Hello, welcome to visit Shanghai Forum
Whether China would become the world’s largest economy isimportant in one way and not in another. What’s actually important is, it’s percapita GDP, technology, culture, people’s accomplishment and institutions,instead of overall GDP, that determines the strength of a nation. Thus in thissense, we should neither underestimate the role of GDP nor overrate it.
Reporter: Gong Yingqi
Emerging market countries anddeveloping economies will make up half of global GDP
Reporter: The European debt crisis seems getting worse. Rumors went thatGreecewas about to walk away from the euro zone,while the result of the election inGreececame as a relief foreveryone. How did you feel about it then?
Zhu Min: The reasons for people’s worries were the government election on onehand and the fleeing deposits from Greece on the other. We think Greece should stay in the eurozone and we believe they will. For now, the leaders ofEuropean countries as well as the Greek people hope so. Otherwise, the Greece itself, the eurozone and the whole world will be badly affected. Of course, werespect the decision made by the Greek government and the Greek people and willmake forecasting analysis and preparations for various situations. After thenew government comes to power, we will discuss further on their subsequentpolicies. Our responsibility is to stabilize global financial markets and theworld economy. We have every confidence in it.
Reporter: How do you think of the future of the eurozone?
Zhu Min: The cause of this euro crisis is that there is a monetary union but nofiscal union exists at all. That’s why pushing the money operation confronts muchmore difficulties. But we still need to see that the entire eurozone is theworld’s largest economy; its finance is not the worst, debt levels even betterthan the US and Japan, and it maintains high consumption levels. Its overalllevel is good enough if we consider it as a “country”. But the problem is theEuropean Union is not a country but a monetary union which does not have acentral bank and finance in a traditional way. Therefore, these problems comeout. The Euro is still a very important reserve currency; it would not beinfluenced by short-term exchange rates changes.
Reporter: Will the global economy slow down this year because of this?
Zhu Min: The global economy as a whole will slow down this year. We estimate thegrowth rate will be around 3.2%, much less than 4% in 2011. Since the firstquarter, the economic tension has been calmed. TheUShas been striding more powerfully while theEuropehas rebounded slightly, yet fluctuated more fiercely recently. It seems thegrowth of emerging economies such asChina,India,Brazilhave also slowed down. Downsiderisk is increasing at this point. In addition, though the world’s economygrowth is slowing down, the growth gap between developed countries and emergingmarkets countries is widening. For instance, the estimated global growth rateis 3.2%, with developed countries 1.5% and emerging marketscountries 5.5%, showing 4 percentage points difference. Globaleconomy increased by 4%, with developed countries 2.2% and emerging marketscountries 6.2% - 4 percentage points too. The difference is always there, andemerging market countries generally have 2-3 times the growth rate of developedcountries. We predict that this year is a crucial one. If we measure in ameasurable price, emerging marketcountries and developing economies will make up half of global GDP, which is adelightful change.
RMB has chosen a way to go smartly
Reporter: ShouldChinastrengthen its capital management of the input and output?
Zhu Min: One of the main challenges for emerging economies and developingcountries in the future is how to manage capital flows. It’s mentioned abovethat emerging market countries will account for half of global GDP, but only19% of this half belongs to financial assets. Capital inflows are surely good,helpful to infrastructure investment, industrial development and financialmarket reform, but they would lead to a big impact when fluctuating too much. Wesee that only enhancing the breadth and depth of financial reforms by emergingmarket countries themselves can resist this fluctuation, and only a superiorfinancial market can absorb and digest more capitals. Moreover, if the capitalflows too frequently having affected the macro economy, we also encourage somecountries to take new steps; it has gained praise from many emerging economies.But the premise is not to intervene the market and cannot be judged by thevolatility of exchange rate; instead, we need to see whether the macro economyis affected, and then take further actions. Exchange rate is surly the No.1priority; other measures are taken only if exchange rate cannot absorb(influence) the situation.
Reporter: Another question that people concern a lot. When will RMB become areserve currency?
