H. E. Guangyao Zhu, Vice Minister of Finance, People's Republic of China

Transcription

1 Unedited Rush Transcript The Global Economy and China-US Economic Relations H. E. Guangyao Zhu, Vice Minister of Finance, People's Republic of China Peterson Institute for International Economics, Washington, DC October 8, 2014 Good afternoon, ladies and gentlemen. Many of you have been with us all day, and yesterday. It has been an exciting sequence of events here at the Peterson Institute for International Economics. But none perhaps as exciting as right now. Yesterday we had the Secretary of the Treasury of the United States Jack Lew with us. Today we are privileged and I believe about to be thoroughly informed by Guangyao Zhu forgive my pronunciation the Vice Minister of Finance for the People's Republic of China. Mr. Zhu has been involved in China's international economic relations at the highest level for a long time. He graduated from Finance Science Research Institute at the Ministry of Finance of the People's Republic of China. He's been a Director General of International Department of the Ministry of Finance. He was the Executive Director of China at the World Bank Group. He was the Assistant Minister of Finance from 2007 to I should note that my predecessor, Fred Bergstein, we think of as Mr. APEC had a counterpart in Vice Minister Zhu as Mr. APEC from the other side for a while. And we're now very proud to interact quite frequently with Vice Minister Zhu both here and in China and as well as around the world as he leads China's international economic diplomacy, its positive agenda for the G20 and for US-China economic relations. He's also a very prompt man. So let me invite the vice minister to give his remarks. Thank you very much. Thank you very much, Adam, and I am so grateful me to be here today. So my old boss from World Bank [inaudible 0:01:48] in there and I hope everything you have here continue to contribute to the world development and the peace cause. And of course there Fred Bergstein, he educated me to understand what is APEC and with his help we organized the APEC Center in China, and the G20, also G7 issue. So we really appreciate thus working relation with the Peterson Institute, and Professor Lipso there. And really that's a long term relation for his contribution to promote US- China relations. We appreciate that you are contributing. I also appreciate very much you contribute to the global efforts to climate change efforts. 1

2 I believe with you and the others big efforts, so next year [inaudible 0:02:48] meeting should be successful. And also [inaudible 0:02:50] and all those others. But they are all World Bank China Department and you are contributing to the China development and we all will remember that. And my many friends here and the media friends, I hope that we can be very frank [inaudible 0:03:12] to understand real situation and global economic challenge we face and also the political challenge that we face together. And firstly, I will report to you how they evaluate current global economic situation. Everybody knows just two days before IMF downgrade global forecast to the 2014 from July figure 3.4% to 3.3%. And that's continued downgrade. I know we talk with IMF staff. They don t want that. So many times the change is the forecast before But as a professional product, they must really reflect the economic situation now. And we say after six years of [inaudible 0:04:16] financial crisis some continue high financial influence. Recovery of global economy is very slow, very uneven, very fragile. And obviously we really face the challenge is economic growth. That's the problem. And we must see the issue from structure of what the economy and we must recognize there's a negative impact by the geopolitical. So we face the real challenge of the global economy. That's the number one point of what I'll report to you. And the number two point I still worry about very much after six years of financial crisis broke out. Global environment level is still below the level six years ago. So fortunately we see US employment improved and unemployment rate last month dropped to the 5.9%. In China, from January to August the new employment is ten million. So the Chinese and the US contribute to the global environment improvement. However, the real challenge still exists. Global level unemployment is very tangible. We see that the unemployment in Europe, particularly young generation lost jobs. That's a real challenge for social stability. And this issue reminds us why G20 must keep growth and employment as a key topic for this year again. And global efforts must be made to promote growth which will increase the employment. We must make extreme efforts to global employment improvement. Thirdly we see, unfortunately or fortunately, [inaudible 0:06:49] judgment after World War II. After several business cycles, this time after six years since the last international financial crisis broke out; global interest rate is at the lowest level. And this we never see before ever time after financial crisis and so low interest rate. That's the QE introduced in the US is totally around 3.3 trillion. And the QE in Japan also use pension money supply. And now US made very clear, Federal Reserve, very clear point out that's perhaps mostly this year to conclude QE. And the next year we all have 2

