Belt and Road Initiative, China's Answer to Stagnant Global Growth

By Samantha Tan Chiew Ting KUALA LUMPUR, Sept 30 (Bernama) -- The Belt and Road Initiative (BRI), a mega development idea proposed by China in 2013, could be the middle kingdom's answer to secular stagnation, said Deputy Director General, Monetary Department, People's Bank of China, Dr Zhang Xuechun. She said BRI was to address the bottleneck of global growth amid insufficient demand and infrastructure, and to tackle this issue and bring out countries out of the secular stagnation was to increase global demand and promoting global infrastructure investment. Zhang cited a study by UBS which showed that BRI investment could for a time raise productivity, and thus gross domestic product (GDP) growth by up to 0.6 percentage points. "BRI makes good economic sense, and projects implemented along Belt and Road countries would encourage demand in developing countries, as well as, increase global infrastructure investment. “Such initiative would be able to help countries around the world address slowing growth," she told journalists from 14 Asian countries who participated in the Asian Media Workshop and 2017 Media Cooperation Forum on Belt and Road, held from Sept 11-22 recently. The 12-day media media workshop, held in conjunction with the 2017 Media Cooperation Forum on BRI in China's northwest Gansu province, was jointly organised by the People’s Daily, China's biggest newspaper group, and the International Department of Communist Party of China (CPC). In a presentation titled "BRI and China's Renminbi (RMB) Internationalisation", Zhang said RMB internationalisation was still in the early stage and the future hinged on the opening and development of the domestic financial market, as well as, foreign exchange reform. She said there was a downward expectation for RMB in 2015 because of the strong US dollar and less positive economic performance in China. "So hedge fund speculators accumulated massive short contracts for RMB and they intend to benefit from the rapid depreciation. The reason for such speculation was that our foreign exchange rate regime is not completely floating. We still need to maintain certain control like a floating band for RMB," she explained. Furthermore, Zhang said China's economic performance, excessive overcapacity and high leverage had also dampened the confidence of international investors in China's currency, therefore triggering them to accumulate a very large short position for RMB. "What we need to do is to know why they have this kind of lower confidence. The only thing we (China) can do is build our economic fundamentals and deepen our financial market. The expectation for RMB foreign exchange rate is normally one-sided because of the floating band and less developed financial market," she added. Zhang explained that from 2014, investors had expected the RMB to appreciate, therefore nobody battled on the short side, however, once investors did not have sufficient confidence, then they would bet on depreciation, which meant China did not have a more diversified group of investors and that its financial market was too shallow. "We don't have enough products for the investors to have two-sided expectation. In China, the financial market is shallow and investors look at the micro data and then battle on one side. We need to have a more developed financial market," she explained. On China's capital controls, Zhang said the move to curb capital outflows were also needed for developing countries especially after the recent world financial crisis in ensuring their economy would not be crushed by international speculators. "That is why we see the approach for RMB internationalisation is to have an open market by channel oriented, for example, Qualified Foreign Institutional Investor, RMB Qualified Institutional Investor, central banks, sovereign funds and Qualified Domestic Institutional Investor. "We need to open the domestic market channel by channel and using such practices, we can manage the risk and can also contain the level of the risk because our market is not that strong and vulnerable to a certain degree because we don't have enough experts to design products to counter international speculators," she added. Zhang said once China had a more in-depth financial market, talents who could deal with international speculators and sufficient experience regulators to deal with crisis situation, then it could open the market further. “Economic fundamentals, deeper financial market, make the RMB float more, risk management, rules and regulations are the key to deal with funds outflows and speculations,” she added. -- BERNAMA