Transcript

Transcript of Asia and Pacific Department Press Briefing

April 14, 2016

Webcast of the press briefing

PARTICIPANTS:

CHANGYONG RHEE
Director, Asia and Pacific Department, IMF
MARKUS RODLAUER
Deputy Director, Asia and Pacific Department, IMF
KALPANA KOCHHAR
Deputy Director, Asia and Pacific Department, IMF
HOE EE KHOR
Deputy Director, Asia and Pacific Department, IMF
KEIKO UTSUNOMIYA
Senior Communications Officer, Communications Department, IMF

MS. UTSUNOMIYA: Good evening. Welcome to the IMF press briefing on Asia and Pacific. I am Keiko Utsunomiya from the Communications Department. Joining me today is Mr. Changyong Rhee, Director of the IMF's Asia and Pacific Department; and three Deputy Directors, Mr. Markus Rodlauer, Ms. Kalpana Kochhar and Mr. Hoe Ee Khor.

Changyong will give short opening remarks and we'll open up the floor for questions. This press conference is webcast live and we encourage people online to submit questions as well. Changyong?

MR. RHEE: Thank you, Keiko. Good evening in D.C. and good morning in Asia. It is our pleasure to brief you on the economic prospects in the Asia and Pacific region. And today's briefing is based on the Regional Economic Outlook, which we will present on May 3rd in Hong Kong. So let's start with three main messages of our study.

While Asia's growth is moderating, the region remains the engine of global growth and the region is expected to grow by 5.3 percent in 2016 and 2017, which is 2 to 4 percentage points higher than the growth rate in other regions. And also, this growth rate accounts for two-thirds of global growth as it has been since 2010. So Asia remains the engine of the global growth.

Likewise, while Asia's relatively in better shape than other regions, it shares the same downside risk that my colleagues have emphasized the last two days, such as weakening global recovery, tighter global financial conditions, and China's slowdown and its spillover.

In terms of policies, in addition to continuing its structural reform, Asia should prioritize building policy buffers and tackling vulnerabilities while being ready to support aggregate demand if downside risks materialize. Let me explain these points before we go on to the questions.

As I note, overall Asia's GDP growth rate is expected be 5.3 percent in 2016 and 2017, 0.1 percentage point lower than the growth rate in 2015. However, this aggregate number masks heterogeneity across the regional economies. Let's start with China.

We actually revised up our growth forecast for China for this year from 6.2 percent to 6.5 percent, and then also revised the overall growth rate for the next year to 6.2 percent in 2017. You may be surprised becausethe IMF revised downward our global growth rate. Why did we just revise up the overall China's growth rate? The main reason is that China recently announced its commitment to the new stimulus packages together with a variety of structural reforms in its 13th 5-year plan.

And we believe China has this policy space to achieve its growth target in the short-term. But I'd like to emphasize that depending on where this stimulus is used and whether the stimulus is used wisely and does not just go to boosting the old growth engines, the medium-term risk of ever rising credit and investment can also increase. So in the short-term, due to the structure reform and stimulus, China's growth rate is upgraded. But on the other hand, depending on where the stimulus can be used, the medium-term risk can also increase.

In Japan, the GDP growth rate is projected to remain 0.5 percent in 2016, but it is expected to significantly slow down to -0.1 percent in 2017 assuming current policies. That means our -0.1 percent growth rate in 2017 incorporates the negative impact of the expected consumption tax increase from 8 to 10 percent in 2017, but does not assume offsetting measures to support economic activity. But in reality you can easily expect that Japan's government will be more likely to rely on offsetting measures, including fiscal expansion, to offset the negative impact of the consumption tax increase, which means that the actual growth rate in 2017 should be higher than our forecast. And we will adjust once we know the details of Japan's fiscal plans.

In India, India is the fastest growing emerging economy with a growth rate at 7.5 percent both in 2016 and 2017. Activity is expected to continue to be underpinned by private consumption, which has benefitted from low energy prices.

Australia's growth rate is expected to remain stable at 2.5 percent in 2016, while mining investment will continue to contract.

Korea's growth rate is expect to remain subdued but stable at 2.7 percent this year and rise moderately to 2.9 percent in 2017 as domestic demand benefits from low oil prices.