3 normalization of interest rate. We think that the communication between Federal Reserve and the market is important. And like market, really understand the situation and what will happen for the next Fed meeting. So that's very important in US side. Make the transparency and make communication, particularly less market and that was the new policy adapted by Federal Reserve. However, sometimes we see there's ECB present. Mr. Drake made public announcement. Until middle of 2017, ECB will not increase the interest. So that's a very sharp comparison between Federal Reserve Policy and the ECB Policy in the next two years. We really hope there's demand to the supply and the policy to serve the domestic development purpose. However, what will impact is we must very closely watch. And also the presence of ECB [inaudible 0:09:09] time recognize the risk of deflation in Euro Zone. So that's the new challenge. And 0.3%, 0.4% of inflation indeed is too low. That's deflation ride to the Euro development. And how evaluate, that's interest and trend, in US, in Europe, in Japan and in other place. And it should be very close to say particularly to be over some change of policy. So fourth point is that we really need technology revolution so we can see the history after World War II. Every time business circle is asked real boom of economy thanks to the real technology revolution. But now we look for breakthrough. And unfortunately now there's a complete there's a whole precise. And we expect the internet plus renewable energy can be that real breakthrough. I think that's the US, China, Europe can play the leading role in this regard. But it needs a small effort for other aspects that should be more effort. And we really hope that technology revolution can make the global economy really keep to the right track, growth on the right track. So final point I want to say about the global economy is that role of US, leading role, and we must recognize after World War II the current global political economic system is established in light of US. And also US keeps a very important leading role after World War II, maintain this system until today. But now we can say US somehow has given up some of that leading position, both include global security older system and how to keep the system after World War II. That's politically. And economically, everybody knows that economic order basically organized the IMF World Bank WTO. But unfortunately we see 2010 reform agenda of IMF [inaudible 0:12:03] and government reform has not been approved by US Congress until today. US administration, yes indeed made a lot of effort to try to convince congress to approve. But unfortunately until today 2010 government reform and the [inaudible 0:12:24] reform of IMF is still not approved by 3

4 the US. So we really appeal that the US congress can soon to approve that and let IMF quickly move to realize the reform agenda. That's very important. We are very happy to say US economy back to the right track. And we really look for US on the leading role in the international system, both in the security and the economic. This is very important for all the country following the political-economic order established after World War II. This is my first category comment about the global economy and the challenge that we face. Second, I want to report to you about our thought regarding economic relation between China and the United States. We do believe now it is so close, the interconnection between Chinese economy and the US economy. We don't think that 520 billion trade volume every year or more than 100 billion investment each other is really reflect the whole picture of economic relations. There's indeed so close connection between China and the US it's already in the [inaudible 0:14:10] field. It is so connected. And that's so important relations and we must value that. And we appreciate very much US business society strongly support development of China- US economic and comprehensive relations. We know they are concerned. We also know some key progress we must together to make. What issue is the Bilateral Investment Treaty, BIT, and thanks to the [inaudible 0:14:49], the meeting between President Xi Jinping and President Obama. Both of presidents have reached an important consensus. China, US will jointly launch the negotiation on BIT based on pre-establishment plus negative list. So that's a so important decision and so welcome by both country's people as a big achievement of last year SED. And now both sides have very deepening 12-round negotiation. I'm very happy to report to you so far the text of treaty already made big progress on clarification. That's both sides to compare each sides text and big progress be made. Based on the agreement by this year SED. From beginning next year, both sides should offer the negative list for real negotiation. And now there's a real challenge is there's a whole high standard negative list. And short but there s a real reflect that country each country's concerns. And for China, to be honest, the real challenge domestically to cut long list of negativity to the short with high standard, high quality, that s a real challenge. But we understand this need to promote domestic restructure of course through the negotiation. Both are for American and the Chinese is a tough negotiator. And in the table during the process of negotiation, both sides should be very tough negotiation on the list. We really hope, with the highest standard, high quality as [inaudible 0:16:58] and we can both side set up the framework for complete the bilateral investment treaty negotiation. 4

5 And also for climate check coverage, energy, the environmental coverage, we have a big potential just not a long time ago in New York; President Obama meeting with President Xi Jinping, special representative west premier Jungho Li and both sides emphasized how important China-US to work together to deal with the challenge of climate change. We hope that a real discussion can be made more understanding and to promote global efforts to deal with the challenge of climate change. And we do hope both China and the US as the most largest developing country and the largest developed country could really contribute independently to the next year important Paris Climate Change meeting. And for more trade promotion and China-US have a big potential. We can see that China is the best place for US export to increase their support volume quickly and largely. We really hope that China-US trade relation be more enhanced. And we particularly welcome the small high-tech product can be export to China. And we also say we'd like to say that the reform procedure of control of high tech export to China. And we also see the big potential for cooperation in the energy side. And we can recall the July SED both was emphasized in the energy cooperation between China and the United States. Shell gas is one area. LNG export to China is also connected. And now we are very happy to say that a private company played a more important role to promote that. And in this regard, I particularly would like to report you and the format of G20, China and United States jointly announced to have the peer review on fossil energy subsidy issue. Now it's only two countries. But we hope that more countries will join. And this is a very important for fossil energy subsidy peer review is that really regarding, resting on the price of energy. Also it can directly contribute to the climate change issue. And now in G20, China-US have that good coordination. We hope there's more members will join us in G20 efforts and globally we work together. So we see that's in US, we see very high [inaudible 0:20:37] just a few days revised. That's the forecast for US economy in 2014 from 1.7 to 2.2, 0.5% increase that is in Europe. And we're also happy to say that IMF unchanged that's the forecast of China for 2014 growth is 7.4%. With this calculation we can say 2013, that's the globally total GDP volume is at 73.9 trillion. And China is 9.2 trillion. US is 16.7 trillion. So China's total GDP to the global total GDP is 12.4%. US GDP to the global GDP is 22.7%. Regarding the contribution to the new growth China this year, according to IMF, 7.4%. US 2.2% growth. And that means China will contribute to the new growth for this year is 27.8, US is So that's the two largest contributions for the new growth in the world. 5

