Moderator: ... joining us for this news conference this morning with World Bank Group President Robert Zoellick. Also joining us today, as many of you already know, Klaus Rohland, our Country Director for China. Mr Zoellick will begin with some brief opening remarks and then he'll be pleased to take your questions. If you haven't had a chance to silence your mobile devices, this would be a good time to do so. Let's get started. We'll turn it over to Mr Zoellick, please.
Mr. Zoellick: Well, first I'd like to thank all of you for coming, and I apologise, I seem to be losing my voice a bit. I'd like to start by thanking the Government of China and the Chinese people for the hospitality extended to my colleagues and me during this visit.
Moderator: Ladies and gentleman, we will resume our discussion here, please. Everyone has a chance to get settled, please.
Mr. Zoellick: We'll wait for people to sit down [unclear].
Well as you see this report has provoked some interesting debate about China and that's the point of any good research report. I also, before I go on, would like to thank Executive Vice Premier, Li Keqiang, and Vice Premier, Wang Qishan, for their meetings with me to discuss the Bank's co-operation with China and also this joint DRC World Bank report. I'd also like to thank Minister Xie Xuren and Minister Li Wei for yesterday's conference on this important work and the extensive co-operation of their staffs.
I also want to thank Party Secretary, Wang Yang, who I met Sunday in Guangdong. I first visited Guangdong in 1980 when I lived in Hong Kong, so I enjoy visiting it because it gives me an opportunity to see the tremendous progress that China has made over the past 30 years. I last had the opportunity to meet Wang Yang in 2007 shortly after we both undertook our new posts, so the meeting enabled me to learn more about one of China's coastal provinces.
Right after this session I'm heading to Inner Mongolia, a visit that will include conversations with Party Secretary Hu Chunhua, so I can learn more about the process of reform in interior parts.
In Guangdong I was struck by the fact that many of the issues now facing Party Secretary Wang Yang [unclear] … very well with the very issues that were discussed in this China 2030 report.
The joint work by China and the World Bank highlights that China's leaders are willing to ask some tough questions about the challenges ahead. I've been very impressed that China after 30 years of 10 per cent growth is willing to consider the structural changes discussed in this report.
We hope this work will also be of use to other middle-income countries facing the so-called middle-income trap, so I was pleased yesterday that Trevor Manuel of South Africa and B K Chaturvedi, the Deputy Planning Minister of India, were able to join us.
Much of the world economy is now focused on economic stabilisation measures, but [unclear] it would be useful for developing countries to also consider structural growth changes to advance productivity, innovation, technical change and to create jobs.
Now realising Chinese vision for 2030 will demand difficult changes, reforms, to meet the challenges that lie ahead. These are decisions that only China can make. But we hope the report will help.
I believe there is a momentum building behind reform in China. And I offer the World Bank Group's assistance on pilots and other projects to test ideas in the years ahead.
The World Bank was China's first and largest international partner in helping to overcome poverty. Since my predecessor Robert McNamara first launched relations with China with Deng Xiaoping in 1980, the Bank has had a special partnership with China on economic analysis. I think that experience was one of the factors that led to this report.
In 1985 there was a floating seminar for days down the Yangtze River that later produced a report in 1986 about the reform prospects. In 1992 there was an important conference in Dalian that led to the idea of China embracing the socialist market economy. So it's fitting to be here today with this report, now a joint production, that examines the past, the current and the future role for China to the year 2030.
Since this is likely to be my last visit to Beijing as World Bank President, I also thank the Chinese leadership and officials for their very strong support of the Bank, and of me personally, during my tenure. We're very appreciative and we broke new ground in many areas.
I also want to take this opportunity in public to thank our extraordinary World Bank Group staff here. And in particular, our excellent Country Director, Klaus Rohland; the head of our IFC team, [unclear] and the incomparable Elaine Sun who keeps all this running. They're superb professionals and I'm proud to have worked with them.
I'm pleased to take your questions.
Moderator: Okay. We'll open up for questions. Kindly, if you could, state your name and your organisation - and we'll take a question from the gentleman here, please. There's a microphone that's coming to you too.
Question: I'm from China Economic Elite magazine. I would like to ask a few questions related to this China 2030 report that you have mentioned. The first one is, would you please comment on the importance of this report? Secondly, we have all seen the protester just now, so I'd like to ask, are there any sharp or controversial issues that was raised in this report and in what aspect would you please mention to us that you think has stimulated this kind of protest?
Thirdly, I have also read some coverage on this report and I understand some of the suggestions made in the report relate to scaling back the size of state-owned enterprises and enterprises under the direct management of the Central Government. Otherwise it's going to pose some difficulties in - for future development of the Chinese economy. Why do you think so, in your view?
Mr. Zoellick: Well, firstly the importance of the report will depend on what China does with it. It's important to remember that these are the decisions for China to take. But I’m encouraged that the ideas will be taken seriously. First, because as I've said, there has been a long history, over some 30 years, of Bank - Chinese cooperation on the analytics of reform. And it's been productive for China and we've learned things that are applicable elsewhere in the world. Second, we could see that the leadership embraced this report from the very first time I suggested it about 18 months ago. Third, while we've done a lot of cooperative work with China, this has really moved to a new level in the engagement we had with the DRC and the Ministry of Finance.
What happens here in September when we presented a draft, and I think one of the reasons we took additional time for this report, was that the interim consultations that were taking place within China, I hope, will create the basis for building on the final recommendations. Deng Xiaoping said seek truth from facts and that's exactly what this report tries to do.
You asked about controversies. Frankly, this isn't new to me, as I've been in public service for 30 years. I was a trade representative so I've dealt with demonstrations and worse. So I will ask for the translation of this gentleman's paper and will look at it, as well as other comments. At the Bank we're pretty comfortable with an open debate, we think that debate is a way to refine one's ideas.
My only request is that people express their views in a way that allows discussion. They can probably do that on the web as well, since we have an open information policy. Indeed, one of the key ideas in this report is to be successful with changes of this nature, one has to involved public participation. I expect there are a number of controversial elements in this report. I don't need to list them all. I suspect that will come up in the course of debate over the coming years.
Let's focus on the core question. China has been very successful over the past 30 years with one structural model for development. That model has focused on export-led and heavily investment-led growth. The 12th Five Year Plan recognises that needs to change to focus more on domestic demand and consumption. This report goes into detail, looking to the year 2030, of how one could make those changes.
Now you talked about state-owned enterprises. I think many experts have the view that state-owned enterprises have benefited from very inexpensive financing, preferred positions in the market, and there have been very large retained earnings that have led to China savings, but haven't necessarily benefited all the Chinese people.
So to reduce China's global savings rate and also benefit the Chinese people, if a lot of those dividends are sent back to provide social benefits for China's people, we'll have structural change and help support some of the social security systems. China has seen, in its own experience and the rest of the world has seen this, that competition creates more efficiency, as productivity; high productivity can sponsor higher wages. So the export sector, which has been highly competitive, already has some of these benefits but some of the service sector, which needs to adapt to benefit from reforms, needs the types of adjustments that would break up monopolistic - oligopolistic positions.
I know it's a long report but I urge you to look at some of these sections because I think the descriptions of the benefits are well stated in the report. The last word. Will some of the vested interests that benefit from the current structure resist? I suspect they will. They do in the US and Europe and Japan. But the Chinese leadership's interest are that of all the Chinese people, not just specific groups.
Moderator: Okay, we'll take another question, then. The lady in the front row in the grey, please. Here's a microphone.
Question: Thank you, reporting from CCTV News. I have two questions. The first one would be you will leave this position as chief of the World Bank in June and what are you going to do [unclear]? Have you had any idea who would be your successor as the World Bank President? Second question is in 2001 you have negotiated China's entry into WTO as a Trade Representative. What do you think is China's legacy of this membership in this organisation? Thank you.
Mr. Zoellick: On your first question, I don’t have any plans yet for what I do when I leave. I want to focus 100% on my job until I finish on June 30, as is demonstrated by somewhat my broken physical state. And also I feel, as a responsibility to the organisation, that's the right way to handle it. And I announce my plans to leave so as to allow time for the process to take place to select a successor. Our Executive Board of Directors has set up a process by which nominations are to be done over the course of the next four weeks or so, and then the shareholders will make a decision on who the successor is. All I can say is I'm pleased to leave it an institution that is well capitalized, I think it's performed well and we've got some - an excellent team.
Your question on China's WTO accession is a very good one and it fits this report. And I touched on this briefly in my remarks yesterday. What I saw is that Zhu Rongji and Jiang Zemin used the WTO accession process to push internal reforms in China in the course of the late 90s. The WTO membership then connected China into the rules-based trading system. That provided the foundation for the export-led and investment-led growth that has been so successful for the past 10 years. But if you look at the conditions in the international economy, I think we'd be unrealistic to expect that China would be able to rely on exports to the same degree going forward. So that's why this report talks about another generation of structural changes just like those that Zhu Rongji pushed through.
But it also suggests that China as a growing player in the international economy could connect these internal changes with the cooperation in the international economic environment. I touched on some of these, for example, the investment policies, intellectual property rights protection, service competition, financial service sector reform. These offer win-win opportunities for internal reform and international accords. So there is a nice parallelism here.
Moderator: Okay, let's take another question. The lady on the side, please. I'm afraid we're running out of time so the lady with your hand up right there, yes. [Unclear].
Question: Thank you very much, from Bloomberg News. I just wanted to follow up, actually, on the questions of the previous journalist. Obviously while you've been here you've talked with Chinese policy makers. What’s their feedback they’ve been giving to you about how they would like to see the next President of the World Bank, how they would like the process to go ahead, and who they would see as a good candidate?