Developments in ASEAN economies will remain uneven, reflecting the bloc’s heterogeneity. Overall growth in ASEAN countries will average 4.7 percent in this year and 5 percent in 2017. Indonesia is projected to grow at 4.9 percent in 2016 and 5.3 percent in 2017. Growth in the Philippines, Malaysia, and Vietnam is expected to remain robust because of resilient domestic demand. Thailand's growth rate will continue to be below its potential, but it will pick up modestly, driven by public spending.

For frontier economies and small states, growth remains generally strong, but several countries are facing vulnerabilities such as rising twin deficits, declining reserves, and also challenges from natural disasters. On the strong side Bangladesh's growth rate is expected to exceed 6.5 percent in 2016 and '17 helped by low commodity prices and investment in manufacturing. In Myanmar, the growth rate is projected to strengthen partly helped by the peaceful political transition and higher investment.

While this baseline outlook for Asia remains favorable there are downside risks that continue to dominate. External risks emanating from weak global growth and tighter global liquidity conditions compound domestic vulnerabilities. One big difference on the trade side from the past is that emerging markets, including China, are important contributors to the global trade slowdown at this moment, unlike the case in 2009 when advanced economies actually led the slowdown of global trade.

And second, asynchronous monetary policy in the U.S., Euro Area, and Japan can also increase volatility and the possibility of capital outflows from the region. But so far we have not seen major capital outflows in the region, except China, but that does not mean that asynchronous monetary policy of the advanced economies does not have an impact on the region. We saw that financial volatility has been high, and for many Asian countries, their currencies also have depreciated quite significantly.

The turning of the credit and financial cycle amid high debt poses significant risk to the growth in Asia. Several Asian countries have pockets of high corporate debt leverage problems while corporate profit also has significantly weakened.

And as for the spillover impact from China, we believe that while China's necessary rebalancing will make growth more sustainable and in the longer-term its spillover effect must be positive to the global economy. But in the short-term its transition can have adverse but heterogeneous spillovers in the region through trade channels.

On trade, the impact depends on the type of exposure, type of goods you're exporting to China. Countries which sell more consumption goods can be winners. On the other hand, countries which are selling more investment goods and manufacturing goods can lose in the near-term. And we also find that spillovers through financial channels are actually increasing as China is more integrated to the global financial market, especially the strength of financial spillovers have increased quite rapidly after the global financial crisis.

China’s slowdown has also had a larger impact on global commodity demand, but here, the impact is also quite heterogeneous. We find that the unexpected decline in demand for commodities such as metals, iron ore, and nickel has been much stronger, as these metals are the major input for construction and heavy industries.

On the other hand, it’s impact on oil demand has been relatively diluted but the demand for food is actually benefiting from China’s rebalancing so in some sense, China’s rebalancing has a very heterogeneous impact on commodities and has focused more and has a larger impact on metals.

In Asia, geopolitical tensions and domestic policy on certain things could also cause trade disruptions for lower growth rate. Natural disasters are another risk to the region, especially low income countries and small states. Small states also face new challenges such as de-risking by global banks which could undermine financial inclusion and growth for many Pacific island countries that heavily depend on remittances.

So far, we have just focused on the downside risk but I want to emphasize, before I move to the policy issues that Asia also has some upside risk. Low commodity prices could be a big net boost to the region, and also progress on the regional and multilateral trade negotiations such as TPP could benefit its member countries even before it is ratified. Finally, China -- recent statistics from China show that it has surprised on the upside and that this could be good news for the region.

So let’s move on to the challenges now to navigate the turbulent global environment. I am glad to say that Asia can build on a number of strengths. In general, Asian economies have much stronger efforts and are well positioned to face challenges compared with other emerging markets in the other regions.

Broadly speaking, monetary policy settings are appropriate at this moment and inflation remains quite low, therefore, if growth disappoints, there is room to cut policy rates in a number of Asian economies.

Fiscal conditions vary across countries and several economies have fiscal space that can be used if the downside risk materializes or to prevent the downside risk. However, many others, especially low income Asian economies, are now seeing more vulnerabilities, and gradual fiscal consolidation is desirable to build policy space. For most of them, the composition of spending to allow for the infrastructure and social spending is important, including considering the rising inequality trend in the region.

Exchange rates should remain the major line of defense and macro potential policies, which have been used more extensively in Asia, can be used to deal with financial risk.

