The annual meeting of 21 leaders in the Asia-Pacific region spent much of the two-day event in Russia’s Far East focused on the other side of the planet, discussing threats to the world economy posed by the European debt crisis and a looming U.S. budget showdown.
Heads of the Asia-Pacific Economic Cooperation Summit in Vladivostok, including Chinese President Hu Jintao and Chilean President Sebastian Pinera, spoke of the dangers the European debt crisis poses to their economies. International Monetary Fund Managing Director Christine Lagarde discussed the so-called U.S. fiscal cliff of tax increases and spending cuts at a lunchtime gathering of the leaders, who collectively oversee 56 percent of world economic output.
Asian leaders vowed to work together to counter the effects of the debt crisis in Europe and the tepid recovery in the U.S. The export-oriented countries of the Asia-Pacific region, where economic expansion in countries such as Chile and China exceeds global growth by several percentage points, are vulnerable to slowdowns in their biggest markets.
“High public deficits and debts in some advanced economies are creating strong headwinds to economic recovery globally,” the APEC leaders said in a joint statement. “The events in Europe are adversely affecting growth in the region. In such circumstances, we are resolved to work collectively to support growth and foster financial stability, and restore confidence.”
Hu said in a Sept. 8 speech to the APEC CEO Summit that China’s economic growth faced “notable downward pressure” in part because of slowing export growth and the sovereign debt crisis. Pinera, who signed a free-trade agreement with Hu yesterday, said in an interview that he is concerned about the impact the European debt crisis and slow U.S. growth is having on the Chilean economy.
“There is a certain worry about the development of the global economy, especially given the big problems in the EU and the U.S.,” Russian President Vladimir Putin told reporters at the close of the summit, held at a new university campus on an island near Vladivostok. “The Asia-Pacific region is the locomotive of the global economy.”
During a lunch with APEC leaders, the IMF’s Lagarde said U.S. tax increases and spending cuts set to take effect by the beginning of next year pose one of the three main risks to the global economy -- the other two being the euro crisis and medium-term public financing.
“We discussed over lunch with the leaders of APEC, the global economic situation, with the three key risks that we see on the horizon,” Lagarde told reporters yesterday. She said there are a “combination of factors that could also increase the vulnerabilities of emerging economies.”
APEC’s 21 economies have a market of almost 3 billion consumers, making up 44 percent of world trade and a combined gross domestic product of $39 trillion in 2011, according to a fact sheet provided by the U.S. government. The group pledged to move toward greater exchange-rate flexibility and more market-based currencies, according to the meeting’s final communique.
The move is meant to “reflect underlying fundamentals, avoid persistent exchange rate misalignments, and refrain from competitive devaluation of currencies,” the leaders said in the communique, which was distributed on the final day of the annual summit.
The leaders backed Europe’s move to safeguard the integrity and stability of the euro area, pledged to refrain from imposing new trade restrictions through 2015, and vowed to reduce tariffs on certain environmental products to 5 percent or less, according to the document.
APEC negotiators discussed the internationalization of China’s yuan, which still doesn’t trade freely on global markets. In the U.S., some lawmakers say the yuan is undervalued, undercutting U.S. exports and making Chinese imports too cheap.
Guo Jianwei, deputy director of the People’s Bank of China’s second monetary policy department, told reporters Sept. 8 at a forum in the eastern Chinese city of Xiamen that the central bank will allow the trading band to play a bigger role in the country’s exchange-rate mechanism.
“In the past when speculation was heavy, it was very hard for China to widen the band too much,” Guo said. “But with the current balanced level of the exchange rate and stable economic growth, the room to allow the band to play a bigger role in the reform of the exchange rate mechanism is growing.”
China’s yuan rose 0.09 percent last week to 6.3430 per dollar, according to the China Foreign Exchange Trading System, completing a sixth weekly gain. The MSCI Asia Pacific Index of shares is up 4.7 percent since the beginning of the year.
APEC leaders pledged a 10 percent improvement in supply-chain performance by 2015 and recognized “growing challenges” to food security. They pledged to take action to raise agricultural productivity, according to the communique.
They said they would refrain from imposing limits on food exports because “bans and other restrictions on the export of food may cause price volatility, especially for economies that rely on imports of staple products.” The APEC members also reaffirmed a commitment to so-called green growth.
The conference highlighted infrastructure projects as a way to spur growth, with a new suspension bridge over the Eastern Bosphorus strait linking the island to Vladivostok as the centerpiece of Russia’s $20 billion spending in the area in the run-up to the meeting.
“I have been terribly skeptical and downright negative on the Soviet Union and Russia for the past 40 or 50 years, but in the past few weeks and months I’ve started reassessing my view on Russia,” investor Jim Rogers, chairman of Singapore-based Rogers Holdings, said in a Sept. 7 interview at the APEC CEO Summit. “The Russians used to say, or still say, ‘Russia’s a country with terrible roads run by fools. Now they say, ’Well we’ve fixed the roads.’”