China needs to lift its consumption ratio from its current low of 36%. Ongoing efforts to bolster the social safety net, enhance consumer protection, reform tax systems, and liberalise interest rates, are steps in the right direction. 52. In India and the ASEAN economies, the challenge is to increase investment spending, especially in infrastructure. This will not only generate indigenous demand, but also alleviate supply-side constraints that have become increasingly evident in recent years. 53. Second, Asia must deepen and broaden its financial markets. Asia needs to do a better job in efficiently intermediating its large savings pool, as well as directing capital inflows towards more productive investment in the region. Asian financial systems are still too dependent on banks. Deep corporate bond markets can play a complementary role in enabling private and institutional investors to invest for the long term. 54. Third, increasing productivity. Countries in Emerging Asia are still far from the technological frontier, and there is ample room for gains in productivity. However, unlocking these gains will require different policies across the region. 6  BIS central bankers’ speeches  55. China can unleash higher productivity by removing inefficiencies and distortions in its economy. The prescriptions are well-known – overhaul state-owned enterprises, liberalise the financial sector, instil cost of capital discipline. But delivering them will take determination and political will. In India and the ASEAN countries, improvements in governance and regulation will be key to attracting investments that can raise supply capacity and productivity. Conclusion 56. Let me conclude.

•  The emerging market economies need to deal with a weak external environment and incipient domestic cost pressures especially in the context of volatile capital flows and asset market pressures. •  And both advanced and emerging market economies must undertake structural reforms to boost their economies’ potential and create jobs for their people. Let me elaborate on each of these three themes. Advanced economies: restoring time-consistent macroeconomic policies 19. First, the advanced economies need to restore time-consistency in their macroeconomic policies. Governments are borrowing money and central banks are printing money. This is unsustainable. Implementing growth-consistent fiscal consolidation 20. The choice in Europe and in America is not between growth and austerity. Debt sustainability requires both a reduction in the numerator, by reducing deficits and borrowing, as well as an increase in the denominator, by restoring economic growth. Focusing excessively on the former will lead to an ever-deepening recession that will only make the debt trajectory unsustainable. Equally important, fiscal consolidation should not compromise long-term growth potential. 21. The debate on fiscal policy should focus on the pace and composition of fiscal consolidation and not just its scale. 22. Pace matters. It is more important to reduce the fiscal deficit of 2016 than of 2013. But it is equally important that something be done in 2013 that will reduce the 2016 deficit than to leave it to 2016 to do so. Only then will markets have confidence that policies are time-consistent.