On structural reform, Asia has made lots of structure reforms in many countries and I am very glad that in our recent report, Asia is really outstanding, that we are actually doing a lot more structure reform than other regions. Pushing ahead with the structure reform will help ensure that Asia remains a global growth leader and they can also help reduce inequalities and foster inclusive growth. The reform agenda definitely is country specific, but timing and effective implementation will be quite critical.

So in conclusion, let me reiterate that Asia is in a relatively strong position, but there are pockets of vulnerabilities and the external environment has become much more difficult. So in order to build on its strengths during these turbulent times, Asia needs to continue to build buffers and to tackle urgently the high leverage problem it has and also needs to continue to implement structural reform to boost potential growth. Thank you for listening and we will have a Q and A, thank you.

MS. UTSONOMIYA: Thank you, Changyong. Now we take questions. Please identify yourself first.

QUESITONER: In your remarks, you said India is the fastest growing emerging economy in the world. What impact would this have on the Asian economy? Is India’s economy in a position to have an impact on the rest of the Asian economy?

MR. RODLAUER: India is obviously a major economy in its sub region in South Asia, so we see the immediate neighbors benefiting a lot. The actual economic ties with Southeast Asia and China are somewhat more limited, so the direct spillovers from growth in India, both on the trade side and on the financial side are more limited to the rest of Asia.

QUESTIONER: Thank you very much; thanks for the presentation. Asia’s growth the last couple of decades has been driven by global value chains and the global value chain is driven by strong foreign direct investment from many countries. Have you looked at the future trends and challenges -- value chains in Asia?

What I have in mind, of course, is that China maybe is losing a bit of competitiveness. Vietnam and India are gaining competitiveness in the value chain world.

MR. RHEE: We have a study on this issue and actually as you said, the nature of global value chains is changing rapidly in Asia. As China is moving up the ladder in the value chains, they already exited from labor intensive goods to more high tech goods. So in those areas, I think several low income Asian countries are already taking market shares, especially Vietnam and Cambodia are taking their shares in sectors such as apparel and shoes and toys. And at the same time, there is on shoring in China, in manufacturing goods and very interestingly, there is a new value chain developing because China’s middle income class is now increasing. Their consumption, especially the consumption of more high quality consumption goods has lots of demand from abroad so we can see that, in the case of Korea, for example, I saw many smaller manufacturing companies which provide intermediate goods in the manufacturing sector in Korea. They find it more and more difficult to compete with the Chinese owned companies and the rising costs so they are moving to Vietnam and other places. But on the other hand, companies who are producing let’s say, high quality bread and good movie theatres, all these consumption oriented producers actually have more business.

And also, this means that their investment patterns are changing. Chinese investment has been heavily relying on investment to the real estate sector in the region and also more focused on the natural resources, but now we see more direct investment from China to acquire more high tech companies in the U. S. and Europe. At this moment, it’s very hard to predict what will happen to the new value chain, but there is definitely significant evidence that China’s upgrade of industries is changing the nature of global value chains and who will be the winners and who will be the losers. I don’t mean that there is a certain loser but even labor intensive sectors and in high tech sectors, the winner and loser can be quite diverse.

We have a working paper which discusses the impact of China’s upgrading and what kind of impact it has on the CLMV countries.

MR. RODLAUER: Yes, a report on the changing trade relationship between China and its neighbors in the -- Vietnam, Laos, Myanmar and Cambodia. What Changyong said of course is right, that China’s trade is really impacted by the slowdown in China by the rebalancing and by on shoring. One interesting thing is that while China is exiting some low cost manufacturing, and that benefits, obviously the Mekong for example, a lot, we also see that actually China is not yet significantly exiting a number of low cost production like textiles and others where actually the production is being relocated within China.

This provides some opportunities for trading partners, but it will be a challenge to benefit from that rebalancing because you need to be competitive, you need to be able to penetrate the Chinese consumer market, and you need to make sure you are in the right niche in a competitive environment.

QUESTIONER: When will the paper be published?

MR. RODLAUER: In a couple of weeks, I think.

QUESTIONER: Several questions. You just explained the reason behind the upgrading of China's economic growth forecast, but my question is that how worried are you about the debt problem in China? Are you worried that a kind of stimulus package will deteriorate the situation of the debt problem in China? First question.

And the second is about the G20 and about the international financial architecture agenda in the G20. My question is about what is the role of the RMB there to promote the bigger usage of SDR, and also China's role there?

