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February 26, 2016

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Xi: G20 should address critical issues

FINANCE ministers from the G20 group of countries meet in Shanghai today with the global economy assailed on multiple fronts, from China’s slowing growth to weak commodity prices, amid simmering disagreements over how best to face the challenges.

On Wednesday, the International Monetary Fund warned risks of a “derailed recovery” are growing, citing China’s faltering economy, falling oil and commodities prices and financial market turbulence.

That came after the 34-member OECD cut its 2016 global growth forecast from 3.3 percent to 3 percent.

The IMF said: “Strong policy responses both at national and multi-lateral levels are needed to contain risks and propel the global economy to a more prosperous path.”

The G20 — which groups 19 countries and the European Union — was born in the wake of the 1997 Asian financial crisis and upgraded to a summit of leaders in 2008 to tackle the global financial crisis.

Now, global oil prices are at multi-year lows, the threat of Britain leaving the European Union in a possible “Brexit” is looming, and world bourses have tumbled since the start of the year.

US Treasury Secretary Jacob Lew denied the situation had reached crisis levels, but chided other countries for relying too heavily on the United States to be the main engine for global growth.

“We can’t be the consumer of first and last resort. There needs to be more,” he told Bloomberg Television in an interview.

“It means that in countries that are big economies, regions that have big economies, they need to use policy tools.”

German Finance Minister Wolfgang Schaeuble urged G20 central bankers to communicate better, criticizing conflicting US Federal Reserve announcements on interest rates in an interview with national news agency DPA.

But he added: “We have to stop once and for all blaming each other ahead of these meetings to divert the attention from our own problems.”

China’s own travails will loom over the meeting after the world’s second-largest economy grew 6.9 percent in 2015 — the worst in a quarter century and a far cry from previous years of double-digit increases.

Chinese authorities have denied that the government is pursuing a currency war to make its exports cheaper after a shock currency devaluation in August, which saw the normally stable yuan guided down nearly 5 percent in a week followed by another drop in January.

A stock market crash from mid-June, during which China’s benchmark index lost more than 40 percent from its peak, has also raised alarms, with tremors continuing this year — the benchmark Shanghai Composite Index slumped 6.41 percent yesterday. (See stocks story on Page Two)

“China was the mainstay of global economic growth after 2008,” Yale University finance professor Chen Zhiwu told reporters. “Now people are worried about the opposite problem with China’s growth getting slower and slower.”

Prices of commodities, from copper to coal, have plunged as China’s appetite for raw materials diminishes, sending shock waves through producer economies.

The price of oil has dropped from more than US$100 a barrel in July 2014 to just over US$30 in recent days, driven lower by slowing global growth and a booming supplies from the US and Middle East.

Today’s meeting will set the stage for a G20 leaders summit hosted by Chinese President Xi Jinping on September 4-5 that will include US President Barack Obama.

The Asian Infrastructure Investment Bank, viewed by some as a rival to the World Bank, started operations last month.

Another new multilateral lender — the New Development Bank for the BRICS countries of Brazil, Russia, India, China and South Africa — will sign agreements at the G20 finance meeting to start full-scale operations from its Shanghai headquarters.

“Now, all eyes are on the G20,” Xi said in a note to the G20 in December. “It should address critical issues affecting the global economy and endeavor to promote strong, sustainable and balanced growth.”




 

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