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2001 IMFC Statements
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Statement by Mr. Li Ruogu
Assistant Governor of the People's Bank of China
Alternate Governor of the Fund for China
At the Third Meeting of the International Monetary and Financial Committee

April 29, 2001

World Economic Outlook

The world economy registered a real GDP growth of 4.8 percent in 2000, the highest in two decades. The Fund estimates world economic growth at 3.2 percent for 2001. However, in view of the economic slowdown in the United States and the faltering recovery in Japan, we still see some uncertainties and substantial downside risks in the world economy. While it is anticipated that economies in Europe will be able to maintain relatively robust growth, the slowdown of the U.S. and Japanese economies will, inevitably, have an impact on Europe's growth prospects and the consequences for the developing countries and transitional economies should not be underestimated.

We hope the current global economic slowdown will be short-lived. We welcome the interest rate cuts by the U.S. Federal Reserve and the U.S. government's proposed tax cut. We hope that these measures could prevent the U.S. economy from sliding into recession. However, if, in due course, there are no signs of improvement, we believe that more stimulus measures should be taken by the U.S. government to revitalize the economy. In the same vein, we welcome the zero interest rate policy recently reinstalled by the Bank of Japan and the reform package initiated by the Japanese government a few weeks ago. We hope that these measures will be effective in putting the Japanese economy back on a sustainable growth path. As the largest economy in Asia, Japan has a significant influence on other Asian economies. We hope that the Japanese government will continue to strengthen its efforts in economic reforms and maintain the stability of the Japanese yen to nurture an environment conducive to an early recovery of the Asian economies. We believe that the European economies will maintain momentum in 2001 and hope that Europe can play a more prominent role in propelling the world economy. At the same time, we trust the European economies will continue to reform their labor markets, encourage employment, and further improve their external competitiveness. We hope the stability of the euro against other major currencies can be maintained. We also hope that, when formulating monetary policy, the European Central Bank will consider not only the fact that the euro should reflect the economic fundamentals of the euro area, but also the need for maintaining robust economic growth in the foreseeable future.

In view of the high degree of economic interdependence among countries, developing and transitional economies will inevitably be impacted by developed countries, especially by the slowdown of the major industrial economies. While encouraging the developing countries to intensify their efforts to implement reform and liberalization policies, we consider the advanced economies should coordinate their macroeconomic policies and maintain the stability of the major currencies' exchange rates to create an environment conducive to stability and growth for developing countries. In addition, it is more important for advanced countries to promote capital and technological transfers to developing countries, especially in terms of official development assistance (ODA), so that the UN target of 0.7 percent of GNP for ODA can be achieved. More importantly, advanced countries should open up their markets to developing countries and eliminate all kinds of trade barriers, especially those imposed on products where developing countries have the comparative advantage.

Strengthening the International Financial Architecture and the Role of the Fund

Since the Asian financial crisis, the Fund and other international organizations have, based on their mandates, strengthened their cooperation and introduced a series of standards and codes to promote world economic stability and growth. We welcome the international community's efforts to strengthen the international financial architecture. We believe that the implementation of the standards and codes should adequately reflect differences in members' developmental stages, especially the reality in most developing countries, and we favor voluntary participation as opposed to the forced implementation of these standards and codes. While public sector transparency has been enhanced, efforts are also needed to improve private sector transparency, especially with regard to the effective supervision of highly leveraged financial institutions. The slow progress in this regard concerns us.

We continue to support every effort to combat money laundering and other criminal financial activities. However, we believe that the Fund and World Bank should, based on their respective mandates, continue to strengthen the international financial system, thereby eliminating environments conducive to money laundering and other financial crimes. It is worth noting that the Fund has neither the mandate nor expertise in anti-money laundering. Against this background, we believe the Fund should not get directly involved in anti-money laundering activities. More importantly, the Fund should not include members' anti-money laundering activities under its surveillance. Instead, the Fund should assist its members by providing advice on strengthening their financial systems, thereby contributing indirectly to the fight against money laundering

The 40 recommendations of FATF were made without adequate participation from most developing countries, and, consequently, do not sufficiently reflect their concerns. Therefore, it is premature to propose that these 40 recommendations be included as standards and codes under the Fund's surveillance, nor is it fair to do so. We strongly oppose any suggestion that these recommendations be adopted as part of the Fund's surveillance.

We commend Managing Director Köhler for his efforts and achievements over the past year in strengthening the role of the Fund in the international financial system. We fully acknowledge the progress made by the Fund and the Bank over the past year in the HIPC and PRGF operations. We hope that assistance can be tailored to reflect the realities in these countries and bring them back on a sustainable growth path.