You talked about the WTO being a trigger for internal reform. What’s going to be the trigger this time, there doesn’t seem to be one? A lot of people who are China watchers are saying that reform has actually stalled over the last few years. [Unclear] being the head of SASAC in 2003 to manage the state owned enterprises, he said then they want state owned enterprises to pay dividends. That doesn’t seem to really have made much progress, as is exemplified in your report. The other issue is interest rate reform again, they’ve been going about this for years and nothing has really happened. What’s been holding it up? What do you think could be the catalyst – would it be another crisis or what do you see as being the catalyst? Thanks.
Mr. Zoellick: Well, first on your first question. The Chinese, at various levels, have been very complimentary about their work with the Bank and our partnership, and I’m appreciative of that. It’s been a key part of, not only our work with China but expanding China’s role as a responsible stakeholder in the international economic system.
Just to give you an example, when I was in Guangdong, we discussed the possibility of some of the Chinese lower value-added manufacturing, perhaps relocating to Africa, and what we could do to support that.
My former colleague Ngozi Okonjo-Iweala - now the Minister of Finance heading the economic team in Nigeria - was in Guangdong right before me; trying to talk with the companies about this move. So, there are enormous possibilities to build on in the global development area.
And as for China’s preferences for successor rights, we’ll let the Chinese comment on that.
You make an excellent point about the different context for driving reform than in the period where one could use the WTO accession as a structural driver. But I think in these circumstances, the economic crisis and the drop-off of exports that you’ve seen to the US and Europe and elsewhere, has sharpened attention to the changes.
As I mentioned, in addition to going to Beijing, I often try to go to the provinces. And when I talk to the Party Secretaries, I try to get their sense of the need for reform. That’s one of the factors that leads me to believe that this process will have momentum.
Like you, we look for other signs. For example, the People’s Daily Editorial that reports from the People’s Bank of China.
And certainly in my conversations with the Chinese leaders, I think they not only say they want to move to reform, but they describe the challenges in a way that suggest they know it’s needed.
But having said that, I don’t expect any big bang reforms.
The history of China’s development process –starting with Deng Xiaoping – is often to start in local areas with pilots and to test and then to widen the process.
Keep in mind, this report is looking out to 2030 – that’s a lot of years here. But I think it tries to outline the set of steps, and some sense of sequencing. We would be pleased to work with the Chinese as they explore how they want to proceed.
They are very aware of the facts, the environmental costs, the urbanization process, the aging of the population, some of the issues of social disparity; and I think, they believe they need a new approach to be able to address those issues.
The one other point I guess I would add is that, from some informal conversations with some of our Chinese colleagues, in the process of their discussing the grasp of the report with other ministries, I’ve gotten the sense that there’s a hope that with the next generation that these will move forward.
But nothing’s foreordained, the devil’s in the details and these are decisions for China to make.
Moderator: Okay, we’ll take one more question. Let’s take the lady right at the front here please.
Question: Good morning. I’m from China Radio International. I have a few questions about the report.
Moderator: We’ll take one, if we could please. Mr. Zoellick has a plane to catch...
Mr. Zoellick: Give it your best shot.
Question: I’ll just ask one question – would you [inaudible] … How should the pension fund be expanded to cover the vastly growing elderly population, both urban and rural, without adding significant fiscal burden to the government. And [unclear] discussion about investing the pension funds into the Chinese stock markets?
Mr. Zoellick: You’ll see that in discussion in the social welfare issues and social production issues, there’s a focus on flex security.
That means to try – one thing it means – is to try to have some of the benefits delinked from enterprises or local associations, and connected to individuals.
A number of developing countries have used savings systems and map saving systems so people can build up their pensions over time.
This also relates back to the question about state owned enterprises.
Part of China’s high savings rates are the redeemed earnings of those state owned enterprises. So you need a revenue system that also provides the resources so people can build those pension plans. And some of those could come from dividends from the state owned enterprises.
But I think the one other point that I want to emphasise, is that we talk throughout the report about having a fiscal system that supports the changes in China. This relates to your question but it relates to a number of other issues. For example, we all know there’s been a lot of disputes in China over land. This is often because local governments have expenditure responsibilities but they don’t have revenue sources, so they don’t get revenue from the centre.
So if you move towards a revenue system that matches resources with expenditure responsibilities, you avoid some of the tensions that have been built into the system and you can benefit for the average person in China.
And this relates to a point that I want to share with you because it comes up with my discussions in the provinces but also in Beijing.
The Chinese model of growth so far has relied on a mixture of state and market. And sometimes the borderlines between those are a little fuzzy. And that sometimes means the average Chinese citizen is dependent on the actions of local authorities about where that borderline is.
This report emphasises something that I think is getting increasing recognition in China, is the rule of law, so there’s clarity on those issues. And transparency and accountability.
Now then you asked about where the pension fund should be invested and I won’t get into that one. I have a hard enough time investing in my own pension fund.
Moderator: Okay. We really do have to wrap it up at this point. I’d like to thank all of you for joining us and look forward to seeing you again. Thank you.