Prime Minister Manmohan Singh's apparent support for the U.S. Federal Reserve's controversial policy to pump $600 billion into the economy has not gone down well in China, days ahead of a crucial G20 meeting in South Korea.
The Fed's bond-buying move, which will likely devalue the dollar, has been strongly criticised by China, Germany and Brazil in recent days. China has argued that the policy will reduce the competitiveness of emerging nations' exports, as well as exacerbate economic imbalances.
Dr. Singh appeared to undercut that argument on Monday, during Barack Obama's visit, providing the only source of support so far for the U.S. from a major emerging economy. “A strong, robust, fast-growing U.S. is in the interests of the world,” Dr. Singh said when asked about the Fed's move, known by some as quantitative easing. “Therefore, anything that would stimulate the underlying growth and policies of entrepreneurship in the U.S. would help the cause of global prosperity.”
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Focus of G20 meeting
The exchange rate policies of the U.S. and China, which has been accused by many countries of devaluing its yuan, are expected to be at the focus of the G20 group of economies meeting which starts on Thursday in Seoul. Growing fears of a currency war, sparked by competing devaluations, have dominated headlines this past week.
India, so far, has been cautious in taking sides in the currency debate, neither criticising China's currency policies nor the U.S. move. Dr. Singh's statement on Monday, however, evoked criticism in China.
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“When the U.S. Federal Reserve's action involving $600 billion came under attack from Germany, Brazil, China and other emerging economies, accusing in chorus America of trying to devalue the dollar to the detriment of other nations' exports, Dr. Singh, however, gave it an unexpected endorsement,” the official People's Daily wrote in a commentary on its English website. “Seemingly, the U.S. and India are right now singing a duet, echoing each other.”
Ahead of Thursday's meeting in Seoul, officials here have stepped up their criticism of the Fed's move. Vice Foreign Minister Cui Tiankai, who is one of China's negotiators at the G20, said many developing countries were concerned by the monetary easing. The Fed's decision “is posing some risks to the financial stability of many countries, including the BRIC (Brazil, Russia, India and China) countries,” he said in Seoul, according to Reuters.
“I think many other developing countries and emerging markets have similar concerns. It is quite possible that many G20 members will express that concern at the summit with recommendations and proposals on how to deal with the situation.”
Concerns are that the move could further destabilise global growth by raising commodity prices, creating asset bubbles and inflows of hot money into emerging economies. In Beijing, Ma Delun, a Deputy Governor of the People's Bank of China, said the move could “add risks to the global economic imbalance, put pressure on emerging markets to adjust their international balance of payments and could also stir the formation of asset bubbles.”
China's currency valuation is another bone of contention, with Washington threatening trade action if China did not further appreciate its yuan, which, many countries say, has been devalued to support exports. Brazil's Foreign Trade Secretary Welber Barral warned this week that a currency war remained a possibility if this week's meeting failed to reach a substantive agreement on balancing global growth.