While the capacity of international financial architecture to prevent financial crisis is being improved, many uncertainties and risks exist in the economic globalization process. The economic situation in Turkey concerns all of us. We hope that the Fund and the Turkish authorities will agree to a program as early as possible which will be beneficial not only to healthy economic development in Turkey but to maintaining economic and financial stability in the region. We appreciate the efforts by the Executive Board and Management to streamline the conditionalities involving the use of the Fund resources. The Fund should faithfully respect the intentions and policies of its borrowing members, and the mutual understanding and trust with its members is the key to the success of Fund assisted programs and a way to strengthen members' ownership of Fund programs.

In recent years, the Asian economies have made impressive progress in economic and financial cooperation especially under the Chiang Mai Initiative. This regional cooperation is helpful in maintaining Asia's economic and financial stability and is also an important supplement to the Fund's role in financial crisis prevention.

We note with satisfaction that recently the Fund has strengthened its research on international capital market issues, establishing a dialogue mechanism with large private financial institutions. This mechanism is instrumental in enhancing mutual understanding between the Fund and the private sector, and promoting private sector involvement in financial crisis prevention and resolution. We fully support the Managing Director's proposal to establish the International Capital Markets Department and hope that it will become operational soon. We believe that the establishment of this department is an important step in strengthening the Fund's role in financial crisis prevention and resolution.

We commend the efforts and progress made by the Bretton Woods Institutions in reforming the selection procedures for the Managing Director of the Fund and the President of the World Bank. A transparent selection process is instrumental in enhancing the reputation and credibility of these two institutions in the international community. We broadly agree with all of the recommendations in the report. However, we wish to highlight two points. First, there should be no requirement or restriction on the nationality of candidates who can come from any of the member countries, with particular attention given to identifying suitable candidates from developing countries. Second, the power of decision in selecting the final candidate rests with the Executive Board.

Chinese Economy

During 1996–2000 under the Ninth Five-Year Plan, China maintained robust economic growth with real GDP growth averaging more than 8 percent per annum. In 2000, real GDP rose by 8 percent to RMB8.9404 trillion (equivalent to US$ 1.081 trillion, surpassing the US$1 trillion mark for the first time). Infrastructural developments helped propel industrial production and, as a result, the state-owned enterprises recorded significantly increased profits. Fiscal revenues amounted to RMB1.3380 trillion (equivalent to US$ 161.8 billion), an increased of RMB196 billion (equivalent to US$ 23.7 billion) over 1999. Therefore, China has full confidence in its capacity to service its debt which is well below international standards. Imports and exports added up to US$474.3 billion, with exports alone totaling US$249.2 billion. According to the statistics from WTO, last year China was the world's seventh largest exporter and eighth largest importer. Real GDP growth recorded 8.1 percent in the first quarter of 2001 and, as of end-March, official foreign exchange reserves stood at US$175.9 billion.

In the Tenth Five-Year Plan covering the period 2001-05, China's key economic and social development objectives are to maintain robust growth, make progress in strategic economic structural adjustments, and enhance the quality and efficiency of economic growth. More specifically, the expected annual real GDP growth is targeted at around 7 percent per annum for 2001–05, laying a solid foundation for doubling real GDP by 2010 over 2000.

For 2001, China will continue its fiscal stimulus stance, including floating RMB150 billion (equivalent to US$18.15 billion) long-term government bonds. The proceeds will be used to finance ongoing infrastructure projects supported by previous bond issuance and new projects in the western part of China.

This year the People's Bank of China, will continue to implement sound and preemptive monetary policy to ensure adequate growth of aggregate money supply, maintain stability of RMB savings and lending rates as well as the relative stability of RMB exchange rates; improve financial services to small and medium-sized enterprises; take additional measures to promote the development of money and capital markets; and continue to strengthen bank lending supervision.

With respect to trade, there is no doubt that the current global downturn will have an impact on China's exports. However, on the one hand, China has a large domestic market, and we will continue to target policies at stimulating domestic consumption to sustain fast economic growth. On the other, it is our firm belief that the open-door policy and efforts on state-owned enterprise and financial sector reforms will be translated into greater economic efficiency, higher growth, and an improved capacity to withstand external shocks. We are of the view that China's economic growth will maintain a robust pace and we are confident that China can achieve a 7 percent growth this year.

As for Hong Kong SAR, the economy has recovered strongly from the Asian crisis. Following a 10.5 percent growth in 2000, consumption and investment are now projected to moderate in 2001. Exports are also expected to slow in view of the current global downturn. We agree with the Fund that growth will decline to a more sustainable level this year. Hong Kong SAR's forecast for its 2001 growth rate is 4 percent, no major difference from the 3.5 percent forecast by the Fund.

Since China resumed its exercise of sovereignty over Macao on December 20, 1999, security conditions in Macao SAR have been improved significantly and economic activity has become robust again. Last year, more than 9 million tourists visited Macao SAR, which was even higher than its pre-Asian financial crisis records. Overall, the economy in Macao SAR recovered strongly with real GDP rising by 4.6 percent in 2000 after four years of economic slowdown. For 2001, we expect that Macao SAR will grow at a moderate pace.