Ahead of G20, China urges caution in Fed policy tapering China calls on Fed to use caution on tapering The U.S. Federal Reserve must consider when and how fast it unwinds its economic stimulus to avoid harming emerging market economies, senior Chinese officials said on Tuesday. The warning by China's Vice Finance Minister Zhu Guangyao and central bank Vice Governor Yi Gang came as economies from Brazil to Indonesia struggle to cope with capital flight as U.S. interest rates rise ahead of an expected tapering off in the Federal Reserve's bond buying programme that unleashed liquidity across the world. "The U.S. economy is showing some positive signs and is recovering gradually and we welcome this," Zhu told a briefing ahead of G20 leaders" summit in Russia next week. "But the United States - the main currency issuing country - must consider the spill-over effect of its monetary policy, especially the opportunity and rhythm of its exit from the ultra-loose monetary policy," Zhu said. Financial markets are fretting that the U.S. Fed might decide to reduce its monthly bond buying when it meets on Sept 17 and 18. Zhu said while China faced a severe economic environment at home and abroad, it would keep economic policies stable. China will refrain from providing stimulus to the world's second-largest economy, which he said was on track to grow around 7.5 per cent this year - in line with the government's target. The government will instead quicken structural adjustments, including efforts to deal with factory overcapacity, he said. Speaking at the briefing ahead of the G20 meeting in St. Petersburg on Sept. 5 and 6, Vice Governor Yi Gang said the issue of how nations would cope as developed economies tighten their monetary policy would be a focus at the G20 meeting. "On monetary policy, the focal point (of G20) will be on how to minimize the external impact when major developed countries exit or gradually exit quantitative easing, especially causing volatile capital flows in emerging markets and putting pressures on emerging-market currencies," Yi said. Yi said a $100-billion foreign-currency fund being discussed by countries that make up the BRICS grouping of Brazil, Russia, India, China and South Africa will be set up in the foreseeable future. He said China would provide "a big share" of the funds but he did not give details. "It will not exceed 50 per cent," he said. The BRICS" leaders have agreed to set up the fund to help ward off currency crises. German businesses more optimistic A key measure of German business optimism rose more than expected in August, adding to expectations that the broader euro zone is finding its footing. The Associated Press reported that Germany's Ifo rose to 107.5 this month, from 106.2 in July. The latest read edged past economists forecasts, which had called for an increase to 107.0.The increase is the fourth advance in as many months. Despite the positive news, traders remained wary. "A better than expected reading on the German IFO Business Survey this morning wasn't enough to drag European indices from the doldrums, as concerns over the unravelling political situation in Italy and the escalating violence in Syria weigh on market sentiment," Matt Basi, head of U.K. sales trading at CMC Markets U.K., said in a morning note. "In truth, traders don't need much persuading to reduce risk at the moment with the QE picture still unclear - particularly after the weak U.S. data we saw yesterday - and today's move probably reflects investors following the old adage "if in doubt, stay out." The rupee hits another low The alarm over India's fiscal deficit eclipsed an announcement by Finance Minister P. Chidambaram that the government had approved infrastructure projects worth 1.83 trillion rupees ($28.38-billion U.S.), a step aimed at reviving economic growth and shoring up investor confidence. From today's Globe and Mail: