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Speeches & Transcripts

Transcript of Zoellick's Media Conference in Beijing

September 5, 2011

Robert Zoellick Transcript of Media Conference, World Bank Office Beijing, China

Transcript

Moderator: Welcome and thank you so much for joining us this afternoon. It's my great pleasure to introduce World Bank Group President Robert Zoellick and our Country Director for China, Mr. Klaus Roland. Mr. Zoellick will begin with some opening remarks and then of course [technical difficulty]. We'll begin with some opening remarks and then he would be pleased to take your questions, of course we'll [allow] time for the interpreter.

Moderator: Now we'll turn it over to Mr. Zoellick for his remarks.

Mr. Zoellick: Well I want to thank all of you for coming here today. I also want to thank China and its people for their very warm hospitality that has been extended to my colleagues and me over the course of the past few days.

I've had the privilege of meeting Vice President Xi Jinping, Vice Premier Li Keqiang, Vice Premier Wang Qishan as well as other Chinese leaders. And I've just, in fact, returned to Beijing from a visit to the Northeast. Minister Xie Xuren and the Ministry of Finance have been very thoughtful hosts and counterparts. I want to thank Klaus Roland and the World Bank staff here, who have been rising to the challenge.

My primary aim has been to listen and to learn, but also to get down to work. I'm pleased to say that China and the World Bank have made great strides in working together. Our talks over the past few days have laid the groundwork for the production with the Development Research Center of the State Council and the Ministry of Finance, of a joint report which we hope will be completed by the end of this year.

We are examining the questions related to China's shift to a different growth model. That would be in accord with the goals of the 12th Five-Year Plan year plan to leap over the so-called “Middle Income Trap”. To help China in its efforts to bridge the rural urban divide, reduce inequalities, improve the quality of people's lives and of the environment - including by going green for growth. No developing country has made such gains has China has. It's evident in the city and it's evident in China's growth rates.

Yet China's economic growth engine needs a tune up. China can reach high-income status, but more reforms will be needed. Our talks have centered on how to achieve what China has signaled needs to be done. It's about practical steps that China can take to shift away from an over dependence on export and invest-led growth. And to move to a greater reliance on domestic demand. This is an important moment for countries to be thinking about the future; thinking about how to get ahead of their problems.

I believe this autumn will be a sensitive time for many of the major developed economies. So it's an important time for all countries. (Pause for technological difficulty with microphone). All countries - and technology systems – need to be re-tooling their growth models.

Some of the issues that we have been discussing with China will also be of interest to other developing countries, including the pressing issue of food security. I was also fortunate to be able to visit with Vice Minister Li Yong. We went, briefly, to Jilin province and then to Heilongjiang province. With the Vice Minister granting me the personal honor of showing me a special place in his own history. This is the area called the Great Northern Granary. Once the Great Northern Wasteland. And one that with effort and innovation was able to be transformed into an important commodity in grain production base and strategically in reserve. It demonstrates the potential gains of investing in agriculture. All countries must work together to address food security. We're going to need all countries to do so if we're going to feed an expected nine billion people by the year 2050.

That's one reason why I've urged the G20 countries to put food first in 2011. So my colleagues and I are looking forward to continuing to work with China and helping the Chinese people realize their fullest potential. We very much value our -- the partnership built with China over 30 years.

I'm pleased to take your questions.

Moderator: If you could kindly wait for the microphone and when you ask your question if you could identify yourself with the name of your organization that would be greatly appreciated. We'll take the question from the lady in the second row please, Reuters.

Guiqing Koh: Hi. I'm Guiqing Koh from Reuters. On Europe you've seen the impact of the financial crisis on the European banking system. I'm just wondering, do you think European banks need to be re-capitalized?

Mr. Zoellick: Let me try to connect your question to the visit to China. Because I believe there is a connection. What's been striking about our discussions with China over the past year is that even though China faces the demands of monitoring fiscal policies [technical difficulty] Even though China faces the demands of monitoring fiscal policy – the leaders have an interest in looking at the fundamental structural growth issues. Everyone knows these will be difficult challenges. Perhaps, more difficult for China, because it's had very successful growth. And it may be hard to persuade people the need to change.

