China received broad international support for its economic policy and changes to its currency peg on Saturday, with finance ministers and central bankers from the world’s leading economies accepting Beijing was managing a difficult economic transition.
The Chinese authorities managed to convince most leading finance ministers and central bankers that is devaluation and new currency management arrangements were a step on the road to a more market-determined exchange rate.
Their success dispelled some official fears that China’s new exchange rate regime, introduced on August 11 and which has sparked global turmoil in financial markets, was a competitive devaluation designed to boost its exports.
The relief about China’s intentions came as the G20 finance ministers and central bank governors, representing 85 per cent of the global economy, pledged to take steps to improve growth and expressed confidence in the economic outlook. The optimism came despite evidence that global growth is falling short of expectations.
Speaking after the two-day meeting in Ankara, Christine Lagarde, managing director of the International Monetary Fund, said there had been a very open dialogue with China over its economy and policies and she thought it “extremely comforting to have that level of understanding”.
On the sidelines of the meeting, European ministers and officials also showed firm support for Beijing. Wolfgang Schäuble, German finance minister, said the G20 agreed there was no reason to fear slower Chinese growth.
George Osborne, UK chancellor, said China was going through a difficult transition from an investment-led economy to one more dependent on consumption and the authority’s commitments had been more open than before. “We don’t want to see that blown off course. The messages we’ve been receiving here about that have been encouraging”.
Pierre Moscovici, the EU Commissioner for Economic Affairs, praised “the absolute determination of the [Chinese] authorities to sustain growth”.
Growth is too low, productivity is too low, trade numbers are too low, investment is too low, infrastructure projects are too few and the only thing that is too high is unemployment
– Christine Lagarde, International Monetary Fund
European enthusiasm for Beijing was replicated in softer terms by US officials. Jack Lew, US Treasury secretary, pressed Lou Jiwei, his Chinese counterpart, for a signal that China would allow market pressures to drive the renminbi up as well as down.
A senior US Treasury official added that since the new currency regime was in place, “the [authorities’] interventions have been to stabilise” to “prevent an uncontrolled drop”, but he added the real test would come if the authorities let the currency rise when there was market pressure for an appreciating renminbi. He urged Beijing in future to communicate its intentions better.
Only Japan expressed dissatisfaction at the explanations China gave to the G20. Taro Aso, the Japanese finance minister criticised Chinese representatives for an incomplete explanation of their motives. “They may have tried to be constructive, but they weren’t detailed enough”, he told reporters.
The G20 communique sought to bind China into its commitments with a common pledge to “refrain from competitive devaluations” and to “avoid persistent exchange rate misalignments”.
Although the meeting was clouded by uncertainty over the global outlook and growth falling short of previous expectations, the ministers “pledged to take decisive action to keep the economic recovery on track”, adding that “we are confident the global economic recovery will gain speed”.
Ms Lagarde again urged the US Federal Reserve not to raise interest rates until it was absolutely sure it had fulfilled its mandate on price stability and the labour market although she declined to put a date when the Fed should act.
The G20, however, concluded that “monetary policy alone cannot lead to balanced growth” and urged members to reinforce actions to reform their economies to boost both actual growth rates and the potential for expansion.
Highlighting what she called the “urgency of implementation”, Ms Lagarde said that moderate global economic performance was not good enough. “Most things are just too low. Growth is too low, productivity is too low, trade numbers are too low, investment is too low, infrastructure projects are too few and the only thing that is too high is unemployment”.
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