Chinese President Xi Jinping on Monday called on major world economies to spur growth by coordinating their policies as the world continues to pull itself out of the turmoil caused by the coronavirus pandemic.
He warned against the effects of raising interest rates too much too quickly, saying that such measures could threaten global financial stability.
“If major economies slam on the brakes or take a U-turn in their monetary policies, there would be serious negative spillovers,” Xi said. “They would present challenges to global economic and financial stability, and developing countries would bear the brunt of it.”
Many global policymakers are grappling with rising inflationary pressure, and starting to end their pandemic-era stimulus plans.
But China — the only major economy to grow in 2020 — is taking a different tack as its economy slows and it grapples with the challenges of maintaining momentum while holding firm to its zero-Covid strategy, a strict policy of locking down areas to prevent outbreaks that has isolated the country from much of the world.
The People’s Bank of China has been loosening its purse strings to keep things running smoothly.
Beijing’s latest measures came as the country reported that its economy expanded 8.1% in 2021. While that number outstripped the government’s own targets, growth slowed to half that pace in the final quarter of the year and is expected to struggle even more because of Covid and a deepening real estate crisis.
Government economists in China have been warning of a spillover effect caused by the Fed’s interest rate hikes.
“Historically, the Fed’s rate hikes have triggered financial and economic crises in other countries for many times,” Zhu told the newspaper, adding that an imbalance could cause foreign capital to flee China.
Zhu also called attention to the dollar-denominated bond market for Chinese companies, which he pointed out has expanded rapidly. Many firms within China’s struggling real estate industry hold dollar-denominated bonds; if they become even more expensive to pay back, that could cause more headaches.
The International Monetary Fund, meanwhile, has warned that abruptly tightening monetary policy in the United States or Europe could cause economic turbulence in developing economies.
The sentiment about economic growth and inflation has shifted in the United States, the IMF wrote, as prices rise at the fastest pace in almost four decades.
The economic recovery in emerging countries, meanwhile, hasn’t been as robust, it said, adding that those places are confronting “substantially higher public debt.”
“Faster Fed rate increases in response [to inflation] could rattle financial markets and tighten financial conditions globally,” the IMF said, also warning of slowing demand and trade from the United States and its effect on developing economies, which rely on exports to American consumers.