China and emerging markets must stay ‘vigilant’ to possible risks
As the International Monetary Fund’s annual meeting drew to a close over the weekend, Tao Zhang, the deputy managing director of the fund, outlined his view on the global economy in his first interview with an international media organization since joining the IMF from the People’s Bank of China.
Zhang joined the IMF in 2016, having formerly been deputy governor at the Chinese central bank, so his words carry considerable weight, CNBC wrote.
On the eve of the Party Congress in Beijing, Zhang told CNBC that the world’s second largest economy is undergoing big changes as it moves towards a consumption-led economy that’s less dependent on exporting cheap goods to the rest of the world.
“It’s already happening, it should continue, and of course during the process the rapid credit expansion needs to be paid closer attention to, and we observe the authorities are taking measures, and these measures actually already have early, positive results,” he said.
‘Huge development needs’ for emerging markets
There is concern among investors that rising borrowing costs in the United States will have big knock-on effects for China and other emerging markets in Asia.
Zhang said there are still huge development needs to be addressed.
“We recognize in terms of development of these emerging-market, low-income countries, is they have huge development needs, but they also need to pay attention to how to better use these monies in a smart way (and) make sure these public sector spending or new borrowings can be sustainable.”
During the IMF meeting, Managing Director Christine Lagarde referenced JFK’S warning that people should mend the roof while the sun is shining, in anticipation of the rains to come. According to the Fund’s financial stability report, emerging markets could be vulnerable if equity and property prices fall.
Zhang acknowledged that having grown so quickly in the last decade, emerging markets are in a much stronger position than 10 or 20 years ago, when the Asian financial crisis hit. But that’s not to say problems couldn’t arise with the expected increase in global interest rates.
“It’s a real test coming,” Zhang said.
Urging vigilance
One issue causing concern for policy makers and investors attending the IMF annual meeting is the fact that asset prices globally have all but ignored a large number of geopolitical and policy risks, such as tensions over North Korea.
“We have to be alert. Yes, we have good momentum,” he said, while adding that “we have to open our eyes widely and make sure that these downside risks or whatever risk, will be in our minds”.
“There is no time for complacency, and we need to just finish the reforms we started earlier on and pick up the lessons we learned and be alert to these reforms, and try to be vigilant as possible,” he said.
Figures were dragged down by a 9.3-slide in the UK, the region’s second-biggest market. Topranked Germany slumped 3.3 percent, burdened by one less business day than a year ago. Ninemonth sales in the region rose 3.6 percent to 12 million autos.
The UK contraction was the sixth straight monthly decline and the first drop for September since 2011. The month is normally upbeat because of a buying binge to secure new license plates, which can help resale value.
The pullback by British buyers amid the weak pound and stalled Brexit negotiations came as the British Chambers of Commerce downgraded its medium-term economic growth outlook in early September. French carmaker PSA Group said that it’s cutting 400 jobs at a UK plant to adapt production to declining sales.
The UK’S weakness knocked carmakers with deep ties to Britain. Ford Motor Co., the UK’S best-selling brand, plunged 13 percent. German manufacturer Opel and British sister nameplate Vauxhall together sold 10 percent fewer vehicles in Europe, based on figures published last year.
The ACEA didn’t release 2016 numbers for those marques on Tuesday following their purchase by PSA from General Motors Co. in August. Volkswagen AG, Europe’s biggest automaker, sold 1.1 fewer vehicles.
While sales dropped in the UK and Germany, other markets in the top five gained, with France rising 1.1 percent, Italy jumping 8.1 percent and Spain climbing 4.6 percent. The ACEA figures come from the 28 EU countries, excluding Malta, as well as Switzerland, Norway and Iceland.
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