China warns the West against a rapid rise in interest rates | Mondial economy
China has warned the United States and Europe against a rapid rise in interest rates that would “stifle” the global recovery from the pandemic.
Central banks would have to maintain monetary stimulus or risk “serious economic consequences” from spillover effects, with developing markets bearing the brunt.
In a virtual address to open the World Economic Forum’s Davos Agenda, Chinese President Xi Jinping said that as global inflation risks emerge, policymakers should strengthen economic policy coordination and develop policies. to prevent the global economy from plunging again.
“We must do whatever is necessary to erase the shadow of the pandemic and spur economic and social recovery and development,” he said.
“If major economies slow down or reverse course in their monetary policies, there will be serious negative fallout. They would present challenges to global financial and economic stability and developing countries would bear the brunt of it.
China is among many countries in Asia, Africa and South America concerned about plans announced by the US central bank to accelerate a series of interest rate hikes scheduled for this year and begin to cancel its program. quantitative easing stimulus.
The Federal Reserve has come under intense pressure to respond to rising inflation, which soared to 7% in December, its highest level in 40 years.
Rising US interest rates will make it more expensive to finance dollar-denominated debt.
Policymakers at the Bank of England and the European Central Bank are also expected to tighten monetary policy in the coming months, increasing the risk that indebted countries fail to repay their loans.
Tensions with the United States extend beyond monetary policy to concerns over intellectual property, trade, the fate of Taiwan, human rights and the South China Sea.
Xi said, “We must abandon the Cold War mentality and pursue peaceful coexistence and win-win outcomes. Our world today is far from tranquil,” Xi said, through a translator.
“Protectionism and unilateralism cannot protect anyone. Ultimately, they harm the interests of others as well as his own. Worse still are the practices of hegemony and intimidation, which run counter to the course of history.
“A zero-sum approach that increases one’s own gain at the expense of others won’t help,” he added. “The right path for mankind to follow is peaceful development and win-win cooperation.”
Xi was speaking after latest figures showed China’s economy had slowed at the end of last year to 4% in the three months from October to December compared to the same period in 2020.
Data from the National Bureau of Statistics revealed the weakest expansion in 18 months as the Covid-19 pandemic and crisis in its property sector hit growth.
In the first three quarters of 2021, China’s economy grew by more than 9%, but since the summer it has slowed significantly, prompting Beijing to cut a key interest rate.
Analysts have blamed Beijing’s zero-tolerance approach to the Covid-19 virus, which has included restricting all movement in cities that have only a handful of cases.
Retail sales growth slowed sharply to just 1.7% year-on-year in December from 3.9% previously, the bureau said.
The repercussions of the crisis on indebted real estate developer Evergrande have also weighed on the Chinese economy.
Louis Kuijs, head of Asian economics at Oxford Economics, said Xi’s administration was unlikely to tolerate GDP growth below 5%, meaning further cuts in borrowing costs were possible. .
“If growth is weaker than that, Beijing will feel strongly motivated to pursue further policy easing,” she said.