6 Now, G20 is a talk about for five years a decent growth, 2%. And we really hope that China-US can contribute with our real capacity. We also encourage other members to contribute. They are restructured reform to the global growth. Now according to pedigree and trade, the investment, employment, competitive, that's the full pedigree to calculation of new growth contribution. We believe that China in the five years for new growth of 2% additional is that's about 30% to 40%. That's really in line with the current contribution for China to the global new growth. We hope that the US will give more productivity improvement and more growth and then we welcome US contribution beyond China. And we only hope that both of our two great countries, let's work together to contribute to the work growth. And that's very, very important. When we look forward to next month s, President Xi Jinping and President Obama, very important meeting in Beijing. Last year in [inaudible 0:23:44], two president meeting made the China-US economy to the highest level never before. But we also recognize this year something happened and we need this momentum rebuilding up. We hope that China-US relations build real trust and real contribute to the global peace and global development. We know how challenging the situation. Economically we face them. We also understand how challenging the geopolitical risk of it is. And we need China-US that's more closely connected. And 30 minutes. Only five minutes left. I very gratefully report to you about Chinese economy and, you know, that s since last year plenary meeting we organized comprehensive reform led by President Xi Jinping himself. And that s fourth time the ones reform with economic, political, social, cultural and eco-knowledge. So that's comprehensive reform. Now we must step by step to advance reform with a legal base. Just this month, 20 th to 23 rd, we will have another very important plenary. We'll have full cost on rule of law buildup. That's very important. And reform agenda is very clear. And no, we want to make every reform as a base on rule of law. And in the year we have introduced gradually some reform including important household registration reform. Fiscal, financial reform and the education system reform is already being published. So now we just go through a detrition method to promote growth reform and we will see more reform in the following year. We have the timetable with year And we also have the stage period for real progress be made before So now that's the task we divided to the more than 300. So we have the every ministry of department in charge of reform, but the whole [inaudible 0:26:38] comprehensive leading group. And you can say that's so important reform, just on the way. We really hope that the target mission 6

7 set up by the communist party central committee to the 2020, our GDP growth will be doubled in the level of And to the 2050, we'll establish a China; build up China into the real comprehensive, real health country as it realized its modernization. That's the two stages that's very important leap to the Chinese people, realize the China dream. So that's means that everybody enjoy the bright future and better life. Thank you very much. So thank you very much, Vice Minister Zhu. A truly epic and constructive talk. What should be done for rule of law in China, what can be pursued bilaterally between China and US, the goals of climate change, avoiding it, mitigating it? The role of the US, calling on the US to do its job in terms of IMF and government reform, which certainly all of us in this building have long called for, and the whole growth outlook of the G20. So there's so many things to talk about. Before I open it up to questions from the floor, let me pose two things. So first, you mentioned the progress in the bilateral investment treaty and your hopes for changes in some of the export requirements from the US in terms of high tech trade. We have a new study coming out next week by Fred, Gary Hufbauer, Shawn Myner in which we're setting out an ambitious road map or at least the three authors are setting out an ambitious road map for US-China relations on trade. How far do you think the bilateral investment treaty can go? I mean realistically where do you think the impact is going to be over the next couple of years? Will it be mostly in terms of US investment into China? Are you hopeful that people in the US will become more receptive to Chinese investment the way eventually US got accustomed on Japanese investment? Is this going to affect the investment patterns in third areas like Africa over resources? Do you think that the understanding of each other's views will be better as a result of this? I think we are very sympathetic to the idea you focused on this, but I'd like to hear a little more about why you feel this is important. About the timetable for BIT, now both sides makes this very close communication and very good development with this. We have big progress on text of treaty clarification. And both US official and the China think that it's a real progress. But now there's a key text already out for next year, possibly out for the [inaudible 0:30:18]. Right. We hope that should be high standard or high quality with that after past negotiation. We hope, if that's possible with after two years that Obama 7

