Annual Meetings 2003
2003 Annual Meetings: News Releases, Speeches, Committee Papers, Documents and Background Information
Statements Given on the Occasion of the IMFC Meeting
September 21, 2003
Documents Related to the September 21, 2003 IMFC Meeting
People's Republic of China and the IMF
Statement by Mr. ZHOU Xiaochuan,
Governor of the People's Bank of China
International Monetary and Financial Committee
Dubai, September 21, 2003
1. World Economic Outlook: Fragilities, Risks, and Policy Response
The world economic recovery has further strengthened since our discussion this past spring. However, the many risks facing the global economy have not completely disappeared.
Economic momentum in the United States has been fairly strong, and the Japanese economy has shown signs of improvement. Despite the absence of a real economic upturn, market expectations have improved in the euro area. Following the temporary setback caused by the outbreak of the SARS epidemic, rapid growth momentum has returned to Asia's economies since the beginning of the third quarter. Emerging market economies in Latin America have resumed growth after the turbulent debt situation was brought under control, and the economies in transition and countries in the Middle East and Africa have demonstrated varying degrees of improved performance. With the continued stimulus provided by the easing of geopolitical tensions and the accommodative policies adopted by the major economies, the prospect of an upsurge in the latter half of 2003 is becoming brighter for the global economy.
However, short- and medium-term factors still affect global prospects. First, there is less room for the advanced economies to implement supportive macroeconomic policies aimed at stimulating demand. Interest rate levels have hit record lows in many countries and fiscal deficits have soared in major industrial countries, severely limiting their capacity for further rate cuts or deficit expansion. Second, the negative impacts of equity bubbles may prove stronger and last longer than initially expected, and the threat of a property bubble burst should not be overlooked. A major decline in housing prices would inevitably deal a new blow to investment and consumption, and drag down global growth. Third, the global economy still relies heavily on U.S. performance, intensifying the risk of world economic fluctuations. Fourth, the possibility of extremely volatile exchange rate movements among the major currencies cannot be ruled out, posing a threat to recovery and restructuring in the affected regions. Fifth, with deflationary momentum in some countries yet to be effectively contained, the risk of its exacerbation and spread still hovers. Sixth, though geopolitical tensions have relaxed, to some extent, for the time being, destabilizing factors still exist which constitute a major threat to the world economy in the period ahead.
In view of the above risks, I believe that the major industrial countries—the United States, the EU, and Japan, in particular—should assume major responsibility for the global recovery and restructuring by introducing structural reforms, raising savings rates, boosting domestic demand, reforming labor markets, adjusting trade policies, giving developing countries greater market access, and gradually addressing the problem of fiscal imbalances.
2. Strengthening Surveillance, and Preventing and Resolving Crises
In recent years, the Fund has carried out a great deal of research and made exerted efforts to strengthen surveillance and prevent and resolve crises, thereby contributing to the stability of the international financial system and the development of the world economy. We welcome these efforts.
In an increasingly globalized world, the economic and financial crises experienced by a number of countries are more and more related to turbulence in international financial markets, exchange rate movements in major countries, and changes in the international trade environment. Therefore Fund surveillance must focus on systemically important economies and financial markets. In particular, surveillance of the economic and financial policies of the major industrial countries should be enhanced while assistance and support should be provided to the developing countries to promote structural changes and eliminate poverty.
To a large extent, the effectiveness of Fund surveillance depends on the support and cooperation of member countries. I wish to emphasize that while the Fund is working to intensify its surveillance, it should also continue to enhance the capacity building of its members.
In my view, the purpose of formulating and implementing standards and codes is to promote the global economy and preserve the stability of the international financial system. Therefore, there must be sufficient developing country participation in the formulation of standards and codes and consideration should be adequately given to differences in development levels and institution building. The implementation of standards and codes should be conducted on a voluntary and step-by-step basis and focused on actual results.
Moreover, I appreciate the Fund's efforts to promote the Financial Sector Assessment Program (FSAP) and financial soundness indicators (FSIs). The financial stability analysis framework and FSIs are helpful in analyzing financial sector vulnerabilities in a given country, and in the world at large. In light of the enormous influence that the major advanced countries have on global financial stability, the Fund should first intensify its surveillance and assessment of these countries' financial sectors and markets, and timely summarize the lessons and experiences to further improve the methodology and indicator system. Then, as part of improving capacity building in the developing world, the Fund can gradually promote the implementation of a methodology and indicator system in a broader context.
The Fund's search in recent years for a sovereign debt restructuring mechanism has been positive and meaningful. I hope that with the broad participation of the international community, the Fund will continue its pursuit of a mechanism acceptable to all parties. At present, the use of collective action clauses should be decided by a sovereign country in light of its economic situation and market environment. The proposed code of conduct should be practical, and should serve as a useful reference for members.
