From the International Monetary Fund website:
Opening Ceremony, China Development Forum 2012
Guest Speech by Christine Lagarde, IMF Managing Director
Beijing, Sunday, March 18, 2012
As prepared for delivery
It is an absolute pleasure to be back in Beijing and so soon after my excellent visit last November. My desire to be here reflects just how important China has become for the global economy.
It is a great privilege to be among such esteemed company. I would also like to thank Li Wei and his colleagues at the Development Research Center of the State Council for inviting me here today.
“China & the World: Macroeconomic Stabilization and Economic Restructuring.” At this juncture, I cannot think of a better theme for this year’s forum.
The specific economic challenges that countries face today naturally differ, with positive signs emerging in some corners of the globe and severe stresses still prominent in others. Yet, there are common goals that unite us all—the quest for growth and stability—lasting growth, shared growth, growth that delivers jobs and a better livelihood for all.
This event provides an excellent opportunity to reflect on the remarkable role that China is playing, and can continue to play, in pursuing these global goals.
I am very much looking forward to hearing Vice Premier Li Keqiang speak, as I’m sure you all are too. So, let me reflect briefly on two things: first, the state of the global economy; and second, China’s leading role in securing economic stability and prosperity.
Global Economic Challenges
The past few years have been extremely difficult for many parts of the world. And, even just a few months ago, the situation was decidedly gloomy. Indicators for the last quarter of 2011—namely for Europe and the United States—did not provide much reassurance.
Yet, today, we are seeing signs of stabilization; signs that policy actions are paying off. Financial-market conditions are more comfortable and recent economic indicators are beginning to look a little more upbeat, including in the United States.
Important decisions and policy actions, particularly by the European Central Bank and some European countries, have helped. I have said for some time that we can avoid the worst if all partners play their part.
Moving forward with renewed support for Greece—from both the IMF and European partners—is an important milestone in this regard. The measures are ambitious and it will be important to focus on implementation and monitoring, but we have made an important step forward.
On the back of these collective efforts, the world economy has stepped back from the brink and we have cause to be more optimistic.
Still, optimism must not lull us into a false sense of security. There are still major economic and financial vulnerabilities we must confront. I’ll mention three.
- First, financial systems are still fragile and high public and private debt persists in many advanced economies—euro area public sector and bank rollover needs total about 23 percent of GDP during 2012. Renewed pressure in either area could compound the other, leading to much larger, and more protracted, contractions in credit and output.
- Second, the rising price of oil is becoming a threat to global growth.
- And, third, there is a growing risk that activity in emerging economies will slow over the medium term.
And we must not forget that there are still too many people, in too many countries, who are enduring the hardship of unemployment.
So, the global economy may be on a path to recovery, but there is not a great deal of room for maneuver and no room for policy mistakes.
It is often said that a reputation is “gained in inches and lost in miles”. The same could be said of economic progress. All countries must persevere with their policy efforts if the progress of yesterday is to translate into the promise of a brighter tomorrow.
So, what are the main challenges?
- The advanced economies need to capitalize on the newly gained breathing space and push forward with policies that will enable them to emerge from the crisis. This means continued macroeconomic support and a balanced fiscal approach, together with financial sector reforms and structural and institutional reforms to repair the damage done by the crisis and to improve competitiveness.
- Emerging market economies need to calibrate macroeconomic policies—both to guard against further fallout from the advanced economies as well as to keep overheating pressures in check. And, by continuing to invest in reforms—such as increasing social transfers or lowering consumption taxes—they can, over time, translate higher growth into better living standards for all.
This brings me to my second point—China’s global leadership.
For many years now, China’s economic successes have captured the world’s attention. We have looked on in awe as, year after year, China has posted spectacular growth and, in the space of three decades, created 370 million jobs and lifted half a billion people out of poverty.
When the global crisis hit, China again showed leadership and adept policy skills. Indeed, the global economic situation might have been even more calamitous had it not been for the impetus that China provided to growth and stability.
China’s leadership role in global institutions has mirrored these economic successes. As one of the IMF’s largest shareholders and as an influential member of the G-20, China has been instrumental in helping to make the global economic system less prone to damaging crises.
Yet, lingering weaknesses in the global outlook reinforce the importance of China continuing to forge ahead—by maintaining a prominent role in global policy discussions and by sustaining its efforts to accelerate the transformation of the Chinese economy.
So, as I see it, the priorities for China are now threefold:
- First, to support growth. On this score, China is in the enviable position of having the space to provide some modest fiscal support for its economy as outlined at the recent National People’s Congress.
- Second, to continue shifting the drivers of economic growth away from investment and exports, and toward domestic consumption.
- Third, to improve household livelihoods so that China’s citizens may all share in the dividends of high and sustained growth.
I am encouraged that the government has embraced these goals, reflected in the comprehensive policy agenda in the recent 12th Five Year Plan.
Finally: If I had one piece of advice for policymakers around the world, I might borrow the words of Confucius:
“In all things, success depends on previous preparation.”
We have seen China’s previous preparation bear the fruits of today’s success. And we are beginning to see the small successes from recent action in Europe.
But today’s risks are still very much global. We are all interconnected and we are all affected by each other’s policy actions. We need to prepare for success together. If we stand together, the whole will be more than the sum of the parts.
And, in this, China is a leader of the global economy—leading by example, leading by responsible economic policy, leading by engagement.