Wei Benhua, Former Deputy Administrator-in-bureau of SAFE, Former Executive Director of IMF for China.

Good evening to Steve and others who are participating this discussion in U.S. and good morning to the participants in China.

Thank you for your excellent presentation of the latest issue of the World Economic Outlook which was published just a few days ago. We do share with you your views on the world economic prospects and policies. I’d like to make two major comments on your presentation: The first is regarding the issues facing the global economy, the second regarding the Chinese economy.

On the global economic prospects, we recognize that the global economy is faced with downside risks coming from two directions. One is the uncertainty due to the continuing severe developments of the covid-19 pandemic. The Omicron virus is spreading much faster than the previous ones, though at a less lethal rate. Many emerging markets and developing countries are still being disturbed by the Omicron virus. Even advanced economies are still being besieged by the still rising cases. In fact, as pointed out in the WEO, more than 100 countries will not be able to achieve the goal of 70% vaccination rate in the middle of this year.

For EMDS, while the supply of vaccine has improved somewhat, the implementation of vaccination in many of them is far from adequate. How to address these issues, we are glad to learn from your presentation, 216 billion dollars have been approved for 92 member countries. Since the outbreak of the injection, is there an evaluation of the effectiveness of these lending programs? We do think advanced countries are obliged to provide more grants or concessional loans to help them. In this respect, it is noted in the last communique of the IMFC, IMFC Governors appeal to the international community “We will intensify our joint efforts to boost equitable access to a comprehensive covid-19 toolkit, including vaccines, tests, treatments, and enhanced in-country delivery in developing countries, and remove relevant supply and financing constraints to overcome the pandemic, including by boosting local protection of vaccines”. We are sure with IMF taking the lead in providing financial assistance in this respect, with the co-operation with other international institutions, it has played an important role in helping EMDCs fighting against covid-19, I am wondering whether we are making good progress in the above areas.

Back to this issue for China, I noticed that staff is paying a lot of attention to the “Zero-Covid-19” policy in China and are worried about the economic effects of implementing such a policy. I can assure you that as China has accumulated much experiences in dealing with the pandemic, plus with the help of high tech like big data, we will be able to solve the recently arising cases in Shanghai or in Beijing. In fact, situations in these two largest cities in China are under control and have improved significantly. We will see a zero-covid-19 in not distant future.

For the global economy, another key issue discussed in your presentation is inflation. In my views, why U.S has the highest inflation over the past years, the answer is that it has conducted an unlimited quantitative monetary policy for many years. And also the government has had expansionary fiscal policy for so many years that resulted in a huge amount of fiscal deficits which, more worse has been absorbed by relying on the Fed to print dollar notes. In Chinese proverb is to quench a throat with poison. The consequence of such policies will inevitably be inflation.

Now the Fed has to raise interest rate to curb inflation. As in the past, whenever the Fed raises interest rate it will have spillover effects on the rest of the world, in particular on the EMDCs. Capital will flow out from them, their currencies will be under pressure and there will be even disruption in their financial markets.

Of course we recognize the global market, especially the commodity market has been under huge pressure due to the Russia-Ukraine conflict. The prices of oil, food and some metals have gone up tremendously. This factor has attributed to the global inflation. Unfortunately, the IMF staff forecasting that the inflation will be expected to persist longer though we wish it be shorter.

Now, I’d like to shift to the second part of my comment focusing on the Chinese economy. We are aware that the current WEO reduced the China’s GDP growth of 2022 to 4.4% from the January Issue of WEO by 0.4 percent given the global economic slowdown and the uncertainty arising from the new pandemic cases. However, we are more optimistic that China will be able to achieve the 5.5% target in the NPC session that March. I have many reasons to support such optimistic view. Let me just mention some of them.

1. On the policy for China fighting against the Covid-19 pandemic, I have given my views earlier, I’d like to add one more point that China is the largest populous country with 1.4 billion population in the world. We don’t have the luxury to experiment with Herd Immunity. We could not afford to fail as the cost of the experiment is human life. Now that China could succeed in tackling the worst situation in 2020 we are confident we will win this round, probably with some economic cost that is understandable.

2. As is well known, the economic growth model of China is transitioning to a quality focused growth from a quantity one in the past. And we have been successful in such a transitioning. Nowadays many people of different industries could work at home through Internet. That is why the economic cost is becoming smaller than before when the city is implementing a zero-covid-19 policy.

3. One point I should not miss is that the advanced technology and good communication are contributing tremendously to the success of a zero-covid-19 policy.

Having said the above, we have ample rooms to maneuver in fiscal and monetary policy to support the economy.

For fiscal policy, the planned fiscal deficit is 2.8% of GDP for this year, comparing 3.1% for 2021 and 3.7% for 2020. Naturally the relatively low deficit for this year is helpful for maintaining a sustainable fiscal policy in long run. Premier Li Keqiang stated during the NPC and CPPCC session that the total reduction of tax and fees will be 2.5 trillion yuan for 2022. And the tax reduction of 1.5 trillion yuan will be refunded to enterprises directly which will produce better result. Moreover, the fiscal transfer from the central to local government will increase 18% reaching 9.8 trillion yuan. Such huge amount of fiscal assistance could make substantial effects to the growth of local economy.

For monetary policy, the staff recommended to the Chinese authorities at the end of Article Ⅳ consultation:

1. Macroeconomic policy should adjust to support the stable development of the real economy given that the economy is facing the slowdown risk.

2. To shift to supporting consumption from supporting investment in the process of restructuring the economic structure.

3. Accelerating the reform of real economy to create an equal platform for state-owned enterprises and private enterprises.

Here, please allow me to introduce what Mr. Chen Yulu, vice-governor of the People’s Bank of China said when he was interviewed by the Xinhua Agency last Saturday.

He says China will step up use of structural monetary tools to help out suffering market player and cushion economic headwinds in a targeted manner. The central bank will put stabilizing economic growth in a more prominent position and better employ the role of monetary policy in leafing up support for the real economy. Specifically rolling out a relending facility with a quota of 100 trillion yuan as soon as possible to support transportation and warehousing companies.

He also says the PBOC will strengthen support for banks to issue perpetual bonds that will enhance their lending capacity and promote fee reductions by financial institutions to alleviate burdens on enterprises and individuals.

In fact, PBOC adopted preemptive measure of reducing RRR by 0.5 percent by the end of that year and cut again by 0.25 percent earlier. These measures provided significant support to the real economy.

On RMB exchange rate, it has been stable and will continue to be stable as the exchange rate is radically decided by the market mechanism.

I’d like to end my comments by quoting another matter in the IMFC Communique “We remain committed to revisiting the adequacy of quotas and will continue the process of IMF governance reform under the 16th general Review of Quota, including a new quota formula as a guide by December15, 2023.

We always call that the voice and representation of EMDCs should be rightly reflected in the IMF quota.