The last question is about Asia, on financial integration. How do you foresee the role of AMRO? Because we know Chiang Mai and also AMRO are quite overlapping with the role of the Fund. The reason why we have Chiang Mai and AMRO is because we did not want the Fund to have a big influence in Asia.

Today, the situation has changed quite a lot. The Fund can play quite a bigger role, and also in culture and other influences, structure, and the Fund has improved quite a lot with Asia. So, how do you see the future of AMRO and Chiang Mai? Thank you. Too many questions.

MR. RODLAUER: The recent uptick in growth in China obviously is very important for China and for the global economy. On the positive side, I think first one needs to take note that China has once again demonstrated that it can manage its economy. It has both the policy space and the policy levers to manage its macroeconomy in the near term, probably to an extent and degree that no other large economy in this day and age can do, in a global economy.

In an environment of declining global growth and significant risks to the recovery, I think this is an important point to make.

When we look at where the growth is coming from, I think it's a bit premature to pass judgment about the quality of this new growth and the quality of the stimulus that is being applied.

We do see the rebound mainly on infrastructure and in the real estate market. I think some stimulus to this economy was necessary, obviously, to stabilize the somewhat shock of the decline of growth that had been occurring in the fall and over the winter, and the risk of further decline.

I think the jury is still out, whether this is in substance just a return to the old ways of stimulating or whether there is more sustainable investment in necessary infrastructure, social infrastructure. And also what does this rebound in the real estate and housing mean, is it just a short term kick of the market that will fade or is it the beginning of a stabilization of the demand and supply relationship, which I think we would really not yet pass judgment on that.

As you note, the risk, of course, is that this might just be a stimulus with again a return to credit financed investment. We are concerned about the level of debt, corporate debt. I think the GFSR has made this quite clear that there is a risk, and the authorities themselves are very focused on that.

I think there is no problem of lack of recognition of the problem both in China and here at the Fund, certainly. We also, however, in the same breath again need to come back to what I said at the beginning, this is not yet by far at the level that it is not manageable. China has enough policy space, the size of the problem is still well within the range of being manageable, but the more it lasts, the more urgent it will become that this corporate debt problem and the underlying issues in the state enterprise sector are being addressed.

QUESTIONER: To follow up, we know that Article IV with China is ongoing now. Have you reached a consensus with China's government that we can have a big package, not only equity, conversion, kind of the minor ways to handle that issue?

MR. RODLAUER: Our Article IV is scheduled for May/June. So, we are just at the beginning of our own analytical preparatory work. We have had initial discussions with them on these various ideas that are mainly reported in the press that there could be swaps and securitization.

I think it is very clear to everybody that these can be important tools and ingredients in the big meal of restructuring, but it has to be a very comprehensive overall package, as you say, that addresses the underlying issue of governance, budget constraints, credit quality, in the investment sector, in the enterprise.

MR. RHEE: Let me answer on the other two questions. I think there are two topics, SDR, and the collaboration between the Fund and Chiang Mai, and collaboration between the global safety net versus the regional safety net. These three issues are important topics on China's agenda that the authorities are discussing, and we hope we can see some improvement.

As for the first question, as you mentioned, it is true that the creation of AMRO was after the Asian financial crisis, and it related to some impact of the IMF. In the beginning, we all think AMRO and Chiang Mai is a kind of competitor, a regional competitor of the IMF, but after the global financial crisis, and I’m very glad that Ms. Young mentioned our relationship with Asian countries improved. Improvement of relations is one thing, but after the global financial crisis, we found that the global safety net or our resources alone in the Fund are not enough, and when you see the Europeans in a crisis and the creation of all these things.

So, now I think there is a mutual and a broad consensus that the collaboration between the regional safety net and the Fund, like the global safety net, is necessary. So, I think this is a great opportunity, especially for Asia, to think about how it can operationalize this collaboration.

I think the countries are discussing this issue, and this is a very important issue that now the deputies are discussing. So, we are making some progress.

As for SDR, this is a really broad issue. This is a question about international financial architecture, but I think at this moment, the SDR is a kind of official exchange between the authorities, and so with the introduction of RMB, there can be some effort to increase its use in the transactions by the officials. That, I think, is kind of doable. Whether this can be widely used as an international currency, that will be determined by the market, and that can take a long time.

I think what China and the G20 is now discussing is the first part.

QUESTIONER: Just questions about Japan. One, you talk about the possibility of fiscal measures offsetting the impact of a consumption tax and helping avoid a slip back into a contraction next year.

