Hello, welcome to visit Shanghai Forum
In the next decade, the Renminbiwill enjoy wider acceptance, but I still think that it will not be the mostimportant currency. The most important one may still be US dollar or Euro, butone thing is for sure, the status of the Renminbi will be much more important.
Reporter: Xu Xiaoxi
Reporter:This April, the floating range exchange rate from Renminbi to US Dollar inforeign exchange market doubled from 5‰ to 1％. What kind ofsignal do you think such change shows?
ZhangLiqing: I think it is a positive signal which means that our exchange rate ismore flexible and more clearly reflects the relationship between supply anddemand, which is good for the increase of China’s GDP and enhances our currencypolicy.
Reporter:You just mentioned that Hong Kong can become an offshore financial center, yetthere is another view saying that an offshore financial center could easilybecome a place for hot money because of its relative freedom. What is youropinion? As Hong Kong’s financial market develops, Shanghai is also endeavoringto build itself as Asia’s financial center. What position do you think Shanghaishould take?
ZhangLiqing: There is no necessary link between the two places, because financialorganizations in Hong Kong are under supervision of Hong Kong government aswell, especially in the time when the whole world enhances supervision overfinancial affairs. Compared with inland China, Hong Kong may have a lowerdeposit reserve rate, and may be more severe in management of some trade andinvestment. Overall, Hong Kong enjoys relatively more freedom and mobility, butit doesn’t mean that there is no management in Hong Kong.
Thedifference between Shanghai and Hong Kong is that Hong Kong is an offshoremarket while Shanghai is an onshore one. In the long run, Shanghai will becomea very important financial center, first in China, then in Asia, and at last inthe whole world. Whether Shanghai can quickly become a financial center mainlydepends on the pace of loosening our capital control. Shanghai should play wellon its advantage, improve financial organizations, wait for policy loosening,and thus get more and more opportunities to launch businesses concerninginternationalization of the Renminbi.
Reporter:The Euro Zone is going through a debt crisis, what do you think will the crisisbe like in the future?
ZhangLiqing: There are several possible results of the crisis. One is good: EuroZone will become more mature and finally overcome the debt crisis by carryingout reforms, strengthening currency policy and unifying public finance. Thesecond possibility is that Euro Zone will become a smaller yet better monetaryfund after exit of Greece and some other countries. The worst possibility isthat members cannot reach consensus in policy, which leads some larger economybodies to exit after Greece, and thus Euro Zone becomes smaller and smaller,even breaks down, but I think such a result is unlikely.
Theinfluence of the European Debt Crisis on China is reflected in two main ways:First of all, if the debt crisis continues to worsen, European real economywill to an extent be shocked, and actually its economy has already declined. Ifthe crisis further develops, it will cause a bigger and bigger shock to economies,which may lead to persistent depression and negative growth. The European Unionis the main destination of China’s exports, and therefore, if their economysuffers recession, it will reduce our export sales, affect our market, andfurther affect our economic growth and employment. The other influence lies in currency.If Euro continues to suffer turbulence, or even devaluation, we will suffercertain losses as well because a large part of our foreign exchange reserves arein the Euro, which means that if Euro devaluates, we will suffer losses.
Reporter:The economy of the United States has also been through downturn. Do you thinkit possible for the United States to carry out a third round of quantitativeeasing?
ZhangLiqing: I think that if the Eurozone continues to suffer persistent depression,it is very likely that the United States will carry out a third quantitativeeasing. Europe is an important market of the United States, which means that ifEurope suffers economic crisis, the United States will suffer as well. However,we feel that the United States is making more and more adjustments on itseconomy, and thus moves toward a better direction.
If theexternal environment deteriorates, the most important thing for us in face ofcrisis is to speed up our structural adjustment. This means adjusting to dependmore on domestic market demand than on overseas market demand to boost economy,which will be reflected in investment and consumption. For the investment part,we should keep higher investment rate, and thus keep economy growth despitegradual decrease of overseas market demand. To stimulate consumption requiresmore reforms, such as establishment of social security system, and reforms toeducation and housing system, etc., thusenables people to reduce defensive savings demand and increases consumption.However, until such reforms take effect, it will be difficult for consumption tobecome important driver of China’s economy.
Reporter:There is a view holding that western countries depend on the market to achievecurrency internationalization, yet today’s developing countries mainly dependon government. Do you think that China can learn from western experiences? Whatrole should market and government respectively play?
ZhangLiqing: I think that the currency internationalization of a country isbasically a spontaneous progress. Governmental push more reflects in creatingsome basic conditions, such as keeping stable economic increase, keeping localcurrency stability, even increase, creating more flexible capital inflow andoutflow environment -- which, of course, doesn’t mean that we will loosencapital control, and speeding up domestic financial market development tocreate more financial markets with various choices and high mobility whereforeign investors can purchase under the precondition of management.
Reporter:In the end, we have a lighter question, would you please imagine what Chinawill be like in the future ten years?
Zhang Liqing: In the next decade, withouta doubt China will be stronger. China’s GDP may exceed that of America, andthus China will enjoy a higher status in the world. However, we should also clearlyrecognize that, as Mr. Long Yongtu said in the morning, China must enhance itssoft power. In ten years, the Renminbi will enjoy wider acceptance, but I stillthink that it will not be the most important currency. The most important onemay still be US dollar or Euro, but one thing is for sure, the status ofRenminbi will be much more important.
Introduction of Zhang Liqing:
ZhangLiqing is Professor and Dean of the College of Finance at Central University ofFinance and Economics. He is also Vice President of the China Society of WorldEconomics, and Vice Secretary-General of the China Society of InternationalFinance.
