World Economy

UK will form closer ties with EMs despite turmoil: Chancellor

Chancellor of the Exchequer George Osborne addresses the Conservative party conference in Birmingham, England.
Matt Cardy | Getty Images

Britain will not "disengage" from emerging markets despite volatility in Asian stock markets over recent weeks and growth concerns over China, the country's top finance minister told CNBC.

Shares in Asia were hammered in August over mounting concerns about a sharp slowdown in Chinese growth, while the possibility of an interest rate hike by the U.S. Federal Reserve before the end of the year has roiled U.S. asset prices. At the same time, emerging market countries such as Brazil are in recession.

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But U.K. Chancellor George Osborne remained bullish on the growth prospects for emerging markets, and China in particular, saying that Britain will continue to form ties with developing nations.

"If you take the long view here, China not only is a massive source of growth in the world economy it's going to be an increasing source of growth over the coming decades," Osborne told CNBC at the G20 Summit in Ankara, Turkey.

"It's absolutely essential Britain engages not just with China but with India, Indonesia…You know of course you're going to have periods when they're not growing as fast as they were. That's not a reason to disengage. I would argue quite the reverse. You know we need to be engaged in these emerging economies so their financial markets are deeper, they're better connected to the more advanced markets you see in the west."

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Britain has been forming closer trade ties with China over the past couple of years. Xi Jinping will become the first Chinese leader to visit the U.K. in a decade after an invitation from the Queen. Britain also said it would join the Asian Infrastructure Investment Bank (AIIB) —China's answer to the World Bank.

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Osborne said that China has made a "massive contribution" to global growth, but that it's right to be "vigilant" about turmoil in their stock market spilling over into other countries. Still, the Chancellor also said that the Chinese economy is going through change, which should be welcomed.

"The big picture here is China is trying to move from an investment-driven economy to a consumption-led economy, [and] that's a good thing not just for china but for the rest of the world," Osborne said to CNBC. "So I think we should be encouraging pace of reform in china rather than standing in its way."

Rate hike concern?

Emerging market economies are also concerned about an interest rate rise in the U.S. which could cause a flight of capital from their countries into dollar-denominated assets, causing weakening of their currencies.

As the U.S. economy continues to strengthen, the Fed might be considering a rate hike as early as September.

In a communique released by the G20 in Ankara, the finance ministers and central bankers promised to "calibrate and clearly communicate our actions, especially against the backdrop of major monetary and other policy decisions, to minimize negative spillovers."

Osborne would not be speculate on when a U.K. rate hike could come, but said that it needs to be "well signposted."

He added: "We've got to make sure that the emerging economies are going to be able to cope with the spill overs that inevitably happen when that occurs."