G20 debates effects of QE withdrawal

The effects of a withdrawal from quantitative easing by developed economies, especially the US, dominated the meeting of G20 finance ministers in Moscow over the weekend, but Chinese officials and market watchers downplayed the potentially harmful effects on China's economy.

"Emerging countries are very concerned about the predictability of (these policies), how it will all continue," Russian Finance Minister Anton Siluanov told Reuters Saturday on the sidelines of the G20 meeting, pointing to the spillover effects on developing countries from the lifting of quantitative easing.

"The global market will sustain a negative impact should the US central bank fail to interact properly with other components of the market," China's Finance Minister Lou Jiwei said Saturday during the meeting, according to the Xinhua News Agency.

"The US should take other countries' concerns into account," Lou said, noting that it would be hard to cease the policy completely in a short period of time.

Global investors have been jittery since US Federal Reserve Chairman Ben Bernanke said the US would at some point cancel the policy of quantitative easing at a news conference in Washington on June 19.

Bernanke has since moved to calm the market, and in a speech Wednesday at the House Financial Services Committee he said there would be no imminent exit from the policy.

During the fifth China-US Strategic and Economic Dialogue in Washington earlier in July, Lou also said that China supported the US plans to exit quantitative easing, but urged the US to be mindful of the impact of the withdrawal on the global economy.

The pace of the exit and investor expectations of potential negative effects could be more important than the timing of the withdrawal, Zhang Lei, a Beijing-based macroeconomic analyst with Minsheng Securities, told the Global Times Sunday.

"The main concern is a reversal of capital flows away from emerging markets once the US winds down quantitative easing," he said.

But Zhang downplayed the potential blow to China's economy.

The nation's capital account has not been opened completely, he noted, and the government retains considerable control over capital flows in order to avoid risks.

China has already prepared for an exit from quantitative easing by the US, Yi Gang, vice governor of China's central bank, said during the fifth China-US Strategic and Economic Dialogue. The nation has sufficient liquidity and relatively high levels of legal reserve requirements to cope with the spillover effects, Yi said.

Echoing Zhang's views, Tang Jianwei, a senior macroeconomic analyst at Bank of Communications in Shanghai, told the Global Times Sunday that an exit from the policy would at most have some indirect influence on China's financial market.

"The exit from quantitative easing actually signals a rebound in the US economy, a good indicator for the global economic recovery," Tang said, while noting that it may not be that much of a boost for China's exports, as the US manufacturing sector still lacks vigor.

China's economic growth has been shown to depend increasingly on domestic demand rather than overseas demand, he noted.