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

enemy of the good. 11. i have mentioned the important work around coherence. taken individually, each set of reforms have been well - considered and for good reasons. for instance, the banking capital and liquidity reforms strengthen the ability of banks to better withstand future shocks ; otc derivative reforms seek to improve transparency, prevent market abuse and reduce systemic risks. the two sets of reforms aimed at achieving a safer financial system, albeit from different angles. however, to ensure that they complement each other without creating unintended consequences, we also need to carefully examine how the different elements will interact. 12. take the example of the impact from the leverage ratio on the capacity of clearing members to offer client clearing services. the leverage ratio is intended to be a non - risk - based backstop to supplement the capital reforms and does not factor in risk offsets. however, for those banks with large client clearing volumes, disallowing client initial margins to compensate for potential future exposure may inevitably create constraints on their leverage ratios. this can dis - incentivise the provision of such client clearing services. this may have created an unintended impact on the market ’ s incentives and overall ability to centrally clear, which will be inconsistent with the objectives of the central clearing. therefore, in the next phase of our work on the reforms, sector regulators will have to work closely towards greater consistency and coherence with the inputs of all market participants. balancing between domestic market concerns and international market access 13. as each jurisdiction embarks and complete rebuilding its part of the global house, it is also important to consider how domestic rules would operate and interact across borders and against the global standards. 2 / 3 bis central bankers'speeches 14. the recent comparability determination between the cftc and the european commission on platform trading and margins for un - cleared derivatives serves as an excellent example of how authorities have worked together to reach a common agreement and approach, bridging the requirements of two major regulatory regimes. asia - pacific authorities are working closely with one another as well, and also with the cftc and ec, to address cross - border issues. japan ’ s fsa ( financial services agency ) and australia ’ s apra ( australian prudential regulation authority ) had also announced their recognition of various jurisdictions ’ margin requirements for un - cleared derivatives, including singapore and hong kong. 15. it is one thing for the enhanced architecture of the global financial house to be sound. it is