8 administration as the legacy can be left. But we also know that as a treaty it needs a big majority of senator approve. That's 67 members sending approval. So in China's side, also need approval by congress. So if we just try every effort to conclude within two years and leave that as next administration from US side. But subject to the real discussion and the real negotiation, we really hope there's a good appropriation for President Xi Jinping and President Obama meeting and both president can keep clear instruction to the professional team to otherwise that's negotiation. That's BIT. For broad coverage, as you said, there's possible Africa will build on this idea. Actually, we already touched upon this issue in the third place and particularly in Africa. China-US look very close coverage that includes infrastructure. Now we discuss with the US officials regarding power Africa. And also now in the western Africa there's a big public health crisis and the China-US, how is their contribution to the public health crisis. It's the very key and we hope that China-US can work closely to connect this, make this a real contribution to the process. Well, thank you. Second question which you sort of touched on, but if I could, I'd like to get you to expand on a bit, is that you mentioned the G20's ambitious growth goals and that China and the US are the only ones that seem to be on track. One thing which we've been hearing a lot already this week, including from Treasury Secretary Lew yesterday, I was at the fund earlier today with managing director Legard, everyone is talking about some sort of major initiative on public investment on infrastructure. Is this something that you see at the G20 or the IMFC? I mean is this something that can be achieved through international cooperation or is that secondary? And how do you feel about everybody in the world trying to come to China and saying, Give me your money, give me your money, that everybody wants a Chinese investor for their public investment I mean Chinese partner. How do you see that playing out? So, for global investment and infrastructure, that's indeed, that s a very key topic of both G20 and APEC. We hope that China will host the APEC summit in informal details meeting before G20. And the very important topic is connected really with investment of cost of trade because the [inaudible 0:33:41] of APEC. And in Australia G20 also, that's a very key topic is the investment in infrastructure. We really hope this year we can make tangible progress in the infrastructure progress. And now, regarding how make that [inaudible 0:34:00] money allocation, one thing is World Bank infrastructure facility. And both China and the US support that. And we really hope to boost that facility and make that global money for investment in infrastructure can be a suggestion. And 8

9 China have that proposal to establish Asia investment infrastructure Asia Infrastructure Investment Bank. Also Australia gave their proposal to establish a center to promote infrastructure development. Those all proposal connected with infrastructure investment because if we all recognize there's a big gap between demanding for infrastructure development and the financial supply to support infrastructure development, we hope that such kind of big progress this year can made. But we also understand some policy of communication is also very important. Meg Lundsager: Meg Lundsager: Okay, great. I'm tempted to go on but we have such a distinguished audience I want to give them a chance to speak. Just to recap the ground rules here at the Peterson Institute; we have a roving mic upfront which Chris is holding. We also have a standing mic at back. When I recognize you in either place, please feel free to ask a question. Please make sure to at least pretend you're asking a question and not making a speech and please identify yourself, where you're from. So if the lady at the back mic goes first and then the woman in the orange dress or just in sweater right there. Thank you very much, Vice Minister Zhu. What I wanted to ask you was-- I'm sorry, who are you, from where? Sorry. I am Meg Lundsager. I was the US executive director at the IMF for the past seven years, spending a lot of time on issues of global growth, economic recovery. And one of the things we always focused on is how to improve domestic demand generation in countries. And of course in China, the domestic demand emphasis has been on investment. And of course the theme of the IMF, and I was at the seminar this morning, Adam, on the infrastructure investment. But if you're talking also about the long-run development of China and the long-run well-being of its people, you need to focus as well on the consumption side. And China is getting to be such a big economy ultimately that domestic demand generation is going to have to be the main source of growth, not the export side. So what I'd like to ask you is do you have policies in mind for promoting that shift from investment from export leg growth to more domestic consumption which ultimately would be a benefit to the Chinese people and of course to the global growth as well. Thank you. Thank you. Thank you very much. That's indeed, that's very important policy issue for sustainable development in China. And now we are just in the deepening 9

