US and China snipe as SA calls for Fed to take care

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Shamim Adam, Xin Zhou and Candice Zachariahs Singapore and Sydney

China led developing markets in hitting back at the US at the weekend as South Africa kept up pressure on the US Federal Reserve to consider the spillover effects of tapering its bond-buying programme.

A day after US Finance Minister Jacob Lew questioned the pace of China’s economic opening, Chinese Finance Minister Lou Jiwei said the US economy had been buoyed by monetary policy rather than structural changes.

South Africa’s Deputy Finance Minister Nhlanhla Nene called on the Fed to weigh the impact on developing nations as it pared stimulus.

As Group of 20 (G20) finance ministers and central bank governors met in Sydney at the weekend to find common ground to support economic growth, officials are less unified on monetary policy.

While the US and fellow industrial countries have put the onus on their emerging counterparts to get their houses in order to withstand volatility, developing market officials want policy calibration.

“The tension is likely to continue,” said Tomo Kinoshita, the chief economist at Nomura Holdings in Tokyo. “China is on the side of the emerging economies rather than on the side of the advanced economies.”

Nations including South Africa, Brazil and India have seen their currencies rattled as the Fed begins to dial back unprecedented stimulus measures. The MSCI Emerging Markets index has lost 4.3 percent so far this year, its worst annual start since 2010.

Lew, speaking in Sydney on Friday, said while China wanted “to move in the right direction” on opening its economy, “I have yet to see the signs that they are moving with the speed that we would want”.

Turning the tables at the weekend, Lou said while developed countries now seemed very positive about their growth prospects, “that may not be totally true”.

“Take the US for example: its recovery is being helped by monetary policy and not much by structural adjustment,” the Chinese minister said. “They have always been saying that China should boost its consumption ratio and the US should boost its investment ratio, but that structural change is not happening in the US.”

The Fed has kept rates low to spur the economy as a budget deficit restricted US President Barack Obama’s administration’s ability to stimulate demand. The unprecedented monetary stimulus steered investors towards emerging markets in search of yield, a process that is reversing along with the Fed’s taper.

The G20 was backing the normalisation of monetary policy in advanced economies in line with stronger growth, the group’s communiqué said.

South Africa wanted agreement within the G20 on the co-ordination of economic policies as it pushed for stronger acknowledgment of the impact of the Fed’s moves on smaller nations, Nene said.

Strengthening in developed economies and a slowdown in growth in China, India, Brazil and elsewhere reverses the trend that had shaped global growth since 2008. Carlos Cozendey, Brazil’s deputy finance minister, said the Fed had helped reduce emerging markets’ concern over tapering, saying it would be mindful of spillover effects. – Bloomberg


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