China has ample fiscal space to cope with any market turbulence triggered by Britain’s decision to leave the European Union but should limit intervention to alter the yuan’s value, said the head of the Asian Infrastructure Investment Bank.
Policy makers should also ensure sufficient liquidity to help manage fallout from Brexit while avoiding a build up of inflationary pressures, Jin Liqun, the new China-backed development bank’s president, said in an interview Sunday with Bloomberg Television’s Haslinda Amin. The yuan is at about fair value and policy makers should be tolerant of any market volatility, he said in Beijing.
“If you try to intervene too much, I think the volatility would be getting worse,” said Jin, 66. “So you should be a little bit more patient, allowing the market to correct itself rather than taking drastic measures to keep the market down, which often backfires.”China shared $598 billion in trade with the EU last year, second only to the U.S., and slowing growth and capital outflows make the nation vulnerable to the effects of the Brexit vote, according to Bloomberg Intelligence economists Fielding Chen and Tom Orlik. If Brexit does trigger a significant adverse impact on European demand and global investor sentiment, China could be among the Asian economies least well-placed to respond, they say.
