SAN FRANCISCO: The world’s central banks are scrambling to assess the risk a slowing China poses to their economies and appear to be no closer than most other observers to working out what is going on in the world’s second largest economy.

While the Reserve Bank of Australia and the Bank of Japan have offices in Beijing, the US Federal Reserve and the European Central Bank appear to rely on the same data — that may be flawed — as everyone else.

By raising interest rates on Wednesday the Fed removed one major source of uncertainty, leaving developments in China at the top of investors’ and policymakers’ watch lists, alongside the Fed’s next steps.

China accounts for more than 10 per cent of global trade and remains the single biggest contributor to global growth. A financial market selloff in China sent ripples around the world and caused the Fed to stay its hand when it considered a rate hike in September.

If anything, China’s influence is growing. If Beijing allows the yuan to weaken further and re-pegs it to a basket of currencies instead of just the dollar, it could end up exporting deflation that might delay or reverse rate hikes globally.

“We try to get the best information we have... and we talk to everybody. But I don’t think we have any better information than anybody else,” James Bullard, President of the Federal Reserve Bank of St Louis told Reuters.

Economists have questioned China’s economic statistics for years and turned to measures such as concrete, steel or electricity production to get a handle on an economy that has grown almost 10pc a year for 30 years.

Now such gauges are less useful as China shifts to a harder-to-measure services economy from an export-driven manufacturing giant.

“I don’t think the Chinese government has that good information,” said Bullard.

SCANT CONTACTS: The issue, according to Fed insiders, former Fed employees and economists is that while the Group of Seven top industrial nations share a common policy language and well established communications channels, they are less developed at the Group of 20.

Neither does the People’s Bank of China send policymakers to international economic meetings where they could mingle with top officials from the Fed, ECB, BOJ and other central banks.

Former and current Fed officials say there is no official hotline with China, although there is formal interaction.

“Almost uniformly, from central banks and international organizations, what I hear is that the Chinese side is reluctant to engage,” said Michael Spencer, Deutsche Bank’s Asia-focused economist.

An examination by Reuters shows the Fed relies on the same publicly available China data that other economists do, and US central bankers acknowledge both publicly and privately that they cannot say they have any firmer handle on how shifts in the Chinese economy affect the United States than anyone else.

Both the Fed and the European Central Bank have small but growing cadres of analysts who specialize in China.

The Fed, for its part, is now churning out at least one paper on China each month, compared with only three or four a year a decade ago, a Reuters analysis shows.

That is not counting the unpublished policy briefings and internal modeling that insiders say inform decisions, such as the Fed’s September call to keep rates on hold.

Mark Speigel from the San Francisco Fed says his own research reflects the increased interest. A few years ago his main focus was on Japan, but now he devotes most of his time to China.

Officials from Fed Chair Janet Yellen down do have regular contact with Chinese central bankers and other government officials. On Oct. 8, for instance, Yellen spent 30 minutes with the deputy governor of the People’s Bank of China at the G-20 meeting in Lima, Peru, her schedule shows. The Fed would not comment on what was said.

San Francisco Fed President John Williams, who makes an annual swing through Asia with Board Governor Jerome Powell, has said his meetings with Chinese officials give him greater confidence the authorities there will engineer a smooth transition from an export-led economy to a domestically driven one, even if that pivot is faster than expected.

“The shift is happening quickly,” Williams said last month.

Published in Dawn, December 18th, 2015