Davos Speakers Defend China, China Vows to Defend Stock Investors

China served as a major topic of discussion and a primary source of concern at the World Economic Forum.  However, several speakers went to great lengths to defend Asia’s largest economy and to point out that it is still moving toward strong growth and a “manageable” economic transition.

No Cliff

China served as a major topic of discussion and a primary source of concern at the World Economic Forum.  However, several speakers went to great lengths to defend Asia’s largest economy and to point out that it is still moving toward strong growth and a “manageable” economic transition.

No Cliff

Reserve Bank of India Governor Raghuram Rajan dismissed concerns about China in a televised interview with Bloomberg at Davos, and he discussed the country in a talk on Thursday. “There is underlying growth in China,” Rajan said, adding that the country’s policymakers are making prudent decisions regarding its currency and its relationship to the currencies of other trading partners.

“The Chinese move to a basket is understandable because the dollar is strengthening, but the yen and the euro are weakening, so clearly some of the actions that have been taken to weaken currencies do have effects elsewhere,” he said.  He went on to note that China’s move toward a basket of currencies is partly a result of quantitative easing measures and changes in currency relationships elsewhere in the world.

Better Communication

Elsewhere at the forum, International Monetary Fund Managing Director Christine Lagarde said the problem with China and fears about its economy boil down to a miscommunication.

“There is a communication issue,” she said, adding that the country is making a transition toward a market-based exchange rate that is ultimately in the best interests of China and its trading partners. “Better and more communication would certainly serve that transition better,” she said.

Goldman Sachs President Gary Cohn agreed, remarking that the market wants “clarity” in how Chinese policymakers are planning to manage its currency and economy in the future.  China Securities Regulatory Commission Vice Chairman, who was also on the panel, admitted that his country needs to communicate better with the rest of the world. “Our system isn’t structured in a way that’s able to communicate seamlessly with the market,” he said.

Plans to Protect Investors

Meanwhile, China vice president Li Yuanchao said at the World Economic Forum that excessive volatility helps only a few, and that the Chinese government is looking to protect most investors. “The Chinese government is going to look after the interests of most of the people, most of the investors,” he said.

Additionally, Li asserted the need for the Chinese government to balance government intervention with competition as its equity market matures. “On the one hand, we need to make the stock market more dynamic, but on the other hand we also need to strengthen regulation of the stock market, and we resolve to do that,” he said.

At the same time, Li also said that China has no plans to devalue the yuan, adding that “fluctuations in the currency market started with the raising of interest rates by the Fed,” pointing to the U.S. central bank’s decision to increase its funds rate target in December 2015.