China, Germany grow closer as free-trade backers

Source:Global Times Published: 2017/7/19 21:23:39

Illustration: Peter C. Espina/GT


Andreas Dombret. Photo: Courtesy of Deutsche Bundesbank

Editor's Note:

As leading world economies and advocates of free trade, China and Germany appear to have more common interests than ever, and they anticipate closer economic and trade ties. The German government is very actively involved in the "Belt and Road" (B&R) initiative, which it sees as a good proposal to support the world economic recovery.

Last month, the European Central Bank (ECB) converted 500 million euros ($563.8 million) of its reserves into yuan for the first time. In an email, Global Times reporter Zhang Xin (GT) interviewed Andreas Dombret (Dombret), a member of the Executive Board of Germany's central bank, the Deutsche Bundesbank, about China's influence on the world economy from a German perspective.

GT: What's your take on China's B&R initiative?

Dombret: To me, it seems that China is planning huge infrastructure investments to better connect itself with its neighbors and eventually with Europe. It sends a signal that there is something to gain from economic and financial integration. To me, this is very important. Currently, we talk too much about building walls and too little about building cross-border roads.

Of course, to reap the full benefits of the project, it must not be a one-way street. Ultimately, it should also lead to more foreign investment in China. To achieve that, it takes more than infrastructure. We need to achieve a level playing field for foreign and domestic investors in China.

GT: What's your view on China's influence on the world economy?

Dombret: China plays an increasingly important role in the world economy. Depending on the measure one uses, its share in global output has tripled in the past 10 years. China now contributes roughly one-third of global growth. Due to its solid growth, China has been a stabilizer for the world economy in recent years. The other side of the coin is, however, the nation's high levels of debt and investment.

Total non-financial debt stands at 257 percent of GDP in China and investment totals 44 percent of annual GDP, by far the highest levels among all major economies. A rebalancing away from investment is, however, under way. And my impression is that the authorities have already begun addressing financial risks. So if properly managed, this must not be an obstacle to continued growth.

GT: The ECB has just begun to include the yuan in its pool of reserves. What's your take on China's currency policy? In what way do you think it has influenced the world economy in the past few years?

Dombret: My impression is that China has begun working in the direction of increasing the convertibility of the currency and also allowing market forces to make a bigger contribution in determining the value of the currency. These are steps in the right direction. When it comes to currency policy, transparency is of course very important. I am curious to see how China will handle this issue.

GT: The amount of yuan that the ECB acquired last month represents about 1 percent of its total reserves.  Do you think it's a reasonable quota, considering that China is now the EU's second-largest trading partner? Will it buy more yuan?

Dombret: The ECB is of the view that the current size of the foreign reserves is appropriate to fulfill their role. Furthermore, the ECB has completed the investment of about the equivalent of 500 million euros of its foreign reserves in yuan. The small amount reflects the intent to gradually acquire experience in the Chinese bond market in line with the experience of other central banks around the globe. As the ECB is not committed to a specific size of any of the portfolios in its foreign reserves, it reassesses the composition of its foreign reserves on a regular basis.

GT: The Hamburg G20 meeting highlighted the Compact with Africa initiative and encouraged investment in Africa. Why do you think it's important to invest in Africa?

Dombret: In Africa, I see big opportunities, but also big challenges. The Compact with Africa initiative wants to support Africa in making best use of the opportunities. As its economic outlook is positive, Africa stands ready to benefit from an open world economy.

Africa's young and rapidly growing population can be a boon or a bane. By some estimates, Africa's population will double by 2050. In an unfavorable environment this can lead to anger, frustration, conflict and a high willingness to emigrate. But if the African economy generates enough jobs for the growing population, it could even earn a demographic dividend. Creating jobs requires investment. At the same time, in other parts of the world, societies become older and want to invest their retirement savings.

Therefore, the initiative wants to support Africa in attracting investment. Not only from abroad but also from domestic sources. But it is important that it is a compact with Africa, not for Africa. Our African partners are in the driver's seat. They need a stable macroeconomic environment, reliable legal systems and appropriate regulatory and supervisory frameworks. These are the preconditions for attracting investment. But we stand ready to help. 


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