Zhu Min: Key Areas in Macro Policy to Cooperate

Jan 27 , 2021

Zhu Min, Former Deputy Managing Director of IMF, Former Deputy Governor of the People's Bank of China.


It’s a great honor for me to join this very distinguished panel. Given the time limitation I’m going to cut my speech short. I’m going to focus on one thing, which is global macro-economic and financial policy cooperation between China and the U.S. I think it’s the most important thing.

Year 2021 bring us hope, as Mike Spence said, because with the vaccine, we probably will be able to control COVID-19, and we expect to see the global economy have a rebound. But uncertainty is huge. And the recovery will be uneven, and also will be moderate. In that sense, I think the macro policy cooperation between China and the U.S. is extremely important for both countries, and also particularly for the whole world, and also for the low-income countries, and the emerging market. 

I’d like to point out a few key areas, I think we should start working on now. The first issue, is stimulated policy and exit strategy. Given that growth is weak, many governments are considering putting further extra stimulus policy in year 2021. But how? For example, in U.S., President Joe Biden proposed a 1.9 trillion billion new stimulus package. It is huge.  I understand the need, but we need to avoid the big bombast, the volatility, in the growth path in the future. We also have to avoid future debts crisis— the sovereign debts increasing dramatically may create debts crisis in the future. So we’ll have to balance those two things. How China and U.S.  coordinate the policies together on the further stimulus package is an important issue. 

And with the uneven recovery, the exit strategy can be very different, which also will have a profound global impact. I think that China and the U.S. need a dialogue on exit strategy and provide the world a policy framework. The lessons we learned from the 2008 financial crisis is meaningful for today. We’ll have to think about that. I’m not going into the details but I think it’s important. 

The second area is monetary policy cooperation. The dollar is the most important global reserve currency. FED Zero interest rates bring the dollar capital outflow to the whole world. Recall the years of QE monetary policy have had a profound global impact for the global capital flow and growth after 2008 global financial crisis. So I think that’s also important for the monetary policy cooperation. And China’s monetary policies also today have a big impact, particularly for the Asia region. So, when U.S. takes MMT, it is important for monetary policy cooperation maintain exchange rate stability and capital flow stability. I think this is very important. Meanwhile, monetary policy to maintain sufficient credit line to support real economy, but avoiding bubble in the capital market is also important. 

The third area is supply chain stability, which is also important. We see the supply chain really under reconsideration globally, both technically and also politically. So I think that’s very important for both sides to sit down to talk about how we can stabilize the global supply chain to make sure this economic recovery is strong and sustainable. 

The fourth, of course, is trade. Trade was weak last year and this year will recover but I don’t think it will be very strong. Today U.S. tariffs are at their highest level since World War II. Also U.S.-China tariffs on each other are at their highest level ever. So the trade area has a lot of things both sides can work. Particularly on the WTO, both countries need to make sure the WTO function well — that's also an important issue.

The fifth area is to support emerging markets and low-income economies. We observed in the COVID-19 crisis the GDP gap between the advanced economies and emerging markets and low-income countries was even wider. We expect to see the uneven GDP gap become even bigger in the years to come. And, particularly, low-income countries become much weaker because they didn't have reserve currency status, so they were not able to do big stimulus. So supporting them is also important. 

The last point, but not the least, is that I think China and the U.S. should work together to push reform of international economic governance, particularly the IMF but also the World Bank. 

There are a great many things that can and should be done, we should seize this opportunity to work together to make sure the recovery is strong and sustainable. 

Thank you very much.