Citing Brexit Uncertainty, China’s Premier Urges Greater Policy Coordination
Chinese Premier Li Keqiang on Friday called on world leaders to step up macroeconomic policy coordination, after meeting the heads of the International Monetary Fund, the World Bank, and other senior global economic officials.
Li said the sound fundamentals of China’s economy remained unchanged despite facing strong downward pressures, and that the government’s debt ratio was not high, although he added that the government would step up regulation of the shadow banking sector and monitor local government fiscal practices.
The premier also addressed concerns that China is promoting its exports through aggressive policy support with the yuan weakening against the dollar.
“Given the financial fluctuations as a result of Brexit, China will advance the market-based reform of the exchange rate,” Li said.
“We will maintain a basically stable exchange rate at a balanced level and we will not engage in a trade or currency war,” he added.
Li made the remarks at a joint briefing with the officials, which also included the heads of the World Trade Organization, the International Labour Organisation, the Organisation for Economic Cooperation and Development, and the Financial Stability Board.
The comments came ahead of a meeting of G20 finance ministers and central bank governors in China this weekend.
U.S. Treasury Secretary Jack Lew said on Thursday that G20 finance officials do not need to take the same type of massive coordinated fiscal stimulus efforts as those used to combat recession during the 2008-2009 global financial crisis.
Unlike many developed economies, China still has ample ammunition left for further fiscal and monetary policy stimulus, but some economists worry stimulus won’t be able to compensate for weak demand, leaving China in a “liquidity trap.”
China’s economy grew slightly faster than expected in the second quarter as government spending and a housing boom boosted industrial activity, but a slump in private investment growth is pointing to a loss of momentum later in the year.
The world’s second-largest economy grew 6.7% in the second quarter from a year earlier, steady from the first quarter but still the slowest pace since the global crisis.
But steadier headline growth in China are accompanied by other signs of economic imbalance.
An anemic private sector and signs of fatigue in the property market point to the increasing possibility the government may need to provide additional stimulus this year to hit its growth target of 6.5 to 7%.
Investors worry a further slowdown in China, aggravated by Britain’s decision to leave the European Union, would leave the world more vulnerable to the risk of a global recession.
International Monetary Fund Managing Director Christine Lagarde called on Europe to quickly resolve questions over Britain’s exit from the European Union.
“Our first and immediate recommendation is for this uncertainty surrounding the terms of Brexit be removed as quickly as possible so that we know the terms of trade and the ways in which the United Kingdom will continue to operate in the global economy and vis a vis its partners,” Lagarde said.
The IMF cut its global growth forecasts for the next two years on Tuesday.