But I see an analogous structural growth challenge for the United States, Europe, Japan. Because to get out of the difficulty that countries are in, they are going to need to build the fundamentals for future growth. So in the case of the European Union, I think it's a combination of sovereign debt issues, banking issues and competiveness issues. If the values of sovereign debt strengthen in Europe, the banks will be stronger. But if the Governments are unable to deal with the sovereign debt issues, it will undoubtedly put strain on the banks.

Moderator: If we take a question from [CCTV] in the second row please.

Lv Yao: Thank you Mr. President. Thank you for your time. My question is what's the potential risk and also hazard and vulnerability China faces in the next 10 or 20 years from now?

Mr. Zoellick: When you use a 10 or 20 year time frame, I may be more concerned about my risk of vulnerabilities.

[Laughter]

Mr. Zoellick: But I think in the near time the challenge is one of inflation as Premier Wen Jiabao has spoken about. But in the medium and long term there are the issues that we have been discussing with the Development Research Center and the Ministry of Finance. Ten years ago, I helped complete China's accession to the World Trade Organization. That was much more than a trade agreement. That was part of President Jiang Zemin and Premier Zhu Rongji's strategy to transform the Chinese economy. It worked incredibly well. But it's hard for me to see that a continued reliance on export led and investment led growth will work for China over the next ten years. And that channel will even become clear if the major developed countries have a hard time resuming their growth.

So China needs to re-balance its economy; rely on more domestic demand; increase consumption. But the devil is in the details and our report will discuss how China might do so. This relates to a host of issues including more market prices for natural resources; greater care for the environment; perhaps less role for the government in issues of resource allocation but more role in delivery of public services such as health and education; pursuing an open innovation policy so that Chinese value added production is linked to global development; modernizing the fiscal system so that the expenditures at various levels of government are more closely linked with revenues for those levels of government; rebalancing the relationship between state-owned enterprises and private sector growth; and of course how all this fits into China's role within the international economy.

So the reason why this project is an interesting one is that it tries to synthesize these and other topics. I've been very encouraged by the high level Government interest in China in this project and the great contributions we've had from our Chinese partners and Chinese scholars. Ultimately these are decisions for the Chinese people to make. But the World Bank can share its global experience about what we've learned on how to avoid middle income traps; how to increase productivity and increase the wellbeing of the Chinese people. We hope that not only with the economic circumstances but with the transition in 2012 that this will be a timely contribution.

Let me just add one other point. As you know there's a lot of discussion in developed countries about the appreciation of the Chinese currency. In my discussion with Chinese policy makers, some of them believe that changing the exchange rate alone - which is a price signal - would not be enough unless you make the structural changes. So the structural changes that we're discussing can be of help not only to China but as to re-balancing China's place in the international economy and others will gain as well.

Moderator: Let's take another question. Let's go to the lady in the third row please.

Sun Furong: [Interpreted] Thank you, Mr. President, I'm Sun Furong from China Finance Magazine. We have recently noticed the large scale downsizing that has taken place at the European and US banks. Will that lead to another financial crisis? Does it imply that the current supervision system is too stringent? How can we minimize the negative impact of the latest development?

Mr. Zoellick: Well I think different regions of the world have tried to move in a similar direction in improving the strength of the financial sector as guided by the discussions in the G20 and the FSB. Of course the pace of progress is varied. In general I think most of the US financial institutions have taken an active role in re-building their capital base. But the large financial sector problem in the United States remains working through the mortgage problem. And that's probably connected to the unemployment problem because if people don’t have jobs they can't pay their mortgages.

