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. tightening domestic liquidity to stem the pressure on the rmb would lead to higher interbank lending rates. this could potentially dampen investment spending and economic growth china has taken a balanced approach to these challenges : combining some degree of exchange rate flexibility, some controls on capital flows, and some amount of domestic tightening. navigating the treacherous waters of international financial markets this year will require a fair amount of policy dexterity. the rest of emerging asia is also confronted with headwinds from financial tightening and us dollar appreciation. the low interest rate environment since the global financial crisis has led to a dramatic buildup in debt among many asian corporates and households. over - extended borrowers face the double whammy of an increase in interest servicing costs and a rise in the foreign currency risks of unhedged debt. this could pose not just a threat to financial stability but also a drag on investment and consumption. that said, emerging asia is on a stronger footing to cope with the risks of global financial tightening. asian economies have been proactive in implementing

transactions in the offshore markets. 7. as i said earlier, the pace of the development of offshore rmb business and markets also crucially depends on the third factor, that is the role that the private sector can and should play in the process. it is not likely that a market can thrive just with policy headroom and financial infrastructure. banks and other financial institutions must develop their capability to satisfy their customers who have a need or an interest in using rmb. trading companies need trade finance in rmb. corporates investing in china need direct or indirect financing in rmb and asset owners need a variety of rmb financial products. many of them need to use instruments to manage or hedge their rmb exposures. all these rmb related financial services and products can only be developed by the markets and financial institutions because they are closest to their customers and understand their needs best. that is why it is so important for the hkma to collaborate with our official sector counterparts in australia to create this private - sector led dialogue. the first dialogue was held in sydney in april last year, which was highly successful. i am very pleased that it is hong kong ’ s turn to host the second dialogue and i am confident that it will be equally if not more successful. i note that today ’ s dialogue has a very rich agenda and i look forward to hearing useful and practical ideas and suggestions on what the private sector can do on its own or in collaboration with the official sector to further develop the offshore rmb markets in australia and hong kong. 8. thank you very much. bis central bankers ’ speeches