I just wonder how the strengthening yen might play into that dynamic, and whether that is a real potential threat to growth in Japan as Japanese authorities seem to have expressed in recent weeks.

The second question is on negative rates and Japan. What is your assessment as to how effective the policy has been, and how much further they can go into negative territory?

MS. KOCHHAR: So, on your question on fiscal measures, actually, the yen appreciation, it has appreciated very sharply -- about 13 percent or so. And from a cyclical perspective, it certainly has contributed -- could contribute to keeping inflation down and raising deflation risks.

It's for this reason that we have continuously stressed that what Japan needs is a package of measures that includes strong structural reforms and we have emphasized that particular labor market reforms also in the last Article IV report. And these reforms are meant to set off positive wage price dynamics. We have emphasized the need for a credible fiscal consolidation plan that gives investors certainty about what is going to happen with the fiscal situation and that has to be combined with what's happening on monetary policy.

And it's really those three things that are needed. You know, it's difficult to look at each different part of it in isolation. We have continuously and will continually emphasize the need for a package.

And your question on negative interest rates, first of all on how effective, it's fairly recent and so I think it's difficult to judge with any degree of certainty its effectiveness. We generally welcome the move because I think it underscores the BOJ's commitment to maintain inflation momentum because it gives them an additional policy tool now. It completes the toolkit in our view.

That said, the impact on the financial system has to be monitored carefully. It's squeezing already net interest margins. In fact, we've seen a pronounced drop in equity prices of Japanese banks. But so far I think, one concern was whether deposit rates would be affected. So far, that hasn't happened.

There is some evidence of a pickup in credit and so on. But again, I'm going to stress my earlier point to maximize the effect of necessary monetary policy has to be packaged.

QUESTIONER: If I can just follow up, that would be one of the issues raised by Jose Vinals and his coauthors in their blog on negative rates earlier this year was the idea of this tipping point that might come at some point where there's an incentive for households and corporates to get back into cash and start building big vaults in their backyards.

How far down can Japan go? And this is a very live issue also because the BOJ may well go further down.

MS. KOCHHAR: Obviously, I can't say for sure. What I can say is that what Japan has done so far is a small measure. You know, they've lowered interest rates to negative territory on margin -- on the additional excess. So I think they have some more room to go for sure.

Tipping points are generally things that nobody knows when they happen by their nature. But the move so far in Japan has not been very large.

MR. RHEE: If you look at Jose’s blog, he suggests maybe it too depends on the countries but some people believe the threshold is 200 BP, right? Japan is 10 BP at this moment. So among all the countries who have adopted negative interest rate, they are at an early stage. I think there is more room if they want to.

And probably your question on the rest of this issue concerning that the yen appreciated quite rapidly this time is that kind of impact of the negative interest policy has been effective or not. But you know, the exchange rate can be affected by so many other factors not just for negative interest rate.

But if you look at the movement of the yield curve in Japan, this movement, after the introduction of negative interest rates, short term and long term rates have quite simply moved down. So if you measured the effectiveness of negative interest rate, I think that looking at the yield curve rather than the exchange rate is the right measure.

But as the same time but you have a concern on the banking sectors, you know, the profitability. But at this moment, as Kalpana mentioned, they introduced marginal charge on this negative interest on banking sector. So the banking sector's profitability is at this moment not as big as to say that it has a negative impact, it's dominant, it's positive impact.

QUESTIONER: My question is related to Nepal. Squeezed between two fastest growing economies, India and China, Nepal has not been able to see the spillover effect. Do you think there is any possibility or capability that Nepal can reap the benefit of growth of these two countries?

And with this question, another question is that following the devastation of the recent earthquake last year, the reconstruction activities has not been able to take place at an expected pace. What do you think needs to be done to expedite the reconstruction process so that we can get back into the recovery track?

Also, Nepal has not been able to -- Nepal is not entitled for the debt relief as part of the catastrophic containment fund. Why do you think Nepal was denied from that facility?

MS. KOCHHAR: Okay. Let me take those questions. First of all, on Nepal's growth prospects, you're absolutely right that it's a small country squeezed in-between two giants and fast growing giants. And actually, Nepal has a lot of resources that could be used to generate growth.

