of three days of meetings, the lending agency urged countries to take advantage of the broadest-based economic expansion in a decade to cut government debt and to enact reforms that will make their economies more efficient.

The IMF expects the world economy to grow 3.9 per cent this year and next, which would be the strongest since 2011. But an intensifying dispute between the US and China over Beijing’s aggressive attempt to challenge US technological dominance has raised the prospect of a trade war that could drag down worldwide growth.

“Trade tensions are not to the benefit of anyone,” said Lesetja Kganyago, who leads the policymaking committee and is governor of the South African Reserve Bank.

The US has resisted pressure to back off US President Donald Trump’s protectionist America First trade policies.

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Treasury Steven Mnuchin urged the IMF to do more to address what the Trump administration says are unfair trade practices and called on the World Bank to steer cheap loans away from China and towards poorer countries.

Unfair trade policies “impede stronger US and global growth, acting as a persistent drag on the global economy”, Mnuchin said.

He appealed for the IMF to go beyond its traditional role as an emergency lender for countries in financial distress and said it should more closely monitor the practices of countries that persistently run large trade surpluses.

“The IMF must step up to the plate on this issue, providing a more robust voice,” Mnuchin said. “We urge the IMF to speak out more forcefully on the issue of external imbalances.”

Many have used the finance meetings to protest against Trump’s protectionist trade policies, which mark a reversal of seven decades of US support for ever-freer global commerce.

“We strongly reject moves toward protectionism and away from the rules-based international trade order,” said Már Guðmundsson, governor of the Central Bank of Iceland. “Unilateral trade restrictions will only inflict harm on the global economy.”

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While finance officials struggled to find common ground with Washington on trade, they agreed on the importance of coordinating other policies in an effort to sustain the strongest global economic expansion since the 2008 financial crisis.

“We have to keep this group working together,” said Nicolas Dujovne, Argentina’s treasury minister.

In addition to wrangling over trade, finance officials from the Group of 20 powerful economies focused on geopolitical risks and rising interest rates, two threats to growth. Dujovne, whose country is chairing the G20 this year, met reporters on Friday to summarise talks held as a prelude to the IMF-World Bank meetings.

Finance leaders repeatedly sounded warnings about a potential trade war.

“The larger threat is posed by increasing trade tensions and the possibility that we enter a sequence of unilateral, tit-for-tat measures, all of which generate uncertainties for global trade and GDP growth,” Roberto Azevêdo, director general of the World Trade Organisation, told the IMF’s policy committee.

Additional reporting by Reuters