A short conversation with professor Xu Hongcai (CCIEE, Beijing): “This year, world economy is facing a baptism of fire”

Xu Hongcai is professor in Finance and one of the directors at the most important think tank based in Beijing, the China Center for International Economic Exchanges (CCIEE). Recently, during the visit of German chancellor Angela Merkel to China, he wrote a “memo” for the “Asian Pacific Memo” (published online by the Institute of Asian Research, in Vancouver, Canada) titled “Why China isn’t Buying Eurozone Bailout Bonds (Yet).” In the “memo 128,” professor Xu detailed from China’s point of view the “three key ingredients” for the Eurozone crisis. He explained, in conclusion, “it is likely too early to talk about China’s investment in the EFSF (European Financial Stability Fund). Firstly, the troubled countries could adjust their industrial structure and make more efforts to achieve fiscal balance. Nevertheless, in the short run, the ECB would have to play a more active role.

In an interview for the Portuguese weekly newspaper Expresso, professor Xu remains optimist: “don’t worry, if all the countries in the international community can strengthen cooperation and take effective policy, I believe that world will gradually recovery in 2013.”

By Jorge Nascimento Rodrigues © 2012

HIGHLIGHTS
“China can indirectly provide some help via IMF. I believe that ultimately, the debt crisis can be resolved .”

“China would increase the FDI and import hi-tech products from Eurozone to reduce the trade deficits of European countries.”

“Greece had defaulted on the individual investors in bargaining the payment ratio. It is not impossible that the debt crisis spread to the outside countries and negatively impact on world economy.”

“Portugal maybe need to adopt more prudential and active economic policy that will reduce government expenditure, adjust economic structure, and boost economic growth. Meanwhile, it is necessary to strengthen the economic cooperation with China such as promoting China’s FDI in Portugal.”

“Even though the Eurozone debt crisis could impact China’s exports, in my view, China’s economic growth of 2012 still can reach more than 8%. These outsiders maybe undervalue the China’s domestic demands and economic development potential.”

PROFILE
Xu Hongcai is the Deputy Director of the Information Department of the China Center for International Economic Exchanges (CCIEE), a think tank based in Beijing. He is also professor in finance at the Capital University of Economics and Businesses (CUEB) in Beijing, special professor of the Peking University and specialist director of the Securities Association of China. He has a Master degree in Philosophy from the Renmin University of China and a Ph.D in Economics from the Chinese Academy of Social Sciences. He is the author of “The Financial Strategies of Our Great Country”.

INTERVIEW
Q: What do you expect regarding the resolution of the debt crisis in the Eurozone?
A: I hope the troubled countries and European Central Bank (ECB) can make more efforts to play respective role in dealing with the debt crisis. Also, the International Monetary Fund (IMF) and the Europen Union (EU) can make more contributions to tackle the crisis. Certainly, China can indirectly provide some help via IMF. I believe that ultimately, the debt crisis can be resolved.

Q: What would be the best “tool” from the IMF that China will think it would be a reasonable solution?
A: In my view, IMF should discuss to further the reform of quota and SDR [Special Drawing Rights]. In other words, IMF should rationally increase China’s voting right, expand the application of SDR, and bring RMB [renminbi] into the SDR’s currency basket [so far, the U.S. dollar, Euro, Japanese yen, and pound sterling].

Q: For China what is the best channel to support the European efforts to resolve the present debt crisis?
A: China would increase the Foreign Direct Investment (FDI) and import hi-tech products from Eurozone to reduce the trade deficits of European countries, and consequently to promote EU’s economic recovery. Of course, if IMF can actively create some reasonable conditions China could make more contributions to some troubled countries.

Q: China has already invested in Greece (ports) and also in Portugal (energy), first moves in Europe so far. How you see the importance of Europe in the Chinese FDI strategy?

A: China’s FDI in European zone is very helpful to increase the job opportunity and promote economic recovery.

Q: Do you think default events, if it will happen, in the Eurozone can fuel a contagion wave and even a negative impact in the global economic situation?
A: In fact, in my opinion, the Greece had defaulted on the individual investors in bargaining the payment ratio. It is not impossible that the debt crisis spread to the outside countries and negatively impact on world economy.

Q: Even if Greece concludes the PSI agreement this week or these days, do you think it will be a credit event anyway?

A: I think Greece is coming towards the correct direction.

Q: Would you forecast a recession in the advanced economies and eventually a soft landing or even a hard landing in the emergent economies?
A: This year, world economy is facing a baptism of fire. But, don’t worry, if all the countries in the international community can strengthen cooperation and take effective policy, I believe that world will gradually recovery in 2013.

Q: IMF recently alerted that if the Eurozone debt and euro crisis developed that would influence China’s growth estimates for 2012, risking to cut by half the forecast of 8% (the famous baoba figure, “protect eight,” the 8% annual economic growth rate). 4% would be, most consultants say, a tragedy. What’s your forecast?

A:I think that IMF’s expectation is really a tragedy. I agree with Angela Merkel’s opinion: no euro crisis, just debt crisis. Even though the Eurozone debt crisis could impact China’s exports, in my view, China’s economic growth of 2012 still can reach more than 8%. These outsiders maybe undervalue the China’s domestic demands and economic development potential.

Q: Regarding Portugal, China has a very long relationship since the 1500s. How China see Portugal nowadays?
A: Also, Portugal maybe need to adopt more prudential and active economic policy that will reduce government expenditure, adjust economic structure, and boost economic growth. Meanwhile, it is necessary to strengthen the economic cooperation with China such as promoting China’s FDI in Portugal. I agree that China’s FDI in Portugal is an important platform and channel to boost Portugal’s economy. Strengthening bilateral economic cooperation is very useful to realize win-win strategy.

One Response to “A short conversation with professor Xu Hongcai (CCIEE, Beijing): “This year, world economy is facing a baptism of fire””

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