China appears to have dodged a bullet at the G20 conference, held in Shanghai on Friday and Saturday, which was attended by global finance ministers and central bankers.
Although there had been concerns over the country’s policy direction, particularly in relation to currency devaluation, China was not explicitly mentioned in the official statement released after the conclusion of the meeting. Just ahead of the meeting, People’s Bank of China’s Governor, Zhou Xiaochuan said that there was “no basis for sustained yuan depreciation”.
Without specifying China, the statement said “growth in key emerging market economies remains strong.”
More emphasis was instead put on Brexit and the European refugee crisis as a threat to growth.
“Downside risks and vulnerabilities have risen, against the backdrop of volatile capital flows, a large drop of commodity prices, escalated geopolitical tensions, the shock of a potential UK exit from the European Union and a large and increasing number of refugees in some regions,” noted the statement.
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Much of the meeting reportedly centered on the Japanese yen and monetary policy. Last month, Japan implemented a negative rate policy, which lead to volatility in the markets.
At the meeting, G20 economies pledged to use all policy tools to bolster the global economy.
“We are taking actions to foster confidence and preserve and strengthen the recovery. We will use all policy tools – monetary, fiscal and structural – individually and collectively to achieve these goals,” according to the statement.
China had backed a move for strengthened macroeconomic policy coordination, but no concrete action plans were drawn up at the meeting as not all countries echoed their sentiment.
The members did agree to not enter into competitive devaluations of currencies.
“We reaffirm our previous exchange rate commitments, including that we will refrain from competitive devaluations and we will not target our exchange rates for competitive purposes,” said the statement.
Not only did China come away relatively unscathed from the meeting, but the country also gained support for examining the broader use of the International Monetary Fund’s reserve-currency unit, which the yuan will join later in the year. “We welcome the completion of the IMF’s 2015 Review of the Method of Valuation of the Special Drawing Rights (SDR) and support further work to examine the possible broader use of the SDR and on local currency bond market,” said the statement.
U.S. Treasury Secretary Lew praised China on Sunday for a successful two-day summit but also kept up the pressure on the Chinese government to maintain open polices and a market-based exchange rate.
“We achieved an important agreement to use all policy levers – monetary, fiscal and structural – to boost global demand and to consult closely on exchange rate policy and refrain from competitive devaluation,” Lew said. “Both are important signals that policymakers have tools to strengthen the economic path ahead.”
Lew made the comments in advance of a meeting with Chinese Vice Premier Wang Yang in Beijing.
“We welcome China’s efforts to transition to a more consumption-driven economy, including through fiscal policies that supports household demand and actions that reduce excess industrial capacity,” Lew said. “We also look forward to seeing continued reforms in the financial sector that also strengthen financial stability.”
Although China was not mentioned specifically in relation to exchange rate policies in the official statement released by the G20, Lew called out China in his official assessment of the meeting.
“It is also critical that China continue to move toward a more market-determined exchange rate and transparent exchange rate policy in an orderly manner and clearly communicate its actions to the market,” Lew said. “The economic relationship between the United States and China is vital to have a healthy global economy, and we must work to strengthen this bilateral economic relationship, including through trade and investment practices that provide a level playing field and support jobs and growth in both countries, as well as our joint efforts to promote strong, inclusive, and balanced growth.”
The blunt comments stem from China’s unexpected devaluation of the yuan last Ausgust, which sent shocks through major financial markets in the U.S. and around the world. China has since moved to stabilize the yuan and reassure the international community but the U.S. has said it will continue to monitor its policies.
Lew said Saturday that the U.S. believes China has the “necessary tools, including through fiscal policies, to support household demand and succeed in its economic transition.”
“The Chinese leadership has committed to not using the exchange rate to boost exports,” Lew said. “As I travel on to Beijing and Hong Kong in the next several days, I will continue to emphasize that clear communication to the market is critical during this transition – and the United States continues to underscore the importance of China carrying out this transition in an orderly and transparent manner.”