US, China step back from tussle on economic policy
The United States and China on Saturday appeared to take a step back from mounting criticism of each other’s economic policies, but Beijing made clear it was still wary of Washington’s latest move to print more money.
The less confrontational tone emerged after a two-day meeting of Asia Pacific finance ministers who gave their backing to last month’s Group of 20 agreement to shun competitive currency devaluations and be vigilant against volatile exchange rate movements.
The meeting in the ancient Japanese capital Kyoto came amid growing criticism from a number of countries, notably China and Germany, of U.S. monetary policy and its proposals to solve economic imbalances.
However, China’s Vice Finance Minister Wang Jun voiced some support for quantative easing by the United States to help boost its economy.
“And boosting the U.S. economy will play an important role in global economic recovery,” he told reporters.
But he added: “At the same time, the quantitative easing policy has already prompted the concern of emerging nations, and we will continue paying attention to the implementation of this policy.”
In a clear reference to the United States, which this week announced it would inject an extra $600 billion into its banking system, Wang warned major economies to refrain from excessive issuance of currency.
A number of other leading economies have warned against the latest U.S. moves to lift its economy.
Brazil’s central bank head Henrique Meirelles said on Friday that the U.S. Federal Reserve’s decision to increase Treasury purchases to boost the economy risked creating asset bubbles elsewhere.
The Brazilian finance minister’s warning of a “currency war” in September captured the frustration many policymakers have over the dollar’s steady decline and the appreciation in their own currencies due to ultra-easy U.S. monetary policy.
German Finance Minister Wolfgang Schaeuble went further by saying U.S. monetary policy was “clueless.”
Federal Reserve Chairman Ben Bernanke has defended the move to buy $600 billion of government debt by saying that boosting the U.S. economy is important for global growth.
The talks in Kyoto come ahead of a meeting of G20 leaders in Seoul on November 11-12, who will be trying to resolve at least some of their difference over how best to reduce the imbalances that are destabilizing the world economy.
The United States has suggested setting numerical targets for capping current account surpluses and deficits, something Beijing has called outmoded central planning.
But U.S. Treasury Secretary Timothy Geithner denied any immediate plans to seek rigid targets to deal with imbalances.
“It’s very hard to reduce a very complicated question to a single number or a single indicator,” he said.
“What we proposed at G20 (last month in South Korea) and talked about today was how to build a framework for cooperation that will reduce the risk that future growth is imperiled by the remergence of large external imbalances.
The United States has proposed limiting current account surpluses to encourage exporters, particularly China, to contribute to rebalancing growing by reducing their reliance on external demand.
“The common foundation is being built for countries to address external imbalances, whether they be current account surplus or deficit, as well as stability of the global currency system,” Japanese Finance Minister Yoshihiko Noda said.
“We didn’t talk about detailed numbers today, but we agreed to continue to debate in a more specific way to make this work. I think that is progress.”