Zhu Min: The key point of RMB exchange rate is not its standard but mechanism; themechanism of market regulation need more concentration. It will be thedirection in the future. Finance serves real economy after all, the mostmaterial method of which is efficient allocation of resources. This willbe a process of further reform and opening up and reaching the world; everyaspect is along this direction. The traditional theory holds thatliberalization of capital accounts and currency convertibility should beaccomplished at first, and then internationalization. However, it seems notabsolutely right for now. The world has never experienced an economy likeChinaintegrating into globalization with such a huge economic scale, low per capitaGDP and even an incomplete financial system. RMB has chosen a way to gosmartly. RMB trade settlement now has been up to 10%, which increased quitefast.
Meanwhile, people concern a lot when RMBwill become a reserve currency. It’s actually both important and unimportant –it depends on each country’s situation. TakeGermanyas an example. Deutsche Mark’s internationalizationprocess took 50 years, always being managed and floating to progress, but theexchange rate fluctuation was connected with international openness, labor costand enterprise reform all the time. Thus, its exchange rate rose and itscompetitiveness improved continually in the 50 years. Japan’sexchange rate reform was volatile after the Plaza Accord and, plus an easymonetary policy, formed a gigantic bubble at last. The model according to whichChinareforms RMB interest rate gradually and promotes RMB’s internationalization isan innovative one; it will break the traditional theoretical frameworkdefinitely.
Furthermore, as for RMB trade settlement,what’s of concern is not reserve currency but reserve products. How will peoplehold RMB? The efforts must be put on the products denominated by RMB. So openinvestment channels during RMB trade settlement, then strengthen supervisionand expand liquidity; when the market established, RMB’s internationalizationwould come true naturally.
Reporter: With the international of RMB, is interest rate liberalization possible?
Zhu Min: Interest rate liberalization is not only about a process of lettingloose but also on a mechanism of market competition, transparency, supervisionand management. The opening of interest rate will be successful only afterfinancial institution itself is independent and walking towards marketization.Chinahas made great achievements on its reform of banking; things as intensifyingcapital mechanism, commercialized operation, changing equity and internationalcapital intervention are all of importance. The marketization of bank conductsand enterprise behaviors should be realized step by step. In this circumstance,interest rate will be in effect.
The risk ofChina’s hard landing is not big
Reporter: China sets a higher priority for steady development. Some worry that it will increasethe risk of hard landing.
Zhu Min: We think it will still be a soft landing; the risk of hard landing isnot big. It may not be bad that the growth of economy has slowed down atpresent. Previous pump priming policies caused a strong rebound, but it mainlyrelied on investment and loan. This is a releverage. The share of investmentwas 48.7% in 2010, which is surely unsustainable. On the other hand, it’s vitalto adjust structure when facing decline, for example, opening service industry,increasing employment, reducing income gap, stimulating domestic demand, etc.Many structural problems need to be solved. Economy should be driven from tradeto investment and now domestic demand as well. What’s more significant, if wewant people to consume, we should firstly make them wealthy. First open thetrade in service, and then intensify the innovation. Tax requires a broaderbase, which are all to be reformed. Generally speaking, I have every confidenceinChina’seconomy. I think economy growth would be around 8% still.
Reporter: some research suggestsChinawill become the world’s largest economy in 2030. How do you think ofChina’sshift on global economic position in the next decade?
Zhu Min: WhetherChinawould become the world’slargest economy is important in one way and not in another. What’s actuallyimportant is, it’s per capita GDP, technology, culture, people’s accomplishmentand institutions, instead of overall GDP, that determines the strength of anation. Thus in this sense, we should neither underestimate the role of GDP noroverrate it.
Zhu Min’s brief profile:
Zhu Min is one of the IMF’s deputy managingdirectors and was one of the deputy governors of thePeople's Bank of China. Born in 1952 inShanghai,Zhu Min graduated from Dept. of Economics,FudanUniversity,in 1982. After that, he went to the US to study, getting a master degree in public administration management inPrincetonUniversityand a PhD in Economics in John Hopkins University.Zhu Min is also a member of the board of directors of World Economic Forum, of Princeton University, ofFudanUniversityand a committee member of Global Steering Committee of Business College in Chicago University.
