Exclusive Interview With Central Bank Governor Zhou Xiaochuan: China'S Economic Growth Will Help The Global Recovery

Echoing last week's cloudy and sunny weather in Washington, the gloomy and pessimistic atmosphere of the 2011 -IMF of the world bank.

As the global economic outlook has been lowered and European sovereign debt and banks have deteriorated, the market has once again experienced breathtaking turmoil, and yields on US Treasury bonds have dropped to a new low. According to IMF President Lagarde, the world economy is at a "very dangerous time".

BRICs, especially those with relatively strong growth, can play an active role in becoming a major theme of the annual conference.

Zhou Xiaochuan, the governor of China's central bank, received an interview with the first finance daily in Washington on the likely role of the "salvage" of Europe, the diversification of foreign investment and the internationalization of the RMB.

Zhou Xiaochuan said that the growth of China's economic growth at the level of 8%~10%, in general, will help the recovery of the world economy, and China's import and foreign investment will also help the global confrontation and the hardship.

As for BRIC countries' choice of "euro zone crisis", various options are being weighed and considered, and how to make trade-offs depends on the next choice of the euro zone.

Co governance

First financial daily: BRICs finance ministers and central bank governors discussed the eurozone crisis in the past two days.

After the meeting, the BRICs said that if necessary, they would join hands to help Europe out of the crisis.

At present, there are four main options for BRICs to invest: to inject funds into the European financial stability mechanism (EFSF); to provide assistance to IMF through the NAB (New Agreement of Borrowing); to inject capital into European banks; to directly purchase them.

Zhou Xiaochuan: the first step depends on whether the euro zone countries can implement the resolution of the July 21st EU summit. At present, some countries are still discussing, and some procedures must be adopted to implement the decision.

Before that, we can study, but it is too early to say what to do next.

This involves the role of EFSF.

It has been suggested that the size of the EFSF needs to be larger, which is also needed by the European Union and the euro zone countries.

IMF itself has many resources, such as increasing its share through its share mechanism, including NAB.

The use of these resources needs to be fully studied and, of course, prerequisites.

First of all, we need to see European choices and decisions.

Therefore, there are several possibilities of your plan. What needs to be done at present is adequate research and preparation.

Daily: in this context, how do we understand China?

Zhou Xiaochuan: the people's Bank of China has always managed and managed foreign exchange reserves in accordance with the principles of security, mobility and value added. It has made diversified investments and made use of the portfolio investment optimization model to rationally configure foreign exchange reserves, products, industries, regions and other investment structures, and achieved remarkable results.

The optimal management of a specific amount of foreign exchange reserves is not a big problem technically, and the additional difficulty comes from the excessive fluctuation and uncertainty of external conditions.

In general, diversification reduces risk.

The basic premise of diversification is that the world is not the same, the East is not bright, and the west is bright. In view of this consideration, diversification is used to reduce risks.

But in times of crisis, there are some things that are synchronous and common.

Even under such circumstances, different regions, different assets, different institutions, different countries and currencies are generally complementary.

Diversification is also a way to reduce risk.

Daily: IMF launched the "Spillover report" in five countries / regions this year. How do we evaluate this?

The report covers the spillover effect of the US monetary policy, while IMF positively appraise the recent "twist operation" in the US.

Under the pessimism of the global economy, how can we expect these policies to have an impact on China and emerging markets when the US monetary policy is likely to introduce more unconventional policies?

Zhou Xiaochuan: the spillover report of IMF research team is a positive attempt.

Of course, these reports can not be completely accurate and take into account the future situation. In general, it reveals the correlation between the economic impact of several large economies and regions in the process of globalization.

Of course, the monetary policy of a big country, especially the monetary policy of the issuing countries of reserve currencies, will have more spillover effect, and we will also pay close attention to it.

But whether China responds immediately or not depends on many factors.

China agenda

Daily: IMF has just lowered global economic growth expectations, including economic growth in emerging economies has begun to slow down.

Against this background, China is actually facing double risks of slowing growth and inflation.

How do we see the trade-off between inflation and growth?

Zhou Xiaochuan: after the outbreak of the international financial crisis, in order to deal with the impact of the crisis, we must take strong policy measures in time, that is, the use of expansionary fiscal and monetary policies to restore market confidence and promote economic stabilization and recovery.

The stimulus policy may bring some inflation risk, but coping with the crisis is a top priority at that time.

Since the second half of 2010, China's rising prices have something to do with other factors, such as ample international liquidity, massive capital inflow, 14.40,0.00,0.00% fluctuations in the extreme climate and natural disasters, and rising labor costs.

As the economic recovery has been continuously consolidated, we have shifted the focus of macroeconomic policies in a timely manner and maintained the basic stability of the general price level as the primary task of macroeconomic regulation and control.

