yi gang : global cooperation, china ’ s economy and the imf statement of dr yi gang, deputy governor of the people ’ s bank of china, at the twentieth meeting of the imfc, istanbul, 4 october 2009. * i. * * the global economy and financial markets – prospects and policy response the outlook of the global economy and financial market has improved, thanks to the stimulus policies and financial sector support measures. however, the recovery remains to be established as the effect of the manufacturing sector rebounds and inventory adjustment may be short - lived. the lingering deleveraging, credit crunch, and financial market instability, as well as weak private demand, all point to a slow recovery. the global economy is confronted with the risks of rising trade and investment protectionism, delayed restoration of the normal functioning of the financial system, and uncoordinated macroeconomic policies. the pressing task is to join efforts to fight protectionism, stabilize the financial markets, and restore growth. it is essential for the major markets to accelerate financial reforms, strengthen supervision, remove toxic assets, and enhance capital adequacy. coordination of macroeconomic and financial sector policies is also crucial. at the critical stage of global recovery, the imf has an important role to play in policy coordination. it needs to monitor more closely risks and policy implementation, particularly the progress of financial sector restructuring and supportive fiscal and monetary policy implementation in developed countries, as well as capital flows, to promote relative stability of the exchange rates of major reserve currencies. our attention must focus appropriately on the areas where policy action and coordination are most critical and urgently needed. global cooperation is needed to secure a more open trade system, accelerate comprehensive structural reforms and improve allocation of resources. it is of particular importance to remove impediments to productivity growth, particularly in the labor, product, and service markets. such actions are fundamental to strong and sustainable global growth. we also call on the imf and the world bank to explore ways to reallocate more resources to developing countries, raise their potential growth, and accelerate their income convergence with the developed world. ii. chinese economic developments and policies the chinese economy outperformed the expectations in the first half of 2009. with acceleration of investment growth, the real gdp grew 7. 1 percent. in the first eight months, fixed asset investment grew by 33 percent in urban areas, retail sales by 15. 4 percent, and industrial output by 12. 3 percent. although the monthly average cpi declined

the possibility to focus our efforts on asset classes and countries that come under pressure. at a time of heightened market sensitivity, seeing the possibility of purchasing corporate bonds open up has created the impression that the ecb is less focused on purchasing sovereign bonds. this is a misperception. the asset purchase programme was relaunched by the governing council in september, when mario draghi was president, and has been expanded in recent days under the presidency of christine lagarde. it is a necessary tool to bolster the effectiveness of monetary policy when there is less room to use the traditional interest rate tool. the purchases involve both public and private sector bonds, with the aim of facilitating the achievement of the price stability objective. but, in fact, the operations primarily involve public sector bonds, which represent over 80 % of purchases carried out thus far. there is a lack of liquidity in the economy and this problem will become increasingly acute. these sales on the financial markets are aimed at selling bonds to obtain liquidity. i am obliged to be boring : we have all the necessary tools, we are using them decisively and are able to do even more. at present our monetary policy operations ensure unlimited liquidity for the banks. liquidity stress could emerge among non - bank intermediaries. if necessary for the conduct of monetary policy or to safeguard the stability of the financial system, the governing council could consider whether and how to expand the list of intermediaries that can be supplied with liquidity and the rules for participating in our refinancing operations. christine lagarde told european leaders that if no action is taken we run the risk of a shock like the one seen in 2008. is that the case? the global shock we face could be even worse than the one in 2008 if it is not managed with the necessary care. in the two weeks preceding the meeting of the ecb ’ s governing council, the markets fell faster than they did when lehman brothers collapsed. today the shock is more complex and potentially wider reaching. the risk of the rapid spread of the virus is causing us to make much greater changes to our daily lives than was the case ten years ago. just look around at the closed businesses and schools. we will have to revise our growth estimates. should we prepare for a recession? 2 / 3 bis central bankers'speeches the effect of the crisis will depend on the policies we implement and could reduce growth by a few percentage points, for italy and other european countries. it is therefore