I think the European context is more complicated, in part going back to the Reuter's question. Because the quality of the stress tests in part depends on the sovereign debt and the quality of the sovereign debt depends on actions that governments will have to take. So as I've said, I think this autumn will be a sensitive time in financial markets. And I think Christine Lagarde of the IMF and I have been trying to urge leaders to get ahead of the problem. Our institutions will try to be of help.

The World Bank works with developing countries. So our focus within the developing countries has been helping them manage the fact that they've recovered quite quickly and avoiding overheating. While focusing on the structural questions - as in China - to lay the foundations for future growth, which will help not only developing economies but developed economies too.

Moderator: Thank you very much, let's go to the gentleman [unclear].

Wan Xinyuan: [Interpreted] I'm from the Global Times, just now, Mr President you mentioned the issue of food security. The issue of food security goes beyond food supply. For some small countries it relates to inflation and social instability. I would like to hear your views on food security and food diplomacy and what are the specific actions that the World Bank is going to take to address this issue?

Mr. Zoellick: Well first, I think if you look at the relatively low stocks of basic grains and some of the events coming out of East Asia and the rice market, I think we're in a risky period for food prices. Though it varies by country, food prices already are relatively high. Our release about a month ago of our index suggested they were about 33 percent higher than they'd been a year ago. As a development institution we're always concerned that when prices surge, it's the most vulnerable who are the victims. Second, we can also consider higher food prices as an opportunity. If we can help developing countries increase their production and productivity this will benefit farmers. But the supply response in many developing countries is more complex than it is in some of the developed agricultural markets. So we're working with countries in sub-Saharan Africa, for example, to improve their production and productivity all across the value chain. Property rights, irrigation, fertilizer, storage facilities−about half of Africa's production is lost on the way to market. Also research development on seed varieties. And this is one of the areas we're encouraging deeper co-operation between China and Africa.

Third, however, one has to focus on safety net policies at times of price volatility to help the most vulnerable. We need to encourage countries not to take actions that make the problem worse such as bans on exports or hoarding. So I played an active role with the G20 agriculture ministers about taking steps that will lessen some of the near term volatility in markets including through better information on stocks and production; and making sure that any export bans wouldn’t apply to the World Food Programme which purchases for the most vulnerable. And this has involved some work with China as well because traditionally China didn't reveal as much information about its stocks and production but it's agreed to do so as part of a new Agriculture Management Information System run by FAO, the Food and Agriculture Organization. And finally the World Bank itself invests about $6 billion to $8 billion a year in agriculture investments and on top of that we put together some special food security programs that countries have contributed to. So you're right to identify it as a key challenge.

Moderator: Thank you, now the other gentleman.

Peter Ford: Peter Ford from the Christian Science Monitor. What do you think about the remarkable acceleration we've seen in recent years in Chinese acquisitions of assets abroad? Do you see this jump in foreign direct investment as just something that's perfectly natural? Is it something that you welcome unreservedly or do you see grounds for caution in the trend?

Mr. Zoellick: I think it's inevitable that as China grows and as Chinese businesses grow that they will invest and trade more abroad. As your question suggests, the effects depend - in large part - on how it's done. Just as is true with other country's foreign investments. So the World Bank has been working with China on a range of issues in this field. How to make sure the natural resource development takes care of the environment and leads to more inclusive growth. IFC, our private sector arm, is co-operating with some Chinese firms that are investing abroad and in the process they are following higher standards such as the equator principles we have for financial institutions. I've discovered among government officials in China, a willingness to discuss and engage on these issues. The response among some of the Chinese firms − like firms in other countries − vary so far.

But let me give you an example that I discussed with some of the Chinese leaders that it's a very early stage but might hold significant promise. We've talked about the fact that China's labor force will stop growing and that the labor force will seek to move up the value added chain. Justin Lin, our chief economist, estimates that there are approximately 85 million low value added manufacturing jobs in China. He estimates that there is approximately eight to 10 million in all of Africa - sub-Saharan as well as North Africa. So we’ve started to have discussions with MOFCOM, some of the deputy premiers, some of the party secretaries about what it would take to attract some of the Chinese firms to move their low value added manufacturing to African countries.

