Action needed for global financial stability

WASHINGTON—A senior Chinese official has urged the international community to analyze the root causes of the recent financial turmoil and make efforts to safeguard global financial stability.
“Activity in the major advanced economies slowed in the second quarter of 2007, posing significant downside risks to global growth,” Wu Xiaoling, deputy governor of People’s Bank of China, said on Saturday at the 16th meeting of the International Monetary and Financial Committee. Credit market woes in the United States may further dampen the housing market, suppress consumption and investment, and give rise to potential risks of recession with a spillover effect in other countries, she warned.
“It is all the more urgent a priority to strengthen surveillance of the important advanced economies to safeguard global financial stability and economic prosperity,” said the Chinese official. “This round of adjustment has not yet come to an end,” Wu said. “Despite liquidity injection by the major central banks, credit conditions are unlikely to be restored within a short period of time.”
She said it is also necessary to re-examine the role of financial innovation and the development of derivatives as well as associated risks. As for the Chinese economy, Wu said a major task for the government is to prevent overheating.
“The government has taken measures to strengthen macroeconomic management, improve investment structure, increase fiscal expenditure in the social sector, boost domestic demand, and speed up reform in the financial sector,” she said. In a joint statement issued on Friday, finance officials from the world’s seven richest nations also warned that the credit crisis will hurt economic growth.
“Strong global fundamentals and well-capitalized financial institutions provide a sound and resilient basis but uneven conditions are likely to persist for some time and will require close monitoring,” they said. —Xinhua