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Responses to Questions About IMF Policies and Country Operations
China, People's Republic of
Last Updated: April 14, 2007| Question: On the Chinese commitments on the multilateral consultations in the section on increasing flexibility of the renminbi, it says in the statement that it has appreciated 7 percent against the dollar and 6 percent real effective exchange rate. But I understood that on a trade-weighted basis, the renminbi has actually depreciated. Which is it? Was there concern about the low value of the renminbi being potentially destabilizing to global finance? |
| Answer:
MR. DE RATO: First, you are right in what you said, but you should read further in the statement where the Chinese government has stated that the exchange rate formation mechanism will be improved in a gradual and controllable manner. Exchange rate flexibility will gradually increase, with attention paid to the value of a basket of currencies. At these meetings, there was no discussion about any currency. Our view on currencies is expressed in different Article IV consultations, with the Chinese or others. It is in the interest of the Chinese economy and Chinese citizens to have a stronger rebalancing of demand and, to do that, monetary policy should be allowed to play a bigger role. In that respect, exchange rate flexibility will be very much in their own interest.
April 14, 2007 Transcript of a Press Briefing by UK Chancellor of the Exchequer Gordon Brown, Chairman of the International Monetary and Financial Committee, and IMF Managing Director Rodrigo de Rato, with John Lipsky, First Deputy Managing Director of the IMF, and Masood Ahmed, Director of IMF External Relations Department |
| Question: Is the tightly managed exchange rate in China a factor that is making it more difficult for the Chinese to influence their own economy? |
| Answer:
MR. JOHNSON: As is recognized in China, some degree of appreciation of the Chinese exchange rate is not inappropriate and should be expected. The renmimbi has appreciated, in nominal terms, relative to the U.S. dollar, The U.S. dollar has obviously depreciated against some other currencies. So in real effective terms the Chinese currency has not appreciated. But these are steps in the right direction that actually make it easier for China to manage its own macroeconomic policies, as well as being consistent with balanced global growth, which is a very good thing for everyone.
April 11, 2007 Transcript of the World Economic Outlook Press Conference |
| Question: Regarding the Managing Director's visit to China, I was wondering if the subject of exchange rate reform in China came up in conversations, and if so, whether any progress was made? |
| Answer:
When he was there he discussed with the Chinese authorities both overall macroeconomic and financial programs and prospects, but within that context obviously the issue of the exchange rate. In the press release that was issued,there is a section that deals with his assessment of that conversation of the exchange rate. He talks in that press release about what he had heard from the authorities, which is they have reiterated their objectives of advancing exchange rate reform and allowing greater flexibility over time in the exchange rate to reflect market conditions. He sets out our views on how faster movement on the exchange rate would provide more space for the authorities to use monetary policy and why the use of monetary policy is more important as an instrument to deal with credit growth and to curb investment.
He has also set out our views in those discussions on why greater flexibility in the exchange rate is more important from a medium-term perspective because we see greater reliance on market forces in both exchange rates and interest rates as being a way of helping to rebalance the sources of growth in the Chinese economy more from domestic demand.
February 1, 2007 Transcript of a Press Briefing by Masood Ahmed, Director, External Relations Department, IMF |
| Question: On the question of global imbalances, you said that the risks in the short term seem to be a little less. This week there seemed to be news that the foreign reserves of China achieved the one trillion dollar level, which many people feel is significant. Could you comment on what your future discussions might be vis-à-vis China, whether you think China is doing its part to help lessen these global imbalance risks. |
| Answer:
MR. DE RATO: China has been a significant part of what we see as historical growth in the world. So that has to be said at the start. China's contribution to world growth has been very important and still is. We see the growth of China averaging around 10 percent this year which, as you all know, is the average of the last 15-20 years. So I mean China is a very important element of world growth, and also it is a country that is changing its own economy very quickly.
What we see is that in that growth, investment is still a very dominant factor. Our view is that a reduction in the rate of growth of investment is advisable to avoid mistakes on that investment down the road, which may cause a reduction of prices, a reduction of profits, and non-performing loans. To do that, therefore, China has moved to use administrative measures, which have had a limited impact as we foresaw at the time. We believe that monetary policy should be used more effectively, and of course to do that, they need to further liberalize their financial system but also use more forcefully their own exchange rate regime to allow market forces to determine prices, allocating resources in the Chinese economy more freely. To target exchange rate movements in China effectively and have that reflect reality would be very helpful for China, not only in the near but in the medium term.
MR. LIPSKY: More broadly on the issue of global imbalances, there is a strategy endorsed by the IMFC that carries collective responsibilities for sustaining the benign global economic environment. It has been, after all, an unexpectedly favorable period of global economic performance. If the World Economic Outlook forecast is more or less correct for this year, we will have enjoyed the fastest five-year period of growth in three decades. With relative inflation stability or relatively low core inflation, this has been a success and not a failure.
The goal is to make sure that this favorable environment is sustained and that policies are put in place that will continue that progress, ensuring strong growth, relatively balanced growth, and low inflation. That strategy involves an increase in the savings rate in the United States, a shift towards stronger domestic demand in other industrial countries enjoying surpluses, a shift in policy in those Asian countries involved that have had limited exchange rate flexibility toward more flexible policies, and in general structural reforms that will strengthen domestic demand growth; and in the oil and other basic commodity exporters, a strength in investment in the energy sector and other appropriate sectors, and in general an increase in absorption.
