amando m tetangco, jr : navigating thru the waters of change... and butterflies speech by mr amando m tetangco, jr, governor of bangko sentral ng pilipinas ( bsp, the central bank of the philippines ), at the 2015 annual joint general membership meeting of aci, fmap, ihap, mart, nasbi and toap, manila, 29 september 2015. * * * i hope you share my view that meeting the six industry associations in a single general membership meeting such as this one is not only efficient but it is also hopefully more effective in developing : 1 ) a holistic view of events and developments – both here and abroad – and 2 ) a clearer common understanding of bsp policies. in the end, meetings like this should help us more expeditiously attain our shared goal of sustaining the strength and responsiveness of our financial market. your officers had asked me to share my views on the impact on emerging markets and the philippine policy framework of the recent developments in china. this topic choice is quite focused. while your interest in china is understandable, i think you will concur that it is also difficult to isolate this from other developments in the global market. in any case – let me try to zero in on two things about china – its growth prospects and the recent devaluation of the yuan. chinese growth : first, growth. some have argued that the slowdown in the chinese economy is neither recent nor a surprise. china ’ s gdp growth has been decelerating over the past 5 years, from 10. 6 % in 2010 to 7. 4 % in 2014. this is projected by the imf to decline to 6. 8 % in 2015 and 6. 3 % in 2016. yet, the imf ’ s august 2015 article iv report1 in fact states that china is moving towards a new normal of slower yet safer and more sustainable growth. there is also the case being made about base effects to explain the slowing growth rates. 2 since china passed japan in 2009 in terms of economic size, china has expanded by the equivalent of “ 1 ¼ japans to its output ”. the bigger base then will require substantially increased economic activity if the growth rate is to be maintained. but even if the gdp growth rate is closer to 5 % in 2015 – a significant drop from currently reported rates – the increase in output “ will add almost one and a half thailands to china

a hard landing scenario for the chinese economy appears to be a low probability scenario for now but, i want to emphasize, this development is worth monitoring. the yuan devaluation : let ’ s now look at currency movements. media reports that august 11 saw the largest single day move in 20 years for the yuan. the same media reports point to the slowing economy and a sharp drop in exports as the factors underlying the move. there are other analysts, however, who say the action was really more political. they believe the expected currency movements are actually too small to materially impact exports. they say, chinese actions were really meant to accelerate the acceptance of the yuan into the sdr. they point to the fact that the imf has been calling for chinese authorities to move to a more market - based financial system and monetary policy framework. regardless of the motivation, the decision to devalue has already had its effect on markets and jurisdictions. the impact on chinese exports will be known in due course but the effect on the export of others is already taking shape. commodity prices have decreased on fears of a slowing china which happens to be a significant importer of commodities. either coincidentally or as a result of the yuan devaluation, we know that equity indices have seen a significant decline. currencies could not be far behind and in the region the vietnamese dong, the indonesian rupiah and the malaysian ringgit have weakened. how has the movement in the yuan translated to our domestic markets? since august 11, the peso has lost almost 2 % ( 1. 8 % ) in value, and the phisix has fallen almost 10 % ( 9. 97 % ). these are not small numbers, but they are also not the largest moves among the markets in the region. should we take comfort in that? full effect? what i have described over the last ten minutes or so is not news. you follow the markets closely. what is certain, however, is that despite all that we have already seen and know, the on tourism, china provided the fourth largest number of visitors in the country from january to july 2015, equivalent to about 8. 3 percent of the total visitors. china was also the third biggest contributor of visitor earnings in july 2015 ( ph. 1. 3b ). on remittances, of remittances from china ( mainland only ) amounted to us $ 10. 1 million, or about 0. 1 percent of the total of remit