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Japan may press China on slowdown, shadow banking at G20

A businessman looks at his mobile phone as he walks in the financial area of Pudong in Shanghai May 30, 2013. REUTERS/Carlos Barria
A businessman looks at his mobile phone as he walks in the financial area of Pudong in Shanghai May 30, 2013. REUTERS/Carlos Barria

By Tetsushi Kajimoto

TOKYO (Reuters) - Japan may press China at a global meeting next week for more information about a slowdown in the world's No. 2 economy and risks posed by its "shadow" banking system, Tokyo's top financial diplomat said on Thursday.

Global financial markets have been gripped by concern over faltering growth and financial stability in China, in addition to worries over capital outflows from emerging markets, as investors anticipate the U.S. Federal Reserve will wind down its monetary stimulus.

Both issues are likely to be discussed when finance chiefs from the Group of 20 big industrial and developing economies gather in Moscow on July 19 and 20, Mitsuhiro Furusawa, vice finance minister for international affairs, told Reuters.

"The situation in China is not necessarily clear, and it would be desirable to clarify various data and issues," Furusawa told Reuters in an interview.

"Everyone is not necessarily sharing information on regional shadow banking, and we are paying close attention to see what the real picture is in China," said Furusawa, who acts as Finance Minister Taro Aso's "sherpa" at global financial gatherings.

Grim Chinese exports data this week have some economists wondering if the economy can hit Beijing's 7.5-percent growth target.

Another concern is shadow banking, China's network of thousands of unofficial credit providers, pawn shops, trust firms and various other non-bank loan vehicles.

Credit rating agency Fitch says some 36 percent of outstanding credit in China, nearly $6 trillion, lies outside banks' loan portfolios, a huge pool of money which market participants find difficult to track and which could cause an ugly credit mess in a steeper slowdown.

The IMF said on Tuesday China's slowdown was a particularly big risk as Beijing seeks to navigate a shift away from export and investment dependence and toward consumption-led growth.

DOING THE RIGHT THING

Furusawa played down concerns aired by the International Monetary Fund over risks posed by Japan's enormous debt, which, at well over twice annual economic output, is the largest in the industrial world.

And he said Japan would assure other G20 members uneasy over the yen's depreciation that the aggressive reflationary policies of Prime Minister Shinzo Abe do not involve targeting currencies and will have positive spillover effects for the global economy.

When G20 finance ministers and central bankers met in February, the talk was of "currency wars," an attempt by emerging economies to counter the sharp weakening of the yen resulting from Abe's reflationary policy.

The focus of debate has shifted towards the reversal of capital flows out of emerging economies on expectations that the U.S. Federal Reserve will start winding down its stimulus measures later this year, Furusawa noted.

The Fed's discussion of tapering off its quantitative easing has "triggered a market reaction, sending currencies down and inflation up in emerging economies," Furusawa said.

The IMF also cited Abenomics as a global risk for the first time, saying its focus on short-term growth through massive monetary easing and a big burst of government spending might not be followed by structural and fiscal reform.

But Furusawa said it was wrong to see this as a fresh concern. Rather, he said, IMF chief economist Olivier Blanchard was merely restating the fund's long-held position that Japan's long-term interest rates could surge if Tokyo doesn't put its fiscal house in order over the medium term.

Japan plans to do just that, he said, and the delegation led by Finance Minister Aso and Bank of Japan Governor Haruhiko Kuroda will explain the government's fiscal consolidation policies to their G20 counterparts in Moscow.

The G20 has agreed that advanced economies would develop medium-term fiscal strategies by the G20 leaders' summit in St. Petersburg in September. Furusawa said each country is expected to come up with its own plan, rather than "common" targets.

(Reporting by Tetsushi Kajimoto; Editing by William Mallard and Simon Cameron-Moore)

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