For example, could we create industrial zones just like China created 20 or 30 years ago? These involve issues such as assurance of energy, customs, logistics, the training of the workforce, political stability. But consider this...if we could help shift just five million of those 85 million jobs to sub-Saharan Africa and North Africa, it would increase the total amount by 50 per cent.

One of my former colleagues at the World Bank Ngozi Okonjo-Iweala, is now the Finance Minister and Co-ordinating Economic Minister of Nigeria. So, I know that she and other African leaders are interested in exploring this idea. So, this is part of a much larger process. And I’m not by any means suggesting that it will be a straight line process and always smooth. But just as we’re talking about this study about China’s changes, it will also affect how China engages in the global economy. And we need to open people’s eyes to the possibilities of South-South development, not just North-South development.

And I even suggest some South-North development because there are some things that developed countries can learn about the developing countries’ use of private capital and infrastructure, for example. So, it’s a very, very different world economy than it was even 10 years ago. And we need to be alert to the possibilities but manage the downside risks. We’ve done a lot of thinking and work on this so if you’d like more detail we’d be pleased to follow up.

Moderator: Yes, I’ve got time for one more quick question Let’s go to the gentlemen from Associated Press - the gentleman in the green shirt.

Joe McDonald: Thank you, I’m Joe McDonald from the Associated Press. You mention that you think that is a sort of dangerous autumn. I’m wondering particularly in the context of China, what do you see as China’s most pressing problems right now? You talked for instance about currency and inflation and some other things - I’m just wondering which of these issues do you see as the most pressing and what does the World Bank think that China should be doing about them? Thank you.

Mr. Zoellick: Well, first I have a lesson for all the media here. If you wear a bright green shirt, you’re easier to identify.

[Laughter]

Mr. Zoellick: But if at the next meeting, you all wear bright green shirts, it won’t work.

[Laughter]

Mr. Zoellick: I think in the near term, as Premier Wen Jiabao mentioned, inflation is the most important issue for China. And this is driven in part by the food prices. And I think the Chinese authorities are sensitive to it because if you look back at recent Chinese history, inflation can be a very destabilizing element. And this is not just an issue for China. Because we’ve had a multispeed recovery and a number of emerging markets - India, others in Southeast Asia - have more than recovered the levels they were at before the crisis and now they have to slow down some of the pace of expansion. But they have to strike a careful balance because at the same time, the developed economies are struggling to grow and that would obviously lower the demand, which would ease inflation.

As for the policies at the national level that deal with inflation, I think China has already started to take some of them. I suspect one reason you’ve seen the increased appreciation of their currency over the summer is that an appreciated currency lowers the prices at home of foreign goods so that eases inflation. Second, you’ve seen a combination of policies in the area of bank credit and monetary reserves by the People’s Bank of China and the banking regulatory authorities. And third, in some sectors there may be supply type constraints, so if you focus on increasing the production, that helps downplay the price pressure. So it’s too early to conclude that this has been solved but I think China has been moving in the right direction.

But the last point relates to the broader international context which is that if the developed economies are stumbling, then there will be challenges about global growth. And that’s why there’s a nice fit with this project that we’ve been engaging with China because this would move to more domestic demand, be a source of global growth but be relying on a different structural growth model.

And I’ve suggested to the Chinese authorities if they make progress with some of these ideas, it might also be a catalyst in the G20 and other forums for suggesting how developed economies and other developing economies also need to undertake structural growth reforms.

The world economy won’t get out of this hole by simply relying on austerity policies. But when I refer to growth, I’m not referring to fiscal stimulation; I’m referring to the fundamentals that drive growth over time in a sustainable way. And I hope by the end of the year, we will have completed this report and so all of you can see with greater specificity what that growth approach might be like in a Chinese context. And part of it includes green growth but that doesn’t necessarily mean green shirts.

[Laughter]

Moderator: Thank you very much for joining us. We greatly appreciate your time. Thank you.

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