China: Market Intervention Controlled ‘Panic’

28-08-15 – CNN

KEVIN RUDD: Volatility has rocked global equities markets this week with big falls across the world from Shanghai to Sydney to the FTSE here in London. Many reasons have been given, including: the snail’s pace of the economic recovery we’ve seen in Europe, now seven years after the Global Financial Crisis began; also, uncertainty over a future rate rise in the United States; but now too, uncertainties concerning the future of the Chinese economy. Remember it’s been China, since the beginning of the Crisis, that’s been the engine for global economic growth. In fact, China alone accounting for one-third of total global growth over that period, and more than one-half during the peak of the Crisis in 2008-09. But now there are growing concerns that its economy is slowing faster than international markets had anticipated. On the robustness of China’s economic growth rate, the volatility of its stock market and also the recent devaluation of the renminbi there is much in the Middle Kingdom on which we should seek clarity. Chinese Vice-Minister for Finance, Zhu Guangyao, joined me from Beijing. Finance Vice-Minister Zhu Guangyao welcome to CNN, we’re glad to have you on the program. Vice-Minister, the world’s eyes are now focussed on China’s economic growth future. Now there are real concerns in the international financial community about how slow China’s growth rate will become. So could I put this question to you: right now what do you think is the speed of Chinese growth and, most importantly, what are the new drivers of Chinese growth if the old growth model has already started to run out of steam? ZHU GUANGYAO: Thank you very much. Everybody knows that after the opening up policy and reform China kept this annual GDP growth at 9.7% for more than 30 years. Now we particularly emphasize innovation and we believe this represents the future of Chinese economic development with high quality and in 2015 we think that GDP growth will be about 7%. KEVIN RUDD: If you believe that China’s growth rate is holding up at around 7% then how do you explain the international anxiety and pessimism concerning Chinese growth that we see around the world today? ZHU GUANGYAO: The specific issue is about the stock market. Yes, last month in China really that’s the stock market turbulence. We base our international experience on organized intervention, so we follow the basic ‘Three T’ principles. The first T is ‘targeted’, second T is ‘timely’, third T is ‘temporary’. Targeted means the intervention is to avoid panic rather than raise the stock index. The second T, timely, just means that in very big volatility we must take action beyond just the market behaviour. Third T means that intervention is temporary and after the market stabilizes, let the market play the fundamental role. Generally speaking we thought we achieved the target and timely intervention made panic basically be controlled. And we really believe in the relevant time, the market will be back to the normal track. KEVIN RUDD: If you still see turbulence in the stock market in the future, do you believe that the Chinese government, therefore, will continue to intervene in the same we’ve seen in recent weeks? ZHU GUANGYAO: If the market is basically relative to the investors’ behaviour and big, real damage to the peoples’ confidence and not cause panic, particularly don’t cause systematic risk. So certainly we will let the market play the fundamental role and, in other countries it’s the same thing – you can see the case in US, UK and in other countries. KEVIN RUDD: You’ve seen a lot of commentary also on the recent decision by the Peoples’ Bank of China to effectively devalue the renminbi, albeit by a relatively small amount. Do you believe this could assist Chinese exporters? Is that the primary intent, to promote growth through greater export performance? Or is it more than you are concerned about the ultimate status of the renminbi as a global reserve currency and, therefore, throwing it more open to market disciplines? ZHU GUANGYAO: Certainly we’ve been to extreme efforts to reform the renminbi exchange regime and you just mentioned this case of our Chinese Central Bank announced reform of our middle level price, slightly up. And we do believe this is a really forward to the full market playing the role of the renminbi price set up. We understand that the Chinese economies now has the second economy in the world and our policies certainly have an impact with other countries. KEVIN RUDD: So China is still looking forward to having the renminbi as part of the global basket of currencies controlled by the IMF? ZHU GUANGYAO: Yes, because that’s just the IMF in the 30 years reveals for the currency basket and we hope that they exactly follow the existing principles and criteria set out by the IMF Board. We will continue our financial sector reform. We do believe Chinese currency should be included in the special joint right of the IMF, or basket currency. KEVIN RUDD: Vice-Minister Zhu, thank you for joining us here on CNN and thank you for joining us all the way from Beijing. ZHU GUANGYAO: Thank you very much Mr Rudd.