10 process of restructure reform. That's one thing that we must strongly promote domestic demand. Also with the handle of the balance of supply side. And we face that challenge or capacity. But we must emphasize that input productive issue also makes that balance between domestic demand and investment. And that's a very key for Chinese economy to keep that sustainable development. And now we made this big effort for improvement of balance sheet. In 2007 we have the imbalance of balance of payment is 10.1%. This year, first half of this year is just 1.8%. That's a big change on the balance of payment sheet. And so you can see the big effort already made in China. And also first half of year, our service industry contribute to the GDP growth in the 46.6%. Of course that's beyond that's contribute by the industry, second to the industry. So we must continue make the suggestion of structure of economy, continue development of service industry. But we pay attention to the Peterson Institute, the research. The development service industry, we must emphasize the quality. And because that's indeed the service industry yearly contribute to the employment improvement, but however, the gap between income somehow is not so big; financial industry and the shoppers. So such can offer a report and we only draw lessons from the Peterson Institute paper. And now we must extremely effort to promote structured reform including to deal with the challenge of over-capacity issue including industry, steel industry, cement industry, glass industry. And those issues we must take very serious attitude to talk and to real deal with the challenge. And the next year I believe that kind of reform will be more deepening because there's Chinese domestic only Chinese people demand for much improved quality of life, including clear air and they want to enjoy the green mountain. So that's a real demand by ordinary people. That's not just like seven years ago. Everything revolved around GDP and the [inaudible 0:39:55] more than 10%. But unfortunately we paid the big cost on the environment. So that the presidency put full priority is that in line Chinese people's demand for a better life, including the real clear air and the clean water and environment issue. Thank you. Leah: No, thank you. China's green dream articulated. Please. Thank you. Leah from Voice of America. Vice Minister Zhu, according to the IMF based, on the [inaudible 0:40:29] power basis, China is actually surpassing the United States as the world's biggest economy. I wonder if you're happy to hear about that or whether you agree with that. In April when the International Comparison Program came to the same conclusion, there were indications that China tried to suppress that report. If that were the case, can you also tell us about why China is reluctant to be the number one in the world? 10

11 And if I may, a quick follow up. To many people the Chinese property market is overbuilt, overpriced, and overleveraged. Is the Chinese property market wobbling to collapse? Thank you. You're allowed to answer that with a yes or no if you want. To answer your first about PPP, and very frankly I want to tell you the truth. I'll think that outside people is more than Chinese domestic people is more serious about the World Bank report. I think that's not IMF. That's World Bank report about PPP. I might have also see that. And anyway, my judgment is outside people is more serious than the domestic people to see that China is beyond US as the number one economy because we really understand there's a gap in quality of GDP. And not just the GDP per se. We see there's a real quality of life and we see we still have this big gap. China is still developing country. And one gap is the environment. And for the last certified, very quick development, certainly China or Chinese economy is 9% to 10% growth. But we really pay the cost, particularly in the environment side. Now my president, he particularly emphasized the important for the environment the issue and make this reach out for people so that's we understand. Again, we must emphasize that China is a developing country. We know there's a gap. We enable that's often for the progress already made. We continue to make this a big reform and opening our policy makes the Chinese economy with growth, with real quality. And we will make this so the Chinese people enjoy. There's a much better life that is the wish of Chinese people. Second, the issue about the real estate market. Yes, we know we face a new challenge because before every year is just say how to control the price of housing or real estate. But now we understand that we must let this market play the role. And maybe too much control and make this problem more serious. And now we see that's the first time we let the market play the role and how market, the real action we will see, we need some time to see. But generally, we think that the Chinese economy keep a stable development including real estate market. But does the market play the role? Fundamentally that needs a little time to show that result. Krishna Guha: Terrific, thank you. So at the back, then in front here, and then the lady there, please. Thank you very much. Krishna Guha, vice chairman of ISI, an independent broker/dealer from here in the US, and a former member of the Management Committee of the New York Fed. So I wanted to ask you about recent currency developments. As I'm sure you're very much aware, 11

12 the strengthening of the dollar in the last several weeks has also resulted in significant strengthening of the renminbi relative to the Euro, relative to the Japanese Yen and so forth. And I wanted to ask you, first of all, is this depreciation of the renminbi problematic with respect to the cyclical position of the Chinese economy? And secondly, if we were to see very substantial dollar strength going forward over the next several years, given the trading relationship between the renminbi and the dollar, how do you think you and your colleagues would approach that? The general issue is that the agenda for Chinese reform. We are formerly otherwise [inaudible 0:44:58] regime reform. Last March, China expands that branch of floating from 1% to 2%. That's together because that's a positive a negative 2%. That means 4% daily floating branch and that's a very big branch. And very frankly, China-US keep this policy communication and SED, particularly treasury and with us. So we are very frankly change that wheel. And they understand that's 4% flow that's daily, that s a big one. And the US side often repeat their concern about renminbi low value. But very frankly recently secretary [inaudible 0:45:48] and the vice premier [inaudible 0:45:50] had a phone call. I can report to you US position will come after last SED in July, China let the renminbi float with the market trend and basically not that [inaudible 0:46:07] so that's why US dollar strong now. Its index rate is 86 points. That's Chinese-US appreciate of That s strong and also understand the Japanese yen is a mere by a hundred and the Euro also lower. But anyway, we would keep that very close communication and we will continue our reform. But globally there's a G20 policy coordination to the macroeconomic policy become more important. So we don't know if that's growth rate to the 3.3%, particularly trade only is 3.1%. How to deal with this challenge and we hope that all members take that responsible way to handle this issue. Thank you very much. Fred Bergstein: Thank you. Here in front, Fred, and then to the lady at that table. Fred Bergstein here with the Institute. Mr. Vice Minister, terrific to see you again and thank you for visiting the institute. You stressed in your remarks the potential for greatly increasing the trade and investment relationship between China and the United States. Adam mentioned that they we re about to publish a study which has the very ambitious goal of suggesting that the two countries start talking about the long-term possibility of a free trade agreement between our countries. We know it's a long-term proposition but we think it's time to start thinking about it and we spell out why that is. 12

