China dodged criticism of its economic management at a G20 meeting it hosted on the weekend, even winning plaudits for yuan transparency, much to the frustration of Japanese officials who are calling for more reforms from Beijing.
It was a marked contrast to a February G20 gathering of finance heads in Shanghai, when Chinese policymakers were on the defensive about the risk of another devaluation of the yuan.
While the world’s second-largest economy has slowed and the yuan has fallen to 5-1/2 year lows against the dollar over the past five months, G20 finance ministers and central bank chiefs appeared more concerned about the fallout from Britain’s June vote to leave
Europe.
“We have been very polite with China,” said a European official at the meeting in the southwestern Chinese city of Chengdu, adding Tokyo failed to keep its concerns about China’s economic performance – a major risk for Japan – on the table.
“China’s growth problems and exchange rate decline have not been much of an issue here.
Japan with its concerns has been left a bit alone, no one wanted to join in,” the official said.
Japan has already failed this year to win support from its industrialised peers to curtail a strengthening yen, which has soared to 2-1/2 year highs against the dollar even as the economy faltered and exports fell.
“Japan remains concerned about China’s economy and we will call on the US and Europe not to shift attention away from China,” a Japanese official said, but added that Tokyo had decided to “be quiet” on currency during the meeting.
The yuan has fallen over 5% against a basket of currencies tracked by Thomson Reuters since the G20 finance ministers meeting in February.
The yen, meanwhile, has become both stronger and more volatile this year, surging on safe-haven buying even as Japan adopted negative interest rates in its so-far futile effort to escape deflation.
Data yesterday showed Japan’s quandary, with exports falling 7.4% in June from a year earlier, the ninth straight month of decline.
The rising yen has weakened Japan’s export engine as China increases its share of global trade.
At the G20 meeting, Japanese Finance Minister Taro Aso said it was closely watching the impact of a declining yuan, and that he had agreed with US Treasury Secretary Jack Lew on the need for structural reform in China and transparency in the forex market. In contrast to Japan, the United States, a long-time critic of China’s currency policies, appeared satisfied with Beijing’s recent handling of the yuan. Lew complimented Beijing’s improved transparency and said the yuan had been moving in response to market factors.
US officials even noted China had actually been intervening to prevent the yuan from falling too quickly.
The G20 meeting came at a sensitive time for China-US relations after the Permanent Court of Arbitration in the Hague earlier this month ruled Beijing’s claims to vast swathes of the South China Sea invalid.
It also immediately followed the nomination of Donald Trump as the Republican Party candidate in the US presidential election.
Trump has said if elected he would have China declared a currency manipulator as one of his first acts in office.
Sources at the G20 said there was little discussion of China’s new regulations on cybersecurity, seen as regulating foreign software companies out of the domestic market.
There was also little progress in opening protected parts of China’s economy to foreign investment, sources said, although the final communique did express concern about protectionism.
However, the G20 did refer to worries about industrial overcapacity, particularly in the steel sector.
Many of China’s trading partners accuse it of dumping excess steel in overseas markets to avoid massive layoffs in its state-dominated steel sector, in turn eroding steel employment in other countries.