China says US policies the biggest challenge to global financial stability, urges Washington to be responsible
Published: Apr 20, 2023 09:14 PM
People look at signs posted outside of an entrance to Silicon Valley Bank in Santa Clara, California, on March 10, 2023. Photo: VCG

People look at signs posted outside of an entrance to Silicon Valley Bank in Santa Clara, California, on March 10, 2023. Photo: VCG

China on Thursday urged the US and other developed countries to carefully assess the spillover impact of their economic and financial policies, stabilize market expectations in a timely manner, and avoid a negative impact on global financial stability.

While expressing concerns about the global economic situation, China is calling for a due obligation of maintaining global financial stability and promoting the recovery of the world economy, Wang Wenbin, a spokesperson for China's Foreign Ministry, said on Thursday.

The remarks were made in response to the latest Global Financial Stability Report released by the IMF, which said that factors such as banking turmoil in the US have exacerbated risks to global financial stability.

Speaking at a regular press conference on Thursday, Wang said that global financial stability is related to the recovery and development of the world economy and the common interests of all countries, and it needs to be jointly maintained by all parties.

At present, international financial risks are prominent, which is closely related to the adjustment of the monetary policies of the US and other developed countries, Wang said, noting that there is a general belief in the international community that US economic and financial policies have become the biggest challenge to global financial stability.

In March, Silicon Valley Bank (SVB) and Signature Bank of New York, two US regional banks, failed after rapid depositor flight. One week later, Swiss authorities announced a state-supported merger of Credit Suisse with UBS following a loss of market confidence.

The sudden failures of SVB and Signature Bank in the US, and the loss of market confidence in Credit Suisse, a global systemically important bank in Europe, have been a powerful reminder of the challenges posed by the interaction between tighter monetary and financial conditions and the buildup in vulnerabilities, the IMF report said.

Stresses triggered by the tighter stance of monetary policy may result in further bouts of financial instability, the report further noted.

Amid market uncertainty pertaining to the US Fed's monetary policy and stubbornly high inflation in the US, a total of 186 US banks were reportedly exposed to risks similar to SVB, according to media reports.

In 2022, the US Fed raised rates by a cumulative 425 basis points (bps), including four consecutive hikes of 75 bps, which was unprecedented in the Fed's history. The tightening has dampened US economic activity, with many economists predicting a slowdown in 2023.

Wang said the Fed's aggressive interest rate hikes have significantly increased the financing cost globally and exacerbated the disorderly flow of international capital.

The move by the US Fed led to the failure or acquisition of some banks in the US and Europe. It also aggravated the difficulties of emerging market economies and developing countries, which is not conducive to the world economic recovery, the spokesperson said.

Since last year, interest rates in developed countries such as the US have risen, significantly increasing the debt repayment burdens of these countries, making them fall into a vicious circle of debt repayment, and facing the outstanding risk of debt default, Wang said.

"We call on developed countries to listen to the real aspirations and urgent needs of developing countries, provide real financial help to countries facing difficulties, stop paying lip service to others and blaming others, and earnestly undertake to maintain global financial stability," the spokesperson said.

Chinese experts also urged developed countries, particularly the US, to take responsibility for problems caused by their monetary policies, which have had a substantive impact on the global economy, when the world needs an economic recovery more than ever.

The crazy appreciation of the dollar has forced many countries to raise interest rates, seriously affecting their own economies, while weighing on their sovereign debt distress, so the US is responsible for global financial instability, He Weiwen, an executive council member of the China Society for World Trade Organization Studies, told the Global Times on Thursday.

In addition to the Fed's interest rate hikes, the failures of US regulation have caused some commercial banks to violate the law and brought risks. Therefore, the US should learn a lesson from this and strengthen legal regulation to avoid a negative impact on the world, He noted.

The Fed's frenzied interest rate hikes and banking instability have caused a large amount of capital to flee the US, even selling of dollars to snap up gold or seeking other currencies as payment instruments for international settlements, Dong Dengxin, director of the Finance and Securities Institute at the Wuhan University of Science and Technology, told the Global Times on Thursday. 

More seriously, currencies pegged to the US dollar have depreciated sharply, while wreaking damage on the orderly flow of international capital, Dong added.

In addition, amid the Russia-Ukraine conflict, US-led western sanctions against Russia are greatly shaking the status of the dollar as a world currency and disrupting the world payment order as well as the international clearing system, according to Dong.

"If the US continues its financial policy, it may not only cause a depression in the US economy, but also may trigger a global financial crisis and a debt crisis in developing countries," Dong warned.