13 Two questions to you. (1) From a Chinese perspective, do you think it is worth starting to consider a far-reaching possibility like that, either through bilateral negotiations or possibly through extension of the transpacific partnership to include China? And then the second question is; how do you see the economic reform program of President Xi Jinping relating to trade issues? Would the kind of reforms you have in mind permit greater trade liberalization and might they even be promoted by trade liberalization the way that President Jiang Zemin, Zhu Rongji 20 years ago used the entry to the WTO to promote internal economic reform in China? Can I just point out, Fred, Gary and Shawn s study, which once again we are releasing next Thursday, it represents one path that not all of us here necessarily think we should be leaping directly to an FDA. But I do want to emphasize in particular one aspect of Fred's comment, which is a number of us here as well, besides those authors, including Jeff Shot and myself, have come out very strongly that there should be efforts made to get China involved with the TPP negotiations to increase the transparency of TPP, and that's obviously going to be at the same time the new president, she's going to be dealing with APEC, President Obama is going to be dealing with TPP this fall. So I was wondering, picking up on Fred's sort of long-term view, you could also say a couple of things about how you see TPP playing out in China's potential role. Thank you. Firstly, I know you have real strategic view to promote that long-term relation for Chinese-US economic relation, and also comprehensive relation. Your policy suggestion for the free trade between these two largest economy personally I will come that. And I do believe we need to do something that's regard. We know that's a long-term view, but that's very important we take this serious consideration by TPP, APEC or TTAP can be only in place, not as to include Chinese. And a man can work together because we too believe that the two countries, great nations, great people, can more investment in our vision and more focus on the development and better life for both the Chinese and the Americans. We will come to that and we know that's a strategic view and the need that long-term strategy to do that. And the specific issue, firstly, about the TPP and secondly about the trade. Actually there's the two issue that's very closely connect. I think that under leadership of President Xi Jinping, China that's very open to the global economy. President see aside reform and opening up never stopped and we must keep going on the way. So that's very clear signal for Chinese to start instruction. We must promote domestic restructure reform and we must keep China door more open up to the outside. That's very clear. That's the policy of President Xi. And particularly for TPP here, very frankly US internally have this debate, and in China, we also have debate. 13

14 But I can report to you now after this debate as the foundation is very clearly as opening up policy and opening up economy. China should integrate it with a global trade system with high standard. And now we understand, US want this forcibly closed conclude TPP with [inaudible 0:52:00] members and not open to any new members. But we also said very clear that not including China that TPP is not incomplete, because it's so large economy in Asia and Asia-Pacific cooperation, very frankly China-US is a very key player. And we want to see this real development of TPP here. We want to see Chinese economy be more integrated with the global system. We also welcome any new proposal from US side to China and we work together to promote trade liberalization in Asia-Pacific area also in the global. So that's very important. Also in China's side we have the SEP talk, that's 10 plus 6. That's 10 Asian members plus China, Korea, Japan, also Australia, New Zealand, and India. So we hope that something can be more connect. And we understand that its very key is high standard. And indeed we welcome the high standard agreement and we hope there's more integrated regional coverage that can benefit other member countries. And this connects with the trade, so I believe that President Xi Jinping, I think that's a very, very clear instruction about the domestic stuff and also very, very clear signal to the outside. China is more open both in trade and investment for. We will import more and we will continue export. And we will welcome FDI to China. We also encourage Chinese enterprise business outside of China. Thank you. Victoria Guida: It's a great vision. So the lady in the white jacket and then two questions at the back. Thank you for going on and taking all this. This is wonderful. We didn't quite have this many Q&A yesterday. Hello. My name is Victoria Guida. I'm a reporter with Inside US Trade. You mentioned the importance of technology to economic growth and so my question is about the information technology agreement. And specifically it's the US goal to try and conclude the expansion of the information technology agreement by APEC next month. So my questions are, first, is that China's goal as well? And second of all, is China interested in showing more flexibility? Is the US showing more flexibility? How realistic is that? I think that ITA, that's a very important agreement. In the world we look for WTO play the important role. They encourage multilateral system play the important role. But unfortunately we see some very difficult process. So this month ITA, and we really hope that we can work together with US, with other members, to have this timely deal on that. And very frankly 14