3. Development of Low-Income Countries: Debt Relief Initiatives, the Poverty Reduction and Growth Facility (PRGF), and the Doha Round
The sluggish global economy in the past two years has caused greater difficulties for low-income countries in terms of exports, capital inflows, poverty reduction and economic restructuring. I would like to call on the international community to pay more attention to development in these countries, support the Fund in enhancing cooperation with other international organizations, expand the scale of assistance, and make the assistance more effective. I also hope that a growing number of developed countries can implement the Monterrey Consensus with concrete action, and achieve the objective of devoting 0.7 percent of GNP to official development assistance.
Trade is an important tool for developing countries, enabling them to use their comparative advantage for the purpose of increasing revenue, promoting social and economic progress, and integrating into the world economy. The WTO Ministerial Meeting in Cancun failed to reach agreement on major issues in the new round of multilateral trade negotiations. This shows that there is still a long way to go before the objectives set by the Doha Ministerial Meeting can be realized. At this critical juncture, it is necessary for the two institutions to support the Doha Round more strongly, facilitate the reduction of distortions and unfairness in the multilateral trade system, promote greater market access, especially access for goods in which developing countries have comparative advantages, and make a substantive contribution to the cause of global development and poverty reduction.
The Chinese Government has consistently supported the Heavily Indebted Poor Countries' Debt Initiative (HIPC Initiative) and the PRGF. Though our per capita income remains fairly low, we have done our best to provide debt relief to the HIPC countries. It is gratifying to note that, under the HIPC Initiative, the debt burdens of a number of countries have been reduced significantly, thereby providing a basis for sustainable growth in the future. Nevertheless, the economic base of these countries remains relatively weak, requiring the support and assistance of the international community. Moreover, a number of countries are not able to begin the HIPC debt relief procedure for various reasons. We wish to express our concern and hope that they will soon achieve economic stability, be able to implement a poverty reduction strategy effectively with the help of the international community, and qualify for HIPC debt relief at an early date.
Drafting a country-owned Poverty Reduction Strategy Paper (PRSP) with the help of the international community is essential for poverty stricken countries to implement a long-term sustainable development strategy and eliminate poverty on the basis of broad consensus. We are pleased to see increased ownership of relevant countries in drafting a PRSP and that progress has been made in producing better quality papers. We hope that the international community will take full account of the actual conditions of poor countries with regard to the inadequacy of their legal frameworks, institution building and human resource development, refrain from setting unrealistic or difficult objectives, and make a greater contribution to debt relief in these countries.
4. Quota and Governance Structure
Deepening economic globalization has not eliminated the root cause of global monetary and financial turbulence, but has instead added to the possibility of its exacerbation under certain conditions. Therefore, I think that the Fund needs to carefully assess the adequacy of its resources and formulate a contingency plan to ensure an effective fulfillment of its central mandate in safeguarding the stability of the international monetary system. We support the establishment of a Committee of the Whole for the 13th General Review of Quotas, when necessary.
At the same time, the Fund should further explore ways to revise quota formulas and to address the out-lineness, thus fairly reflecting the rapid economic growth of the developing countries over the years. We welcome Executive Board discussion on the developing countries' voice and representation in the two institutions. The representation of African countries in the Fund should be enhanced. We have noted that rational quota formulas are interrelated with greater voice and representation. In the absence of quota formula reform, there would be little improvement in developing countries' voice and representation. Therefore, we welcome the staff's package solution for reforming quota formulas, addressing out-of-lineness, and increasing basic votes.
5. Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT)
The Chinese government attaches great importance to the work on AML/CFT, and continues to support and actively participate in the cooperative efforts of the international community in this area. We highly value the role of international and regional AML/CFT bodies, including the Financial Action Task Force (FATF), and appeal for increased representation of developing countries in the FATF to enhance the appropriateness and authority of its recommendations.
We are paying close attention to FATF implementation of ROSC procedures, because this has a major impact on the success of the pilot program. We hope that the Fund can review the experience gained from this program in a timely manner in order to target future assessments more clearly. We support the provision of the follow-up technical assistance by the Fund in the area of AML/CFT. Given its limited technical assistance resources, however, the Fund should continue to focus on its core and traditional areas. In addition, when participating in AML/CFT work, the Fund should respect the sovereignty and specific conditions of individual countries and allow them to exercise their own initiative.
6. Independent Evaluation Office (IEO)
We would like to express our satisfaction with the work of the IEO. Projects completed in 2003 and those scheduled for 2004 and 2005 are closely related to the role of the Fund and the focus of its current work. Suggestions for enhancing the Fund's role and improving the effectiveness of its policies contained in the three reports drafted by the IEO provide good guidance for the Fund to further strengthen its performance and realize its ultimate mandate. We hope that the Fund will value these suggestions and take steps to translate them into action.
We hope that in its future work, it will be possible for the IEO to listen to comments and suggestions from all sides, provide more objective and systematic evaluations of work that relates to the Fund's purposes, and offer constructive and feasible suggestions.