And, in fact, like your neighboring country in the Himalayas, Bhutan, Nepal has massive hydro-electric power potential that could be really the engine of growth for Nepal in the short term and then, diversification beyond that. This is a point that has been raised with the government many years. It's not an easy thing to do but it's potentially very, very lucrative both in terms of money and not to speak of the fact that it's green energy and so on.

Nepal's macroeconomic situation has actually been very well managed given the difficulties you have, remittances still coming in and financing. But it's the growth effort that needs to take place. The fact that you've had political uncertainty for many years has not helped for sure. But now that things are settling down, we really think that the government should focus on the resource space, sources of growth that you have in Nepal.

Reconstruction efforts have, of course, been hampered by the fact that you had this blockade. Now that the blockade has been lifted, I think there's an ample opportunity. As you know, a lot of money was pledged when they had the donor conference right after the earthquakes in June. And so the money is there. There's a lot of will on the part of donors to finance reconstruction.

We came in after the earthquake disbursing the rapid credit facility. We have indicated to the Nepalese government just recently that we are ready to go ahead with a three-year extended credit facility to help Nepal. We have yet to receive a request from the authorities. But we have been very encouraging of them.

On the debt relief, Nepal's debt is very, very small. I mean, the marginal gain that you would have gotten from getting debt relief I think was much, much smaller than getting the $50 million that was given under the RCF.

QUESTIONER: My question is about how the China slowdown is affecting global commodity prices. Most of the country in Southeast Asia is commodity supply, supplier I mean. So what should we do to be more resilient to this sluggish economy and the lower price of the commodity?

And how to make the low commodity prices could be a bigger net boost to the region. What should we do to make it a boost net to the region? Thank you.

MR. KHOR: Thank you for question. On the commodity effect, I think Indonesia enjoyed a commodity boom from 2009 until recently. And then, you had the crash in the commodity prices and because of that, the economy slowed down very sharply. But to Indonesia's credit, I think, the policy response has been very decisive. They allowed the exchange rate to depreciate and that is a big buffer that cushioned the commodity price decline.

And going forward, our view is that prices are not likely to increase or rebound very strongly. So Indonesia is going to have to find some other way in order to regain its growth momentum. As Indonesia stabilizes around -- this year, and we expect the growth to pick up. So, Indonesia is now embarking on a new strategy, which is to encourage investment, to increase productivity, expressly invest in infrastructure, and, also, to open this economy more for investment.

And I think recently, the President expressed an interest in doing PPP, which is very important. It's a really important signal to the rest of the business community that Indonesia is now ready for business. And that has, I think, attracted a lot of interest from foreign investment.

So, I think, going forward, if Indonesia continues on its path of infrastructure investment and opening up to foreign investors, that will be a major driver of growth for Indonesia -- and that coupled with the fact that, its macro-fundamentals are fairly good: it allows the exchange rate to be flexible; it has relatively strong reserves; and it allows the interest rate also to be market determined -- it's going to, help support Indonesia going forward, in terms of maintaining macro-stability and while pursuing the structure reform and the infrastructure investment to lead growth to higher potential.

QUESTIONER: I have a question about the trade relationship between countries within the region. What's your outlook for China's One Belt, One Road initiative? Do you think that can significantly improve the relationship between countries?

MR. RHEE: One Belt, One Road project has meaning in two ways.

One is, it is infrastructure investment. And we all know that Asia needs more infrastructure investment.

The second implication is connectivity. So far, Asia's more connected within East Asia and somewhat with Asian countries, but the link with, as Markus mentioned, South Asia and Central Asia is quite limited. And, together with all other international organizations, if we have more infrastructure, more connectivity, that's a good thing. And we all believe that trade is a key for the growth of the region.

What I worry about is that this is a hardware infrastructure. But if you look at the recent regional trade pattern, there's a rapid increase of the regional trade from 1990s to the early part of 2000. After that, it's plateaued. And even after the introduction of Asian integration, we did not see the sign that this trade is really picking up, even among Asian clients. That significantly implies that low-hanging fruit is all taken.

So, from now on, if you want to have more active trade, it has to have a high ambition. It has to be a new service sector -- you know, intellectual property or something that we haven't traded before.

But so far, if you just focus on the traditional areas, the low-hanging fruit is already taken. I think that is why the TPP is so important -- because TPP's the first case to open the new area of the trade -- and whether you become a member of trade or not, this competition and the high standard will push the Asians to trade more. Then together with this hard infrastructure which has grown a transportation port, together with this deregulation, opening up the market with high ambition in two areas, that will be good for the region.