15 every member has already made big effort. China as a developing country, I think that we do extreme efforts according to our real capacity. Now that's very, very close to the final deal. But this have, and I hope that every side show the flexibility because big portion already agreed everyone and just a few products. So that's in Chinese word that if you want to [inaudible 0:55:55], you must leave some small one away. So that's the final judgment and the final stage. And we hope, everybody hope, before APEC meeting that can be a real deal. But that's subject to every members. So again, China is a developing country. In this process, China made extreme efforts. Thank you. Jacob Kirkegaard: Thank you. At the back mic. I'm Jacob Kirkegaard from the Peterson Institute. Thank you very much, Mr. Vice Minister. I'd like to ask you a bit of broad question about debt, because I mean I think it's one of the most hotly contested issues in the advanced economies during the crises and certainly the recovery period of it. And I guess you could say, Well, some choose to emphasize government debts, sometimes the private debt, and there's a lot of contention about this ironic outcome that you sometimes need to get into more debt in order to get out of a debt crisis. What is the Chinese government perspective on that? Obviously the Chinese government owns a lot of government debt from other countries, but more importantly at least some of the metrics that I've seen suggests that you had a very rapid build-up of debt in the Chinese economy as well. I mean some that I've seen suggests that debt grows by three times the rate of GDP in China and has done so for some period. Is that a problem? And if so, what can be done to fix it? Yes. That [inaudible 0:57:18] issue is a very key issue in FSB discussion. That's a global issue. And this year it's a very issue discussed by FSB that include other too if that's too big to fail and [inaudible 0:57:35] issue. So we know that's a [inaudible 57:43] to the Chinese in China. Very frankly, we see the issue in China mainly focus on trust fund. So not too much amount but there's increased amount last several months. So that's why we take serious action to deal with that. And now local financing vehicle is very strictly controlled. And just weeks ago, congress passed the budget law that open the front door for provincial government kind of [inaudible 0:58:21], which are approved by state council to borrowing time. So that's the first time that they make budget in law. So we hope through the open front door, close the back door to deal with that challenge. And the principle is that we must take this risk of control to consider the issue for moral higher issue, but at the same time 15

16 we must avoid reaching the systematic risk in the financial system particularly. That's the principle we must be very, very carefully better that. We believe so far we better that. Basically will and that issue has been under control. But we know the risk of said bank continue so we must continue monitor that with very serious way. Can I just follow up on Jacob's question and your reply in just one way. One of the things that a number of us working on financial regulation issues here worry about with the FSB process is that there is a tendency to view every financial institution as a bank or at least treated as a bank whether or not it's a bank. And that there has been a sort of one size fits all process in terms of what works for the UK and Frankford and New York works for everybody. Now, on the other hand, and Governor Mark Carney for example would say, Well, there's good reason we're doing that. We want standardization. We want high standard. And if you don't get everybody under the tent, you'll just get more shadow banking. But can you say a little bit about how satisfied or unsatisfied you are with the FSB's approach to including people beyond Frankfort, London and New York and how they're handling diversity of financial institutions? That's a very important issue. That's not only FSB issue but also G20 issue, because the final report FSB issue summary to the summit for improvement and that's become the real document of the summit. So that's so important for FSB role. And now indeed, inside FSB have some debate. So I just mention there s three topic is agreed by all members of FSB this year that's too big to fail [inaudible 01:00:58] revenue under shadow bank issue. And now there's one yes, challenge particularly but that s tightening super region, but sometimes they be able to show us some flexible way to develop a country, developing country. But I can report to you in China we are most serious to implement the [inaudible 01:01:23] and early other some developing countries. So we welcome [inaudible 01:01:33] super region and we also hope there's more super region can make the Chinese bank can more easier doing business overseas. So we have the support cooperation, but indeed inside of FSB is some debate. But in generally we support FSB. Jennifer Lee: Got it. Thank you very much for clarifying that. The lady at the back mic and then the gentleman in the light suit here. I'm Jennifer Lee with Hong Kong Phoenix TV. Thank you for your speech, Vice Minister. I have a question regarding China's recent antimonopoly efforts. So it is said that the US Treasury Secretary Jack Lew 16

