China is leading the world out of recession and has a key role to play in the longer-term reform and rebalancing of the global economy, says Dominique Strauss-Kahn, managing director of the International Monetary Fund (IMF).
“China’s role in the international policy debate has been rising in tandem with its growing economy. As a key member of the G20, China is helping to design the global priorities for the future and devise solutions to global problems,” say Strauss-Kahn in a speech delivered at the International Finance Forum in Beijing yesterday. “For China and for Asia as a whole, a growing voice on the international stage means tremendous opportunities to contribute to the shaping of the post-crisis global economy. This is entirely appropriate, given Asia’s economic weight in the world.”
The IMF projects China to grow at 8.5% in 2009, and at 9% in 2010, greatly exceeding average global growth rates. “This performance is in keeping with China’s remarkable achievements over the last generation,” comments Strauss-Kahn.
Strauss-Kahn says that while the global economy is improving, the recovery remains fragile—and policymakers should keep supportive measures in place until recovery is firmly established and unemployment is declining.
In China, Strauss-Kahn says the government’s commitment to maintain fiscal stimulus into 2010 will be important for supporting growth. “As the government also recognises, however, the time has come to begin slowing the very rapid pace of loan growth which raises risks of overinvestment, overcapacity and, ultimately, bad loans,” he notes.
Tackling the issue on rebalancing the global economy, Strauss-Kahn says that in economies that have run large current account deficits—such as the United States—national saving should increase. In economies that have run large current account surpluses—such as China—domestic demand needs to be stronger. “Higher Chinese domestic demand, along with higher US saving, will help rebalance world demand and assure a healthier global economy for us all,” he explains, adding that China’s leadership has already articulated a clear vision for how to boost private consumption.
“Consumer spending is growing faster than the economy as a whole,” adds Strauss-Kahn, noting China’s bold initiative to provide quality health care as well as reform of the pension system, and says that more can be done to secure a lasting, structural shift toward consumption. “A stronger currency is part of the package of necessary reforms,” he adds.
On the issue of reforming the international monetary system, Strauss-Kahn notes that there had been a number of proposals for how to improve the international monetary system, including from prominent figures in China. He says that the current system had proven resilient during the recent crisis and he expects the dollar to “remain the principal reserve currency for some time.”
At the same time, Strauss-Kahn sees need for strengthening global financial insurance measures and he said that—provided additional resources were forthcoming—the IMF could play the role of “global lender of last resort.” He adds that regional reserve pools also played an important role and that in Asia, the Chiang Mai initiative provides an important complement to IMF financing.
As for the new global governance framework, the IMF officials says that the transformation of the G20 into a key forum for fostering the international policy dialogue is a historic development—with representation of six Asian countries, including China. He also notes that recent reforms undertaken by the IMF would raise Asia’s quota representation in the institution to about 19%—with further increases expected by 2011.
“Asia will play a vital part in making the most of this historic opportunity. And China, no doubt, will play a leadership role in making the changes needed to embark on a new growth path that secures long-term economic success for all nations,” Strauss-Kahn concludes.