Davos: Lagarde, Panelists Say China Transition Challenge Is ManageableBloomberg News
IMF's Lagarde: China is 'going through a list of transitions'
Dalio, Cohn echo comments nation has delivered on past reforms
Two of China’s delegates to the annual World Economic Forum in Davos heard calls for clearer communication on their nation’s economic policies in the wake of volatility in mainland stocks and the currency.
"There is a communication issue," International Monetary Fund Managing Director Christine Lagarde said at a panel hosted by Bloomberg in the Swiss ski resort, referring to confusion about how China is managing a shift toward a more market-set exchange rate. "Better and more communication would certainly serve that transition better."
Gary Cohn, president of Goldman Sachs Group Inc., echoed that "the communication is really what’s important here," and urged Chinese policy makers to "stick with" their transition toward a greater role for markets. "We all want clarity," he said.
"You’re right we should do a better job, and we are learning," said Fang Xinghai, vice chairman of the China Securities Regulatory Commission. "I’m here today to communicate," he said, spurring chuckles from the audience. "Our system isn’t structured in a way that’s able to communicate seamlessly with the market."
Industrial & Commercial Bank of China Ltd. Chairman Jiang Jianqing at the same time cautioned that his country’s economic challenges are “very difficult” and will take “courage” to solve. He said the nation’s growth rate, which last year reached the slowest since 1990, may decelerate further -- to 6.5 percent from 6.9 percent in 2015.
China’s economic transition -- from investment and manufacturing to services and consumption -- is manageable, Lagarde said in comments that were echoed by fellow panelists including Cohn and billionaire hedge fund manager Ray Dalioof Bridgewater Associates.
After a roller coaster 2015 incorporating a yuan devaluation and a record plunge in foreign reserves, stocks have plunged into a bear market as jitters spread over the government’s ability to manage a transition to a new growth model. The yuan weakness has spurred capital outflows and roiled global markets on concern it would spur competitive devaluations.
As questioning turned to the yuan, Fang said "devaluing the currency is not in the interest of China in terms of carrying out our transition strategy" for the economy.
"I understand that there’s some concern about this current year in China," Fang said. "We can’t allow the growth rate to slow down too much" because it such a decline would create too many financial problems, so support will continue, he said, noting China has the means to do so with fiscal policies.
While China’s economy is slowing, growth is happening at two speeds. Old rust-belt industries from steel to coal and cement are in decline while new economy drivers consumption, services and technology are doing better. Services accounted for 50.5 percent of output last year, the most on record.
"A bad year in China is going to be a great year in almost any other country," Dalio said.
China’s top leadership has signaled in recent months it may allow some additional slowness as officials tackle delicate tasks such as reducing excess capacity, but nothing that could threaten President Xi Jinping’s goal of at least 6.5 percent growth through 2020.
In an update to its annual outlook published Tuesday, the IMF left its estimate for China’s growth this year unchanged at 6.3 percent even as it lowered the global projection to 3.4 percent. The fund said risks to the global outlook remain tilted to the downside, with the world facing three big adjustments: the emerging-market slowdown, China’s shift to growth driven less by exports and manufacturing, and the Federal Reserve’s gradual exit from ultra-low interest rates.
China roiled global markets in June with a stock market crash and ham-fisted rescue attempt, and then an unexpected yuan devaluation in August. Stocks slumped again in the first weeks of the year as the central bank unnerved markets by allowing the yuan to weaken. It has since cracked down on speculators by tightening the supply of yuan in offshore markets with regulatory changes and intervention that pushed yuan interbank rates in Hong Kong to a record high.
"There have been signs that China wants to have an open, free economy, an open, free marketplace, but in certain situations the Chinese have intervened into their market, making it less than a free and open market," said Cohn.
— With assistance by Xiaoqing Pi, and Kevin Hamlin