China keeps up tough talk as G20 summit nears

China warned on Tuesday that U.S. easy money could destabilize the global economy and inflate asset bubbles, keeping up the pressure on Washington just two days before the start of a G20 leaders summit.

The U.S. Federal Reserve's new $600 billion bond-buying program has drawn global scorn because of concerns it will send a flood of cash into the world economy without doing much to reinvigorate a lackluster U.S. recovery.

Ma Delun, a deputy governor of the People's Bank of China, said he was concerned the Fed's spending spree may undermine efforts to balance out global growth.

The Fed's program "may add risks to the global economic imbalance, put pressure on emerging markets to adjust their international balance of payments and could also stir the formation of asset bubbles, all of which require our vigilance," Ma said in Beijing.

The Group of 20 rich and emerging economies meet here on Thursday and Friday and are eager to show they have not lost the cooperative spirit forged during the depths of the financial crisis in 2008.

Hosts South Korea hung huge banners from buildings around the convention center housing the summit proclaiming a G20 mission of "Shared Growth Beyond Crisis."

But growing discontent over foreign exchange rates and trade has exposed deep international rifts, while Ireland's worsening debt troubles have served as a reminder that the global economy remains vulnerable to financial turmoil.

If G20 leaders are unable to calm tensions this week, it could intensify investor concerns that global cooperation is giving way to national policies that may not be in the world economy's best interest.

High on the worry list is protectionism.

Although G20 finance leaders pledged last month to shun competitive currency devaluations, the Fed's bond-buying program has deepened concerns that the U.S. dollar is headed lower, driving up exchange rates in other countries.

China's tight grip on the yuan's rate means other fast-growing emerging markets such as Brazil end up taking the brunt of the currency adjustment.

World Bank President Robert Zoellick called for a new global currency system, perhaps with gold as a reference point. The idea drew criticism from many economists and there was no indication that it was on the G20's agenda this week.

Li Daokui, an academic adviser to China's central bank, said China wants a more "reasonable" global monetary system but its objective was not to replace the dollar with the yuan.

Security Tightens

Seoul raised its security alert to its highest level this week over concerns of violent anti-capitalist protests -- a common feature of summits involving the world's leading economies -- and worries rival North Korea may try to stage an incident to embarrass it.

Authorities have received hundreds of applications to stage protests, mostly by small fringe groups, with the biggest rally of unionists and anti-capitalists expected on Thursday. Some 50,000 police officers have been dispatched.

On Tuesday, two naked women activists from South Korea and Canada were covered with blankets and whisked away by police near the main G20 venue. They were animal rights activists protesting against the meat industry.

Authorities have set up a 2 km (1.25 mile) security zone around the main summit venue, and a special law has been enacted to give police greater authority to thwart demonstrations and deploy troops.

No Numbers

Keeping the political peace will be a priority for G20 leaders inside the security zone.

Despite well-publicized differences, U.S. Treasury Secretary Timothy Geithner insisted there was broad agreement among G20 members -- including China -- on narrowing global imbalances between cash-rich exporters and debt-laden consumer countries.

G20 leaders agreed last year on a "framework" for more balanced growth, which called on surplus countries such as China to bolster domestic demand while the United States and other big importers boosted savings and investment.

"I'm very confident that you're going to see very strong consensus on this basic framework because it meets the basic tests and it's better than the alternatives," Geithner told an audience of Indian business leaders.

"The Chinese are very supportive of it. It has a lot of benefits to them."

Geithner has backed away from a proposal to set numerical targets limiting the size of current accounts, and Japanese Finance Minister Yoshihiko Noda said it was not likely that the G20 would agree on any hard numbers.

"We have to keep in mind that each country's circumstances are different," he said in Tokyo.

"It's more likely that countries will agree a common approach, and finance ministers from the member countries will debate the details later," he told reporters after a cabinet meeting.

[Source: By Emily Kaiser, Reuters, Seoul, 09Nov10]

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