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China’s Xi Jinping urges the West not to “hit the brakes” by raising interest rates too quickly

Chinese President Xi Jinping on Monday urged major world economies to spur growth by coordinating their policies, while the world continues to pull out of the turmoil caused by the coronavirus pandemic.

"Global industrial chains and supply chains have been disrupted. Commodity prices continue to rise. Energy supply remains tight. These risks reinforce each other and increase uncertainty about economic recovery," Xi told World Economic Forum participants in 2022 during a speech. . online.

He warned against the effects of raising interest rates too much too quickly, saying such measures could threaten global financial stability.

"If large economies hit the brakes or take a U-turn in their monetary policy, there will be serious negative spillovers," Xi said. "They would pose challenges to global economic and financial stability, and developing countries would bear the bulk of it."

Many global policy makers are struggling with rising inflationary pressures and are beginning to end their stimulus plans from the pandemic.

The Federal Reserve signaled last month that it could raise interest rates three times in 2022, while the European Central Bank announced it would end its bond-buying program in times of crisis in March. The Bank of England raised interest rates last month and became the first major bank to do so since the pandemic began. Central banks in Eastern Europe and Latin America have also raised interest rates aggressively to cool inflation.

But China - the only major economy to grow by 2020 - is taking a different path as its economy slows, and it is struggling with the challenges of maintaining momentum while sticking to its zero-Covid strategy, a strict policy for to close areas to prevent outbreaks that have isolated the country from large parts of the world.

China's economy grew 8.1% in 2021, but growth is slowing

People's Bank of China har has loosened his purse to keep things running.

On Monday, the central bank lowered a key policy rate for the first time since April 2020. Last month, it lowered both the reserve requirement percentage - which determines how much cash the banks must have in reserve - and the loan's prime interest rate, a rate of approx. which commercial banks lend to their best customers and which act as benchmark interest rates for other loans.

Beijing's latest move came as the country reported its economy growing by 8.1% in 2021. While this figure exceeded the government's own targets, growth slowed to half the pace in the last quarter of the year and is expected to fight even more due to Covid and a deeper property crisis.

Government economists in China have warned of a contagious effect caused by the Fed's rate hikes.

Zhu Baoliang, chief economist at China's state information center - a government policy think tank - told the central bank-backed Financial News that the country needs to monitor and potentially prevent any financial crisis caused by the Fed's rate hikes.

"Historically, Fed rate hikes have triggered financial and economic crises in other countries on many occasions," Zhu told the newspaper, adding that an imbalance could cause foreign capital to flee China.

Global investment has flowed into Chinese bonds over the past year as investors chase relatively juicy returns in the country's markets. The strong capital inflow has contributed to an exceptional performance of the yuan, which was one of the best performing currencies in 2021.

Zhu also drew attention to the dollar-denominated bond market for Chinese companies, which he pointed out has grown rapidly. Many companies in China's struggling real estate industry have dollar-denominated bonds; if they become even more expensive to pay back, it can cause more headaches.

And Yang Shuiqing - a researcher at the Chinese Academy of Social Sciences, a top government think tank - also wrote in an article on the state-run news portal that the Fed's rate hikes could also slow demand in the US, affecting exports from China, the US's largest trading partner.
Global experts are very worried about the future, Davos study shows

The International Monetary Fund, meanwhile, has warned that a sharp tightening of monetary policy in the United States or Europe could cause economic turbulence in developing economies.

"Emerging economies should prepare for potential bouts of economic turbulence" due to faster policy austerity measures from the Fed, the IMF wrote in a blog last week.

The mood for economic growth and inflation has changed in the United States, the IMF wrote, as prices rise at the fastest pace in almost four decades.

The economic recovery in emerging markets, meanwhile, has not been as robust, it said, adding that these places are facing "significantly higher public debt."

"Faster Fed rate hikes in response [to inflation] could rattle the financial markets and tighten financial conditions globally, "the IMF said, also warning of declining US demand and trade and its effect on developing economies, which depend on exports to US consumers.

Fed economists wrote in June last year that the risk of spreading to emerging markets depends on a few factors, including conditions in these regions, and how vulnerable and sensitive they are to higher US interest rates.

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