Now, it was never anticipated or expected that these imbalances, for example, that are the sign of uneven growth in domestic demand in the global economy, were going to be eliminated or reversed in an abrupt fashion. In fact, that could be worrisome. What is important is that there is a perception and a reality that policies are being moved in a direction that is supportive of sustained growth.
January 16, 2007 Press Conference by Managing Director Rodrigo de Rato, IMF |
| Question: It seems up until this conference the Chinese government has not been as enthusiastic as expected toward the proposed reform. Ministers have stressed that there should not be a trade-off in the sense that China may get more voting power but at the same time become more exposed to pressure from other members on its exchange rate policy. In your mind, what will be expected of China with increased voting power, specifically in terms of monetary, financial policies, exchange rate policies? |
| Answer:
First of all, I would like to say that China has backed this reform publicly more than once and certainly in all the official interventions at the Board and the IMFC. So, I do not know why you characterize the position of China as not engaged in this reform, because it is not true. They are engaged and they have expressed that more than once. Second, I think that the fact that the international community recognizes that China has increased its role in the world economy is because it is true. Nobody can argue with that. That I think gives legitimacy to the institution, and we can say the same about Korea, Turkey, or Mexico and other economies. I do not think the fact of having a role and maybe a bigger role in the institution makes you subject to more pressures. You have a bigger voice in the governance of the institution. Of course, that would allow you to express your views but, of course, you will listen to the views of others and that happens to the first shareholder and to the last shareholder. But China, as any member country of the IMF, is subject to surveillance and we expressed through the independent view of the staff what is the view of the IMF regarding the challenges that the Chinese economy is facing, like we do with the rest of the economies that are members of this institution. In fact, in the case of China, if I am not mistaken, the Article IV of China was made public a week ago. I want to commend the Chinese authorities for the transparency in that respect. There, in that Article IV, you can read very clearly what is the view of the Board and the staff of the Fund regarding what are the challenges facing the Chinese society and the Chinese economy.
September 17, 2006 Press Briefing by Rodrigo de Rato, IMF Managing Director |
| Question: Regarding the Chinese renminbi exchange rate, as you know, this issue will be one of the focus for this meeting, so does the IMF think that Chinese exports enjoy unfair advantage because of the value of the RMB and does the IMF think the RMB exchange rate is undervalued? |
| Answer:
We have expressed our views on China on our recent Article IV that was published last Monday and I want to really commend the Chinese authorities for the transparency on this issue. Part of our view of China certainly is that the decision taken by China last year to change its exchange rate mechanism was the right one. But that decision has to be implemented. And we believe that it is in the interest of China not only on the exchange rate but in general, to let market forces determine the allocation of resources more effectively in the economy of China. In fact, we believe that is the big challenge for China in the next few years: how to let market forces influence credit, influence domestic demand, making people more confident in their safety nets, and other issues that we believe will be in the interest of China.
Given the importance of the Chinese economy, having a more stable medium-term prospect for Chinese growth is very important for the world economy, but you can be sure that our recommendations to the Chinese authorities are strictly based on what we believe is better for China at this juncture.
September 15, 2006 Press Briefing by Rodrigo de Rato, Managing Director, IMF |
| Question: We are seeing a growing need for oil in emerging economies like India and China. How do you see that affecting their monetary policy going forward and what can the IMF do in terms of easing their energy crunch? |
| Answer:
I think these countries have it within themselves to ease the energy crunch and the first thing to do is to allow prices to feed fully into the output prices—this is certainly the issue for India—rather than subsidizing these prices because, after all, when people face the full price of something they use, they alter their consumption accordingly and it goes to the people who need it the most. By subsidizing fuel prices and actually by having differential subsidies, you create substantial problems; for example, when you subsidize gasoline prices, a lot of it is used by the middle class so it is a very misdirected subsidy. If you subsidize kerosene a lot, then there is an incentive to adulterate the gasoline with the kerosene. I think basically let the prices reflect market realities, and this would be a step in allowing better energy use. Of course, over time, also, these countries have to figure in the cost of the environmental damage done by economic activity and to think about how they can appropriately charge industries for it. Certainly, there are regulations in both countries which attempt to reduce environmental damage, and ensure companies do the right thing, but it seems that there are many breaches of this regulation. So, trying to figure out how to make the regulation as business-friendly as possible, but then implementing it extremely rigorously is something very important. In both countries you see strong environmental movements and increasing attention by the authorities to the environmental damage, and I think that is a very good development.
September 14, 2006 Press Conference on the World Economic Outlook Report, Raghuram Rajan, Economic Counselor and Director of the Research Department, IMF |
| Question: China recently raised its interest rates to curb a credit boom. Do you have any comments on that move? Do you think that the move was substantial enough to cool the economy? |
| Answer:
The Chinese authorities have taken important steps to slow credit and fixed investment growth to more sustainable levels. However, economic activity remains strong, driven by net exports and investment, while inflation is low. Macroeconomic policies should continue to be geared toward restraining investment growth. While the recent increases in reserve requirements and benchmark deposit and lending rates are welcome steps, a significant risk still remains that macroeconomic policies are not sufficiently tight. Additional monetary tightening would drain liquidity from the banking system and guard against continued rapid credit growth.
August 24, 2006 Press Briefing by David Hawley, Assistant Director, External Relations Department, IMF |
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