G20: Monetary policy alone can’t bring balanced growth

Chinese policymakers reiterated pledges not to devalue the yuan again, and Premier Li Keqiang told the G-20 opening session on Friday there was no basis for continued depreciation of the yuan.

“China won’t use competitive devaluation to enhance export competitiveness”, said Zhou Xiaochuan, governor of the People’s Bank of China at a news conference ahead of Friday evening’s meeting of finance chiefs from the Group of 20 major economies.

Germany’s finance minister, Wolfgang Schauble, said his government would not agree to a coordinated fiscal stimulus package in the event of further deterioration in the global economy.

At the same time the draft suggests that markets’ recent ructions have been overreactions to economic anxieties that do not reflect economic fundamentals. Japan urges China to reform its currency and come up with a structural plan and timeframe.

US Treasury Secretary Jacob Lew told reporters Friday that “it’s increasingly important to use all the levers of policy that are available, and that means using fiscal levels as well as monetary policy and structural reforms”.

The G-20 meeting was a “platform for communication”, he added, but could not restrain any of its members and the communique “won’t have a big impact on [the] world economy”.

“They should go bold, they should go broad and they should go together”, International Monetary Fund managing director Christine Lagarde said prior to the meeting.

“The key policymakers appeared to have agreed to continue to ease monetary policies to buoy global growth on the G20 meeting”, said Luo Wenbo, an economist at Zhongtai Securities.

However, some countries are expected to boost government spending to lift growth, including China, with its finance officials flagging an increase in the fiscal deficit, which was 2.3 per cent of gross domestic product previous year.

The recent call by the International Monetary Fund earlier this week, followed by the OECD this morning, for the G20 to take bold action at their meeting this weekend could also be a factor behind the rebound in the latter part of this week, at a time when data showed that global trade slowed sharply in 2015, led largely by a slowdown in emerging markets.

But the document did not express any explicit concerns over China, where growth has slowed to its weakest in 25 years.

China’s finance minister Lou Jiwei said a proactive monetary policy was needed now for the world’s second-largest economy to implement the structural reforms but Beijing would also strike a balance between the short-term effect and long-term benefits in policymaking.

In the meantime, fiscal policy will be “more proactive”, including cutting taxes, the statement said.

Lou, seen by observers as one of the Chinese officials most committed to reforms of his country’s own system, also said that while China had more “room for fiscal policy” than many other countries, it should not be complacent, as such space was not “infinite”, and “could run its course if reform agendas are delayed”, the China Daily reported.

“China has always opposed competitive currency devaluations as a way to boost export competitiveness”, he said.

An official from the bourse operator, who asked not to be named, said that the rebound is largely caused by the Chinese market regulator denying rumors on a new registration system for China’s small-cap bourse.

Pierre Moscovici, European Commissioner for Economic and Financial Affairs, said there were no discussions about the country, “not because China was our host, but because China is a major partner”.