The global economy has been propelled by large-scale monetary easing by advanced countries and the high growth in China and other emerging economies. But it is now facing a change in its underlying structure.

How can another world financial crisis be prevented and stable growth be achieved? It is essential for the industrialized nations and the emerging economies to strengthen cohesion and promote structural reforms and growth strategies.

The communique of the finance ministers and central bank governors of the Group of 20 leading nations and regions said, “Global growth falls short of our expectations.” It also said, “We have pledged to take decisive action to keep the economic recovery on track.”

It is praiseworthy that the G20 shares a sense of alarm about the world’s financial markets and confirms the importance of strengthening communications to ensure market stability.

The latest G20 meeting was held at a time when there was no end in sight to the wild fluctuations in stock prices in global markets and the rapid changes in foreign exchange markets. These developments come against the backdrop of concerns over China’s uncertain economic outlook and growing speculation over an interest rate hike by the United States.

One country after another, including Japan, the United States and emerging economies, urged China — a focus of the latest market turmoil — to adequately explain its recent monetary policies and take appropriate actions.

China offers no details

China is said to have emphasized that it intends to promote structural reforms and shift to a domestic demand-led economy.

But Finance Minister Taro Aso expressed dissatisfaction about the lack of any constructive discussion, as China did not offer any details about its planned crucial reforms.

China, the second-largest economy in the world, should demonstrate its determination to stabilize its economy by taking effective actions.

Other nations have become increasingly frustrated with the self-serving policies of China, which, for example, abruptly devaluated its currency to expand exports. Suspicion has also grown that China’s economic statistics do not accurately reflect the real state of its economy.

China needs to dispel such distrust by fully disclosing information, while at the same time correcting its erratic policies.

It should also bear in mind its pledge, made at the G20 meeting, to steadily carry out structural reforms. The country’s ability to achieve such goals as financial liberalization and reorganization of its state enterprises will be put to the test.

The communique also included the statement “We note that monetary policy tightening is more likely in some advanced economies.” It is appropriate that while not naming names, it tacitly cautioned the United States against raising interest rates without due consideration.

The U.S. Federal Reserve Board must make its policy decision carefully by also keeping in mind such possible negative effects as rapid capital outflows from emerging economies.

At the meeting, there were no harsh requests made of Japan. But the pace of its economic recovery has recently become uncertain. The government and the Bank of Japan must not relax efforts to realize economic vitalization.

Editorial
(The Yomiuri Shimbun)
(Asia News Network)