MercoPress. South Atlantic News Agency

China and US exchange accusations ahead of the G20 summit in Korea

President Barack Obama: “we want China to succeed and prosper”

China kept up criticism of US easy-money policies, warning two days before a G20 world economic summit that Washington could destabilize the global economy and inflate asset bubbles.

Nearly a week after the Federal Reserve announced it was going pump as much as 600 billion US dollars into the economy, world leaders continue to bash the plan, saying it will flood global markets with cash without doing much for the US recovery.

President Barack Obama acknowledged in Jakarta that the Group of 20 rich and developing nations “still have a lot of work to do” to ensure balanced global growth.

Without giving names, he complained about countries that are intervening in currency markets to maintain a trade advantage. Later, he said Washington was not trying to contain China's economic growth.

“We want China to succeed and prosper. It's good for the United States if China continues on the path of development” he told a press conference.

The United States has long accused China of keeping the Yuan artificially weak to benefit its exporters. But Chinese officials now say the Fed is weakening the dollar with a second round of quantitative easing, which is equal to printing money.

German Chancellor Angela Merkel said she hoped to avoid a confrontation between China and the United States in Seoul, and warned against protectionism. But she dismissed US calls for numerical limits for current account balances.

US Treasury Secretary Timothy Geithner has already backed away from the proposal to set targets for current account gaps. Japanese Finance Minister Yoshihiko Noda said it was not likely the G20 would agree on any hard numbers.

“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 in Tokyo.

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,” Ma said in Beijing.

In the latest move by an emerging economy to slow inflows of “hot money,” Taiwan decided to bar foreign investors from placing more than 30% of their funds in Taiwan in local government bonds and money-market products, reviving a curb scrapped in 1995.

Leaders of the Group of 20 economies meet on Thursday and Friday, eager to show they have not lost the cooperative spirit forged during the depths of the financial crisis in 2008.

But growing discontent over exchange rates and trade has exposed deep international rifts. If the leaders are unable to calm tensions this week, investors could grow more concerned that global cooperation is gone.

High on the worry list is protectionism. The Fed's bond-buying program has deepened concerns that the US dollar is headed lower, hurting exports from other countries. China's tight grip on the Yuan means other emerging markets such as Brazil end up taking the brunt of the currency adjustment.

A “trade war” could follow suit if the G20 fails to achieve a global solution for currency imbalances, Brazil's Foreign Trade Secretary Welber Barral told reporters.