China has warned the US and Europe against a rapid rise in interest rates that would “slam on the brakes” of the global recovery from the pandemic.
Central banks should maintain the monetary stimulus or risk “serious economic consequences” from the spillover effects with developing markets bearing the brunt.
In a virtual speech to open the World Economic Forum’s Davos agenda, the Chinese president, Xi Jinping, said that while global inflation risks were emerging, policymakers should strengthen economic policy coordination and develop policies to prevent the world economy from dipping again.
“We must do everything necessary to clear the shadow of the pandemic and boost economic and social recovery and development,” he said.
“If major economies slam on the brakes or make major U-turns in their monetary policies there will be serious negative spillovers. They would present challenges to global and economic financial stability and developing countries would bear the brunt.”
China is among many countries across Asia, Africa and South America concerned about plans flagged by the US central bank to accelerate a series of planned interest rate rises this year and begin rolling back its quantitative easing stimulus programme.
The Federal Reserve has came under intense pressure to respond to rising inflation, which soared to 7% in December, its highest level in 40 years.
Policymakers at the Bank of England and the European Central Bank are also expected to tighten monetary policy in the coming months, heightening the risk of indebted countries failing to meet loan repayments.
Tensions with the US extend beyond monetary policy to concerns over intellectual property, trade, the fate of Taiwan, human rights and the South China Sea.
Xi said: “We need to discard cold war mentality and seek peaceful coexistence and win-win outcomes. Our world today is far from being tranquil,” said Xi, through a translator.
“Protectionism and unilateralism can protect no one. They ultimately hurt the interests of others as well as one’s own. Even worse are the practices of hegemony and bullying, which run counter to the tide of history.
“A zero-sum approach that enlarges one’s own gain at the expense of others will not help,” he added. “The right way forward for humanity is peaceful development and win-win cooperation.”
Xi was speaking after the latest figures showed China’s economy slowed at the end of last year to 4% in the three months from October to December compared to the same period in in 2020.
Data from the National Bureau of Statistics revealed the weakest expansion in 18 months as the Covid-19 pandemic and the crisis in its property sector hit growth.
In the first three quarters of 2021 China’s economy expanded by more than 9%, but since the summer it has slowed dramatically, prompting Beijing to cut a key interest rate.
Analysts have blamed Beijing’s zero tolerance approach to the Covid-19 virus, which has included restricting all movement in cities that have only a handful of cases.
Retail sales growth slowed sharply to just 1.7% year-on-year in December, down from 3.9%, the bureau said.
Spillovers from the crisis at indebted property developer Evergrande also weighed on China’s economy.
Louis Kuijs, head of Asia economics at Oxford Economics, said Xi’s administration was unlikely to tolerate GDP growth of less than 5%, which meant a further cut in borrowing costs was possible.
“If growth is weaker than that, Beijing will feel strongly motivated to pursue more policy easing,” she said.