But that requires political will.

QUESTIONER: I have two questions.

First, I believe many, many people so surprised to hear the news you raised China's growth rate expectation, because many experts expected you will lower the growth rate of China. You gave some detailed explanation on that, because of the stimulus program and the reform program. But it is just a promise. So, I have a hunch that you are very confident on the China government potential, on how they will manage to control the problem on (inaudible).

The two days before the Secretary/Minister, Jacob Lew, warn of currency war between the countries. And they may believe that is a target -- the comment is targeting China. So, as you mentioned, there are so many risks on China. But you raised.

So, I have a question on (inaudible). Why do you have a belief they can control and manage the China growth?

And the second question is related to the question. China is the Korea’s main export country. You raised the growth rate expectation of China. And the United States -- as time goes by, the condition is getting good. But you lowered South Korea's growth rate two percent, to 0.2 percent. So, I just think that you have some suspicion with the Korean government confidence (inaudible) the result of the general election.

MR. RHEE: Sir, first of all, there is a misunderstanding. When we say revise down our forecast, it's based on our forecast in January.

Let's say, for example, Korea. Korea's growth rate in 2015 was 2.6. Now we are saying that the growth rate is 2.7 to 2.9. So, actually, as you mentioned, because China's picking up -- and then, also, the U.S. economy's recovering -- so we're actually saying that this year and the next year, Korea's growth rate is even marginally higher. So, we have confidence in the Korean government.

But on the other hand, what we say is that in January, we have expected faster growth in the global economy and advanced economy. But now we have some new data, so we revised down our growth rate. So, please do not get confused about revision versus our former forecast versus the, you know, growth momentum.

Do you want to know about China -- why we upgraded?

MR. RODLAUER: Just to give you a bit of context on the China projection -- when we earlier lowered our growth forecast for this year, 6.3, that was at the end of 2014, very early, and we were very much ahead of the curve at that time.

Part of that forecast was also a policy message to China that you should be modest in targeting your growth. We said China should aim for growth around 6 to 6.5, and shouldn't be overambitious. Part of this focus was also a policy message.

Then came 2015 and the fall of 2015, and people became dismissive of us -- why aren't you lowering your growth forecast? We said, we already lowered our growth forecast. So, we were quite good with 6.3.

Now comes the spring of 2016, and we see, as we have said, near-term stimulus, investment spending, better government, real-estate measures to give a bounce to the real-estate sector. When you said, why are you so confident that China can solve its problems and growth -- I think we are now talking about the growth forecast for this year. We see policy measures being applied and having effect. You look at the large numbers. I think tomorrow, we'll see GDP for the first quarter.

I think 6.5 is very well within reach of the economy, and there's even an upside risk, given the stimulus that is being applied.

That does not again mean that -- that in of itself means that -- China is addressing all its problems. You know, we would rather say that we'll maintain our view that China should be modest in its growth objectives. Six to 6.5 for this year would be enough; 6.5 is on the high side, and much higher raises the risk that the quality of growth will again suffer, and that, actually, the medium-term reform and rebalancing objectives will not be achieved to the same extent as one would hope.

MS. UTSUNOMIYA: Sorry, we are pushing. So, can you focus on one question, please?

QUESTIONER: Yes, only one question.

I was wondering about the reviews that are taking place over China's market economy status, particularly in Europe at the moment, you know, given the fact that it's 15 years since WTO accession. I'm just wondering if the IMF is going to weigh into this debate at all, and whether or not you have a view on sort of what China needs to do to meet those kinds of conditions that would enable it to gain that market economy status.

MR. RODLAUER: This is a process that does not involve the IMF at all, so I am not prepared at this point. This is a very complex question. It would be, you know, premature and inappropriate for us to give a quick answer to this question.

QUESTIONER: So -- sorry -- you're not providing any advice -- just your normal advice on policy, on rebalancing and reforms?

MR. RODLAUER: We do. Of course, we give a lot of advice on policies to China and so on. But in this question of whether the market -- this, process of determining and judging whether a market economy status is reached -- IMF is not involved.

MS. UTSUNOMIYA: Thank you very much. So, this will conclude our press briefing. As mentioned, our next Asia Pacific Regional Economic Outlook will be released on May 3 in Hong Kong.

See you then. Thank you.
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