17 wrote a mail to his counterpart, the Vice Premier Wong Yang saying that this investigation will have serious implication for the US-China relations. I wonder if you can comment on that or is there going to be a discussion between you and Jack Lew? And I also wonder, do you think why the Chinese government officials has stated many times that they don't target foreign companies. It's just account for 10% but the US still respond negatively. And do you think what impact it might have regarding the US- China relations. Thank you. I can report to you under SED procedure, both Vice Premier Wong Yang and the Secretary Lew as special rep [inaudible 01:02:57] President Xi Jinping and President Obama, they have very open communication with letter or phone call or meeting. And everything they can put down the table for frank discussion. Of course, it include anti-monopoly issue. You can recall last Sunday, Vice Premier Wong Yang and Secretary Lew had this phone call conversation and discusses China-US economic relations and the global economic situation. Certainly, as everything covered I believe with the SED procedure we can work together. I mean China-US can work together to deal with any challenge. We really hope that more understanding, more trust for both management in China and the US, by the Chinese enterprise. So specifically anti-monopoly issue that we very, very conform that the principle agreed by SED in July. That's the universal and standard principle. And certainly China is equally to treat domestic enterprise and foreign investment, foreign enterprise. And you can say there's detail statistics, 75% survey is against the Chinese enterprise. And for Americans and the foreign companies we see same law and the same principle. And both Vice Premier Wong Yang and Secretary Lew confirmed that. And I believe that such kind of very frank communication will continue with the SED format. Jennifer Lee: Peter Batalle: Thank you. Great. So the gentleman here in the light jacket and the guy in the white shirt behind him and then back to the back mic. Thank you. I'm Peter Batalle. I'm teaching in Chinese economic courses at John's Hopkins. I got to know China in the mid-90s serving as head of the World Bank, most of the time for Jim Bolvenson sitting on this table here. My question concerns a topic that we discussed earlier, namely domestic debt management, particularly the government part of domestic debt. You mentioned, Mr. Minister, that the MPC passed a very significant budget law amendment in August. If I understood that amendment correctly, it opens the way to significant domestic capital market development in China in the sense that local governments, provincial 17

18 governments, will have the authority to issue bond debt instruments without central government permission. That is a hugely important capital market institutional development. And I wonder if you could say a little bit about it particularly concerning the international aspects of debt, because China is also in the process of gradually opening its capital account and it seems to me that given the huge potential for the bond market development in China, if you were to open this up to international purchases as primary and secondary market, you have a very significant potential to open the capital market while at the same time introducing control over domestic local government debt. Peter Batalle: So can you put this as a question. So the question is; how do you envisage that this potentially very huge domestic local government bond market will develop and is there potential for linking it to international capital markets? Thank you, Peter. That's very important issue for us and we must recognize that's less development of capital market. That's the concern for congressional capital allocation. And so far China deal mainly related on banking lending and banking pouring. That's the capital market with less development. So we made every effort to improve that, but capital market has gradually matured. And the [inaudible 01:07:10] for investments and make that people really understand that there's a risk of control. So we just very frankly in lending process. And this time, as congress approved, as the budget law, that indeed opened some door for provincial government borrowing, but condition is approved by a central government. And this is very important stand beginning and next month we will see. We just talked with the Hong Kong exchange, and make the Shanghai stock exchange with the Hong Kong exchange, direct connection. And now it is in the final stage we hope that some experience will promote domestic capital market development. And we know that's very important. But until today, less capital market, still less development. We need several levels of capital market and you re right [inaudible 01:08:18] issue. So not only China and the east of Asia, where east of Asia found initiative. We already discussed it for several years but less view in the process to promote that. Man: Great. The gentleman in the white shirt. Thank you minister. I'm [inaudible 01:08:39] from Tudor Investment. Very simple question. Do you think that the growth target, GDP growth 18

19 target, will be lowered from seven and a half this year to 7% in 2015? Thank you. We say very clearly and now we more emphasize the quality of growth rather than just the figure of our GDP. And 7.5% growth is the indicating target this year. But anyway, a little higher or little lower will [inaudible 01:09:19], that's no problem. What is [inaudible 01:09:20] is less employment. Now we already have less employment and much improvement. That's 10 million employment happened already in August complete. So we have that confidence with congressional economic structure as GDP grow in China [inaudible 01:09:41]. We are not chase that very high growth because that's the pay particularly environment. But we also have that confidence with the next ten years. Potential productivity in China keep at 7% to 8%; several reasons. One is that the reform of labor force, and particularly urbanization, we only release that labor supply and also very high domestic saving. And also we introduced as a mix the economy as a structural reform made less productivity improved. So that's why we have that confidence over the next ten years is seven to eight percent growth. William Blyne: The vice minister has been incredibly generous with his time, with his frankness, with his answers. I know he's willing to go on and on. But I think after Bill, we may make this the last question. So at the back mic please. William Blyne here at the Institute. Vice Minister, in the reform process I'd like to know what is your vision of the role of the state banks over the next several years. China's state-owned banks have a remarkably high 90% to the banking system. The good news is that means you don't have bank panics because people trust that the government is there to back up the banks. The bad news is the state banks have a bad reputation for channeling money to the special chums, lower interest rates for special clients, and generally are less efficient. So is there a plan over the next decade to reduce that 90% say to 50%, case A, or is there alternatively a plan to maintain the state banks but to implement some form of discipline to increase the efficiency, case B, or some mixture of the two. Yes. For the banking reform, and we must say that so far that's a very big four, big five banks in China that still dominate banking system. But this year we do extremely efforts on banking reform. You can see five private banking already been approved. We will introduce more as following up. But so far that's the new established five approved private bank is a real key to promote banking reform. 19