李一衡：Minutes of Macro-Finance Salon (No. 21)|Il Houng Lee: Risks and Opportunities in the New Normal

Growth fatigue in developed countries

• High debt (Liquidity overhang)
• Income inequality and high unemployment
• Higher threshold of formal sector access (competition)
• Climate change and rapid depletion of resources

What is not working properly: risks were mispriced and it is likely to be the case again

• Low real interest rate allowed debt to rise beyond capacity to repay (e.g., cost of borrowing—why is basic market mechanism not working?)
• Despite widening current account, lack of global institutions, the normally expected self-correcting market discipline did not kick in (or kicked in abruptly)

Solution (an example):

• Allow greater independence of US monetary policy and reduce the reliance on the USD
• Reform the international monetary system （USD and Euro）
• Facilitate a three polar currency system （USD, Euro and RMB)

China has the “necessary economic conditions” to support RMB internationalization

• GDP
• Trade value
• Depth of the financial market;
• Infrastructure/institutions

Korea-China FTA For Korea, the gains are:

• Better access to Chinese domestic market
• Attract foreign direct investment
• Expand into Asian markets, Re-entrance of GVCs

For China, the gains are:

• Utilization of Korea’s relative advantages
• Climb value chain
• Expand to Global market

Links:

【IMI动态】大金融思想沙龙（第21期）| 李一衡：从市场化角度解析“新常态下的机遇与风险”