Published: Tue, April 24, 2018
Finance | By Kristine Clayton

Trade rows, debt load risk world economy

Trade rows, debt load risk world economy

China's economic fundamentals are strong and it has sufficient policy tools to guard against systemic risks, central bank governor Yi Gang said, as the International Monetary Fund cautioned that the world economy is under threat from trade tensions and heavy debt burdens.

Treasury Secretary Steven Mnuchin said Saturday that he was considering taking a trip to China to discuss trade and ease tensions between the US and Beijing over proposed tariffs, Reuters reported.

Observing that global growth has further strengthened and is increasingly broad-based, driven by a strong rebound in investment and trade, the IMFC said risks are broadly balanced in the near term, but remain skewed to the downside beyond the next several quarters.

The World Bank, he said, must not back away from shifting its lending from fast-growing developing countries such as China to poorer nations.

"In line with central bank mandates and mindful of financial stability risks, monetary accommodation should continue where inflation remains weak and be gradually withdrawn where inflation looks set to return to central bank targets", the communique said.

On Saturday, the World Bank approved a $13 billion capital increase package that includes $7.5 billion of paid-in capital for the International Bank for Reconstruction and Development (IBRD), the group's primary lending arm, and $5.5 billion for the International Finance Corporation (IFC), the group's private sector lending arm. "They were trying to pacify the markets and prevent US stock prices from falling further", said Mei Xinyu, a senior research fellow of the Commerce Ministry's Chinese Academy of International Trade and Economic Cooperation.

He urged the International Monetary Fund to go beyond its traditional role as an emergency lender for countries in financial distress and said it should more closely monitor the practices of countries that persistently run large trade surpluses.

But U.S. Treasury Secretary Steven Mnuchin expressed cautious optimism Saturday that countries could settle their differences without a trade war.

Heightened growth is helping to spur increased business investment, create much-needed private sector jobs, and expand economic opportunities for many around the world, he said. We reaffirm our support for the IMF's work to help countries achieve the 2030 SDGs.

"We have to keep this group working together", said Nicolas Dujovne, the treasury minister of Argentina.

Both countries have been locked in a war of words and threats over US President Donald Trump's decision to impose substantial tariffs on Chinese goods entering US markets. He said they also discussed China's planned further opening of some markets, a move that U.S. has encouraged and "appreciated".

Irwin believes China's rising debt, as well as a looming trade war between China and the USA, could pose a threat to the global economy.

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