Chinese Central Bank Says Volatility Nearly Over.
QUEST: Market volatility is nearly over, so says the governor of China's central bank. You may well ask --</s>QUEST: -- excuse me -- how does he know that? Well, it does not appear to be backed by several new economic indicators. Look at the red arrows down. First of all, we've got falling growth. Last year's GDP has been revised from 7.4 to 7.3 percent. Not a big change, but any sign of a slowdown sets off alarm bells, and there will be questions, of course, whether you actually believe the 7.3 is a valid number. So, you've got falling growth and you've got falling reserves. The foreign currency coffers are emptying at a record pace. Hardly surprising, and the reserves have dropped by nearly $94 billion in August. That's when they were intervening to prop up the currency. There's also been the expenditure in the markets, and you've got a total issue of what they've been doing with -- they've actually been selling, the Chinese have been selling US Treasury debt out of their stocks. And finally, falling markets, which of course, you'll be aware, the Shanghai Composite closed down some 2.5 percent on Monday. If you look at the market -- let's just look at a six- month market, and you can see. It's basically lost some 40 percent of its value since June, and even if we take a one-year limit now, you start -- all right, over the 12-month, not year-to-date, over a 12-month limit, you're still up maybe marginally just about. But it's a close-run thing. But that is not a pretty sight. Stephanie Flanders joins us now from London, who is the global market strategist at JPMorgan Asset Management. Good evening to you. Good to see you, as always.</s>STEPHANIE FLANDERS, GLOBAL MARKET STRATEGIST, JPMORGAN ASSET MANAGEMENT: Evening, Richard.</s>QUEST: All right. So, do you believe the governor when he says the market volatility is over?</s>FLANDERS: You know, I'll believe that they're a bit more serious about letting market forces operate in things like the stock market when they stop talking about when it's going to go up and when it's going to go down and when it's going to be stable. That's one of the lessons, Richard, that you get from being a finance minister or quite quickly from being a central bank governor. You don't want to tie yourself to promises about what direction the market's going to go if you are actually serious about a market economy. I think that obviously, what people have been looking for in the China situation is not so much what happens to that stock market, which actually affects quite a small bit of the economy, and it's always been very speculative. But what we're seeing going on in the global -- in the real economy, which you were just talking about. And also, what we're seeing in terms of how policymakers are responding to the difficult challenges they face. Because we've always thought they were quite good at dealing with these things, and they haven't really been looking so great over the last few weeks.</s>QUEST: And yet, the sort of dislocation -- collywobbles, whatever you want to call it, that we're seeing in the global economy at the moment. Is it your view that it's justified on the back of what we're seeing in China?</s>FLANDERS: I think you can't draw a direct line from any -- realistically from what's going on in China any likely economic effect that that would have for the rest of the world to any sort of dire predictions about the global recovery. I don't think we're in a situation where even quite challenging times for China -- and I suspect it could get more challenging -- I don't think that's enough to send us into a global recession. But I think it does tell us that the developed world, for the moment, is kind of on its own. It's not going to get any extra support from the growth coming from emerging markets. And in fact, it's probably going to find there's a bit of a headwind from that, but actually the whole emerging market world in large part, thanks to the weakness in China, is going to be weaker -- even weaker than we thought.</s>QUEST: And factoring in that, the question of the moment -- because there is only one -- September. Are you a September or a December woman?</s>FLANDERS: You know, I'm one of those people who thinks they haven't made up their mind yet, for one thing --</s>FLANDERS: -- when you think about the US central bank. But you know what? You can never underestimate the parochialism, if you like, of the US central bank. They're always very clear their job is to think about the US. And I actually think it's better for the rest of the world I they just focus on the US, because it's hard enough to get that right. If they start to make different calculations about what impact it might have on this or that. Of course they have to think about indirect effects, if they had -- if there were big issues in the emerging market world, what effect would that have in the US? But their focus is on the US. And you know what? The US doesn't really look like an economy that needs rock-bottom interest rates at the moment. You might not think it's a great time to raise rates, but it doesn't really feel like a time where it needs that kind of emergency support.</s>QUEST: And finally, when we factor it all in, what will it take -- this is the billion-dollar question -- what will it take to soothe the nerves of the market? We don't believe the 7.3 percent China number. There are worries about September. Emerging markets -- we haven't quite factored in just the long -- medium-term effect on this. So, what's the soothing balm for this volatility, if there is one?</s>FLANDERS: I think if you continue to get pretty decent growth news out of the US and Europe, which is what you're seeing. In fact, some very good figures out of the UK and elsewhere. And if you get some reassurance that there is a bottom to some of this bad news coming out of emerging markets. I think the real risk, as always, is not the direct economic impact, it's the indirect impact and the psychological impact of just not knowing how bad this could get. We'd like to see that we're reaching some kind of turning point there. I'm not sure we're quite there.</s>QUEST: Stephanie, lovely to see you. Thank you so much. Stephanie Flanders joining us from London.</s>FLANDERS: Thanks.</s>QUEST: The situation on the Hungarian-Serbian border is intensifying.</s>QUEST: Now the Hungarian police are resorting to pepper spray on increasingly desperate migrants.