January 16, 2011
China's Hu Jintao answers questions with Washington Post
What lessons do you think can be drawn from the 2008 international financial crisis?
What effective measures did China adopt to counter the impact of the crisis?
HU: This international financial crisis has reflected the absence of regulation in financial innovation. Its root cause lies in the serious defects of the existing financial system. They are mainly as follows: First, the international financial system has not kept up with the latest development of economic and financial globalization and was incapable of tackling the risks and challenges brought about by massive financial activities. Second, international financial institutions failed to fully reflect the changing status of developing countries in the world economy and finance. The global representativeness and enforcement capabilities of these institutions need to be further strengthened. Third, the international financial system was in serious shortage of resources and means to tackle the international financial crisis and its rescue capabilities need to be built up.
However, thanks to the concerted efforts of the international community and G20 members, progress has been made in the reform of the international financial system over the past two years since the outbreak of the financial crisis. China hopes that the international community will work together to further advance the reform of the international financial system and move toward the establishment of a fair, just, inclusive and well-managed international financial order.
To achieve the long-term and sound growth of the world economy, we must not only address specific issues such as managing properly the relationship between the financial sector and the real economy, between financial innovation and financial supervision and regulation, and between consumption and saving, but also, and more importantly, review those fundamental problems in the world economy on a macro level.
The most prominent problem in the world's economic imbalance today is the serious development imbalance between the North and the South. The international community should make concerted efforts to build a new and more equal and balanced global partnership for development and encourage developed and developing countries to have more mutual understanding and closer coordination, so as to promote the strong, sustainable and balanced development of the world economy.
The international financial crisis has inflicted on China unprecedented difficulties and challenges. To address its impact and maintain the steady and relatively fast growth of the economy, China quickly adjusted its macro-economic policies, resolutely adopted the proactive fiscal policy and moderately easy monetary policy, put in place a package plan to boost domestic demand and stimulate economic growth, significantly increased government investment, implemented industrial readjustment and reinvigoration plans on a large scale, energetically promoted scientific innovation and technological upgrading, raised social welfare benefits by a substantial margin and introduced a more active employment policy. As a result, our economy in 2009 and 2010 maintained steady and relatively fast growth and contributed to the economic recovery of the region and the world. Looking ahead, China will take scientific development as the main theme and focus on transforming the economic development pattern at a faster pace.
We will implement a proactive fiscal policy and a prudent monetary policy, speed up economic restructuring, vigorously strengthen indigenous innovation, make good progress in energy conservation and pollution reduction, continue to deepen reform and opening-up, work hard to ensure and improve people's livelihood, build on the achievements in addressing the international financial crisis, maintain steady and relatively fast economic growth, and promote social stability and harmony. China will pursue the win-win strategy of opening-up and stands ready to work with the United States and the international community as a whole to intensify practical cooperation, properly handle various risks and challenges, and make greater contribution to the overall recovery of the world economy.
What do you think will be the US dollar's future role in the world? How do you see the issue of making the RMB an international currency? Some think that RMB appreciation may curb China's inflation, what's your view on that?
HU: The current international currency system is the product of the past. As a major reserve currency, the US dollar is used in considerable amount of global trade in commodities as well as in most of the investment and financial transactions. The monetary policy of the United States has a major impact on global liquidity and capital flows and therefore, the liquidity of the US dollar should be kept at a reasonable and stable level.
It takes a long time for a country's currency to be widely accepted in the world. China has made important contribution to the world economy in terms of total economic output and trade, and the RMB has played a role in the world economic development. But making the RMB an international currency will be a fairly long process. The on-going pilot programs for RMB settlement of cross-border trade and investment transactions are a concrete step that China has taken to respond to the international financial crisis, with the purpose of promoting trade and investment facilitation. They fit in well with market demand as evidenced by the rapidly expanding scale of these transactions.
China has adopted a package plan to curb inflation, including interest rate adjustment. We have adopted a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. Changes in exchange rate are a result of multiple factors, including the balance of international payment and market supply and demand. In this sense, inflation can hardly be the main factor in determining the exchange rate policy.
http://www.washingtonpost.com/wp-dyn/content/article/2011/01/16/AR2011011601921.html?hpid=topnews
