By Lucy Hornby
BEIJING, Nov 8 (Reuters) - The world must get better at managing capital flows and imbalances, but this is not a challenge that will be resolved overnight, British finance minister George Osborne told Reuters on Monday.
"There's the debate about global imbalances and about the relationship between deficit and surplus economies. That is a huge economic challenge," Osborne said in an interview in Beijing ahead of this week's G20 summit in South Korea.
"Anyone who thinks that can simply be solved by a sentence in a communique, I think simply doesn't understand that this has always been a challenge in managing the global economy," he added.
"We have to get better as a world at managing capital flows and managing imbalances," Osborne said. "There's a growing understanding that the root cause of our problems are these imbalances and we need to address them."
Capital inflows into developing countries have been increasingly strong. Flows into emerging market funds reached $46.4 billion in the year to the fourth week of October compared with $9.4 billion for all of 2009, according to Global fund tracker EPFR.
That has prompted some emerging economies to implement capital controls.
Among other measures taken around the world, Thailand has imposed a 15 percent withholding tax on interest and capital gains earned by foreign investors on Thai bonds, and South Korea has asked banks not to lend in foreign currencies.
"We shouldn't be against capital inflows. There is a particular challenge in very rapid capital inflows -- hot money, so-called, that can lead to asset bubbles. That's what we've got to manage," Osborne said.
China has come under pressure, particularly in the United States, to let its yuan currency appreciate faster.
China has let the yuan
A stronger yuan is seen as a key component of China's reforms to cut its trade surplus and contribute to the rebalancing of the global economy. Critics say that an undervalued yuan gives Chinese exporters an unfair advantage.
But weak demand in developed economies including the U.S. and Europe, where governments have a heavy debt burden, could put a large strain on China's exports for some time to come.
"The pace of change in China is fast but nevertheless the developments that we want to see are developments that will take place over months and years. They don't need to happen by the end of the week," Osborne said.
"There's been some appreciation and I think there is an understanding in China as well as the rest of the world that this is one part of the currency issue. It's one part of a broader picture of imbalance," he added.
"It's been a good thing that we're not just focusing on currencies. We're focusing on a broader range of things which reflect imbalances in the world and need to be resolved, but these things aren't going to happen overnight." (Writing by Ben Blanchard; Editing by Ken Wills)