7. China's Economy
Up to now, the Chinese economy has performed much better than anticipated in 2003. The outbreak of the SARS epidemic earlier this year had a much smaller impact on the economy than previously estimated. GDP grew by 8.2 percent in the first half of the year—a relatively high rate compared with the same periods in recent years. The consumer price index rose 0.6 percent over the same period last year. Growth for the whole year is projected to be above 8 percent, and the consumer price index is expected to rise 1 percent. The economic structure has further improved. Steady progress has been made in the employment and re-employment programs. There has been a further strengthening of the social safety net, and various reforms have progressed in an orderly manner. In sum, there has been continued improvement in the institutional environment for economic development.
Despite the severe impact of SARS, China's economy has maintained rapid growth, owing to the following factors.
First, China has maintained a stable domestic political and economic environment. Second, China has resolutely pursued policies that boost domestic demand. Over the past five years, China has persistently implemented a proactive fiscal policy and sound monetary policy, laying a solid foundation for economic growth. Third, even deeper reforms have stimulated economic growth. The joint development of different economic sectors under different types of ownership has continued to strengthen, investment growth has become more market-oriented, and enterprises have increased their capacity for self-development. Fourth, pursuit of the opening-up policy has entered a new phase, leaving greater room for economic growth. The immense market and favorable investment climate have made China increasingly attractive to foreign investors. While it had an adverse impact on China's economy, the SARS outbreak also created new sources of growth. In particular, the medical, automobile, and health care sectors enjoyed strong growth, which partly offset the losses of other economic sectors.
Although China has achieved rapid economic growth, a number of problems remain that deserve attention—an increase in unemployment pressures, the slow growth of rural income, the reappearance of duplicate investments in some regions, the launch of new projects by some industries with obvious excess capacity, an unduly large number of luxury houses with rising vacancy rates—exacerbating economic structural imbalances.
We will make continued efforts to expand domestic demand, readjust the economic structure, deepen reforms, promote further opening up, increase job opportunities, and improve people's living standards. We will adopt an approach of comprehensive planning and consideration of all factors to achieve harmonized development. We will strive to achieve sustained, rapid, and steady economic growth by maintaining consistent, stable macroeconomic policies and by the continued pursuit of proactive fiscal policy and sound monetary policy.
Development remains the central theme over the medium term. Improving the standard of living for the people is our ultimate goal. We will actively undertake structural adjustment and reform measures, further open up to the outside world, and make progress in science and technology. Guided by the principle of harmonious economic and social development, we will effectively implement the strategies of "Developing the West," "Relying on Science and Education to Invigorate the Nation," urbanization, and sustainable development. We will accelerate the transformation of the old industrial bases and ensure achievement of the targets set in the Tenth Five-Year Plan.
We have noticed the international community's recent interest in the exchange rate of China's currency, the renminbi (RMB). The Chinese government has always adopted an attitude of the utmost prudence and responsibility on this issue. During the Asian financial crisis, a stable RMB not only fostered economic and financial stability in China, but also helped contain the further spread of the crisis, thus contributing substantially to economic and financial stability in Asia and around the world. At present, with its economy still facing various challenges, China needs to maintain the stability of its various policies. If China can maintain healthy, rapid economic growth, this will create huge market demand and stimulate imports. During the period from 1998-2002, China's average annual imports growth was 3.5 percentage points higher than the growth of exports. In 2002, China's imports from the countries of the Association of Southeast Asian Nations (ASEAN), Japan, Russia, and Australia grew by 34 percent, 25 percent, 6 percent and 8 percent, respectively, over the previous year. In the first half of this year, China's imports from the United States, Japan, Korea, the EU, and ASEAN countries increased by 36.1 percent, 46.1 percent, 53.7 percent, 39.3 percent and 55.5 percent, respectively, over the same period last year.
We will continue to push ahead with market-based institutional reforms, and let the market play an essential role in resource allocation. While maintaining a basically stable RMB, we will continue to examine and improve the mechanism for determining the RMB exchange rate. We believe that exchange rate reforms and other institutional reforms are integral parts of the overall reform endeavor, and thus it is important to identify priorities and proper sequencing to carry out these reforms. At the same time, we will relax control over the capital account in a prudent manner, and seek to achieve balance of payments equilibrium.
The economy of Hong Kong Special Administrative Region (SAR) weathered the severe impact of SARS in the first half of this year. On the sixth anniversary of the resumption of sovereignty over Hong Kong SAR, China's central government signed the Closer Economic Partnership Arrangement (CEPA) with the Hong Kong SAR government. Recently, Guangdong, Beijing, and Shanghai have begun to liberalize "individual travel" to Hong Kong SAR, which will significantly boost Hong Kong's tourism industry. With confidence strengthening, Hong Kong SAR's economy has shown some positive signs. The Hong Kong SAR government has revised upward its growth projection for the whole year.
In the first quarter of this year, the GDP of Macao SAR grew by 16.5 percent. The tourism and entertainment sectors performed well, and consumption increased significantly, contributing to the entire economic upturn. We will further strengthen economic and financial cooperation between the Mainland and Hong Kong and Macao SARs through the CEPA.
We are confident that the strengthening global recovery, the sustained strong growth expected in the Mainland and, particularly, the full support from the central government, will contribute to a brighter outlook for the economies of Hong Kong SAR and Macao SAR.