China warns of ‘spillover’ from Western rate hikes on emerging economies

Wednesday, 18 January 2023 00:05 - - {{hitsCtrl.values.hits}}

DAVOS, AFP: China’s vice premier warned Tuesday about the impact of “spillover effects” of Western interest rate hikes on emerging economies.

“We call for more attention to the spillover effects of major countries’ rate hikes on emerging market and developing countries so as not to add to more debt or financial risks,” Liu He told the World Economic Forum in Davos, Switzerland.

The US Federal Reserve has hiked its benchmark lending rate at a pace unheard of since the 1980s over the last year to tame soaring inflation, while the European Central Bank has also raised borrowing costs.

The US moves have strengthened the value of the dollar, raising the cost of borrowing for countries with debt priced in greenbacks.

They also encourage capital flight from emerging countries and dampen economic growth there.

Liu also called for an end “to Cold War mentality” as he spoke in favour of more global co-operation amid soaring tensions between Washington and Beijing over economic policy as well as Taiwan.

“We need to uphold the right principles and uphold the effective international economic order,” he said, before adding: “We have to abandon the Cold War mentality.”

China’s export-oriented economy is seen as being particularly threatened by changes to the global trading system, with the United States in particular looking to shore up its domestic industry and limit trade with Beijing in key strategic sectors.

The theme of this year’s meeting in Davos is “Co-operation in a fragmented world,” a nod to international tensions caused by the war in Ukraine and increased rivalry between the United States and China.

“How to strengthen co-operation in a fragmented world is a real problem we all face,” Liu said.