We will not adopt the macroeconomic policy that may trigger a "hard landing". Instead, we will let the policy play a gradual role in achieving a "soft landing" within a period of time, while paying attention to maintaining a steady and sustainable growth of the national economy.

In the medium term, the price target should be set at about 4%, so as to achieve a balance between maintaining stable economic growth and basically stabilizing prices. At the same time, it also takes into account the need for monetization during the period of reform and pformation, so as to set aside suitable space for rationalizing the price system.

Of course, we should also see that under the background of the current economic globalization and opening up increasingly, the impact of international capital flows and commodity price fluctuations will increase, and the uncertainty of domestic economic operation and regulation will also increase.

Generally speaking, the current so-called monetary tightening is a relative feeling.

Some people feel that monetary conditions are relatively tight compared with the special period of dealing with crises in 2009 and 2010.

In fact, the current growth rate of money and credit and the total amount of social financing is basically the same as the normal period before the crisis.

It should be noted that this is a manifestation of monetary policy returning to normal from the special state of coping with the crisis, taking into account the normal economic development and the need to control inflation.

The trend of China's overall economy has not changed much, so the overall fiscal and monetary policies remain unchanged. But at the same time, we should be alert to the unexpected and more serious problems in the international economy. Monetary policy needs to be adequately targeted and flexible.

Daily: how to look at the systemic risk of local financing platform and related banking risks?

Zhou Xiaochuan: under the severe impact of the crisis, increasing infrastructure investment and other public investment is an important way to make up for the shortage of effective demand.

It should be noted that the package of measures to deal with the crisis includes the implementation of the strategy of accelerating urbanization by local governments, such as increasing investment in infrastructure, public utilities and public housing.

Some cities also make up for historical debts in urban construction, such as promoting shantytowns.

Most of the local government financing platform projects are effective, cash flow income and self compensation, or can be reimbursed through the value added of urbanization.

There are also some public welfare projects which are promised by local finance.

Generally speaking, the local government financing platform is an option for local governments to promote the development of urbanization under the existing legal environment.

At present, China's debt rate is not high, within the controllable range.

Of course, we do not exclude certain items from having microscopic risks, but there will not be systemic problems.

Daily: as one of the most important concepts put forward after the global crisis, macro prudence has been written into the 12th Five-Year plan. What kind of macro Prudential framework should China establish?

How does the central bank locate?

Zhou Xiaochuan: strengthening the framework of macro Prudential policy is the basic direction and core content of global financial management reform since the financial crisis.

According to G20 requirements, the financial stability Council (FSB), the Bank of International Settlements (BIS) and the Basel Banking Regulatory Commission (BCBS) have formed an operational policy framework.

As an important member of G20, we are in favor of building a more prudent financial management framework after the crisis and participating in international financial reform and standard setting work. We are also working hard to strengthen and improve the domestic macro Prudential Management.

From the perspective of preventing systemic risk and suppressing the cyclical fluctuation of financial system, it is necessary to improve the capital quality and capital adequacy ratio of financial institutions.

It should be noted that China's first recovery is different from that of western countries.

The current banking system in China does not exist in the so-called credit crunch, but rather expands too many problems. The implementation of more prudent standards is more conducive to the healthy and stable development of the economy, thereby providing more credit support to the private sector in the long run.

In addition, the PBC intends to adopt the continuous coefficient method to calculate the systemic importance coefficient of commercial banks, so that most large and medium-sized banks need to increase the buffer capital to different degrees according to the macro Prudential Principle and avoid the steep wall effect.

Daily: on the internationalization of RMB, your attitude is very clear, let the market decide.

But the internationalization of RMB is related to China's reform.

There are many discussions in China's academic circles. For example, the exchange rate reform is not in place, which makes everyone more willing to hold RMB, leading to an increase in foreign exchange reserves. Others believe that the order of interest rate liberalization, exchange rate reform and convertibility under capital terms is the key.

Is there any overall planning and framework for the process of RMB internationalization and the next step in financial reform?

Zhou Xiaochuan: this problem is more complicated.

I have talked about the institutional design of reform, including the relationship between systems and the optimal sequence.

But the reality is rather complicated. Although there is an optimal sequence, it is not necessarily achieved in reality, or there is a certain order of reform that is optimal from an economic point of view, but it will be more complicated if the political, social and human thinking processes are taken into account.

From the experience of China's reform, reform is often controversial.

Sometimes the order you see is not necessarily the best order, but things can be done, and it has a forced effect.

Some things should not be done first, but if done first, it will push ahead with things that have not been done well before.

In the middle of reform, there are many things in retrospect.