This sets the stage for the third broad theme driving the global economy in 2017: the growing tensions in emerging Asia between growth and financial stability. China and Emerging Asia: Balancing growth and stability Let me illustrate these tensions using China. For the past few years, China has been managing a difficult trade-off: sustaining economic growth versus reducing financial vulnerabilities. 4/7  BIS central bankers' speeches  The source of the trade-off lies in the high level of debt in the Chinese economy. Pursuing economic growth through credit and fiscal expansion adds to the debt burden and impinges on financial stability. Reducing debt levels requires painful structural reforms and risks slowing down the economy sharply. China’s policymakers have managed this trade-off reasonably well these past few years. In 2016, they managed to keep growth and employment on an even keel, using the old formula of fiscal stimulus and credit easing. While this has added to overall debt levels, there has been some progress in reducing financial vulnerabilities. Steps were taken to curb lending to unviable enterprises cool the property market in tier-1 cities, and reduce over-capacity in the heavy industry sectors. But with heightened expectations of global financial tightening and US Dollar strength, the tradeoffs and tensions in China are likely to become more stark this year. As US interest rates rise, resident investors in China have been recalibrating their relative expected returns, thus adding to pressures on China’s capital account and the exchange rate.

The second imperative relates to the continuous effort to develop the key resources of the industry, by expanding and building new capabilities needed to support its growth and development. There is a critical need to upskill the leadership and technical competency of talents given the increasing complexity of the industry. With broader scope, scale and internationalization, the demands on the capability of talents in Islamic finance industry can only increase. It will require more internationally oriented management teams that have the necessary international exposure and orientation. In addition to education and research to build the expertise in Islamic finance, a more structured framework for capacity-building that includes other key resources including the investment in technology for industry development is also needed. Such a coordinated effort in capacity-building has been initiated by the Islamic Development Bank (IDB) in support of its member countries in the development of Islamic finance. This is being undertaken through the IDB’s Member Country Partnership Strategy (MCPS) programme. Indeed, in a world of increasing interconnectedness, there is a need for such a strategic approach to capacity-building through cross-border cooperation for the mutual benefit of the members so that growth and development of the industry can be collectively strengthened. Finally, the third imperative is to accord importance to mutual recognition of Shariah interpretations across jurisdictions and thus contribute towards greater international financial integration. A critical factor that will support this process pertains to the need to enhance awareness in respect of the justifications underlying the Shariah resolutions in the industry.