January 8, 2021

Speaker:

Helge Berger, Mission Chief for China & Assistant Director, Asia and Pacific Department, IMF

Moderator:

Ting Yan, Communications Officer, Communications Department, IMF

Ms. YAN: Good morning, and good evening to those who are joining us today from China. Welcome to this press briefing on the Publication of the 2020 China Article IV Staff Report. You should all have seen the report and press release, which were posted under embargo yesterday and have just been published on imf.org. I will invite Helge to make some brief opening remarks to highlight the key messages of the report, and then we’ll be happy to take your questions. Please stay muted when you are not speaking. Thanks. Over to you, Helge.

MR. BERGER: Thank you Ting.

China is recovering fast, ahead of most large economies, but the recovery is still unbalanced and facing significant downside risks.

We are seeing growth at around 2 percent in 2020 and around 8 percent in 2021. December numbers have been surprising on the upside, so there are some upside risks to that forecast.

On the other hand, there are significant downside risks. Domestically, I don’t have to remind you that there is the pandemic risk that is still around. We are a little bit concerned about the composition of growth, and I’ll get back to that. But there are also financial stability issues that are covered in the report from the corporate and banking side.

There are external risks as well. Again, the pandemic is featured prominently here, but also the external environment has generally become a little bit more difficult for China and its economic relations with other countries.

But I think that the main concern around the recovery that we have and that I want to stress with you, is the lack of balance. The recovery is still relying mostly on public support. Private investment has strengthened recently, but consumption is lagging. Growth rates and consumption recently have been higher, but the level of consumption compared to its pre-crisis trend is still rather low. So there are some upside risks to that forecast.

On the other hand, there are significant downside risks. Domestically, I don’t have to remind you that there is the pandemic risk that is still around. We are a little bit concerned about the composition of growth, and I’ll get back to that. But there are also financial stability issues that are covered in the report from the corporate side.

There are external risks as well, again. The pandemic is featured prominently here, but also the external environment generally. That has become a little bit more difficult for China and its economic relations with other countries.

But, you know, I think that the main concern around the recovery that we have and that I can stress with you, it's the lack of balance. The recovery is still relying mostly on public support. Private investment has strengthened recently, but consumption is lagging. Growth rates and consumption recently have been higher, but the level of consumption compared to pre-crisis trend is still rather low.

This is a large reason for the fact that we think that there's still an output gap this year of 1.8 percent. That's the difference between what the economy potentially can have in terms of GDP and what we are actually expecting in terms of demand. So that's where this lack of balance comes in, and this has important implications for the way macro policies should be conducted. That's going to be my second point.

So the second point to highlight is that, you know, with this outlook in mind, the two recommendations that are central, we think, in the short term. One is to make sure we do not withdraw macroeconomic policy support prematurely in China. And it's advice that other countries are getting from the IMF, so this is a bit of a global concern, but it applies to China as well.

The second implication of our analysis of the outlook and the risks around it is that we need to make sure that we adjust the composition of macroeconomic support away from investment towards household support. This will directly help consumption, and this has implications, of course, for our policies to strengthen the social safety net. And, you know, I'm happy to discuss this a bit more. And also maybe a shout out to the parts of the staff report that talk about ways to improving the delivery of monetary and fiscal policy. There are ways of making sure that these policies are very efficient, and you will find coverage of this issue in the staff report.

A third point I'd like to stress. This has to do with supporting growth, you know, beyond the very short term. This has to do with reforms. So we note that structural reforms have been progressing despite the pandemic which is quite an achievement in China. But this reform effort has been, sort of, predominately in the area of opening financial services to the outside world, and less so in the real sector. Real sector reforms, however, are important.

We're looking at an environment where growth on balance is slightly reducing over the years, so that's more medium-term perspective. And there, what you can do and what you should be doing is you should be looking at ways of improving sources of growth that are within the country. So one way of doing this is SOE reform. It's a topic that is very important to us, and you’ll find a lot of coverage of what exactly we have in mind in the report. But also reforms that ensure that as a level playing field between private firms and state-owned firms within China which will help markets do what they do best.

You know, just to run this point home, this is a country that has productivity increases, has seen productivity increases in the past, but the levels for the productivity in China are still relatively low compared to the global frontier. On average, on our numbers, you know, for productivity across all sectors is around 30 percent of the global frontier. So there's enormous gap that can be taped into with the right reforms, and then as I already mentioned, we all realize that external environment has become a bit difficult in recent years. If that stays like this, it will be harder to tap into external productivity improvements through normal means of trade and FDI. So, you know, doing what you can domestically is critical.

Final point, briefly, clearly the pandemic, just if you look at the risks China is facing, and you realize that -- how they are shared with the world is a global challenge. And in addition to doing what we can to ensure that we have that sustainable, well-balanced growth look domestically, China can also help others to overcome the challenges from the crisis. So there we note the very helpful engagement of China to providing debt relief for low-income countries. The pledges to help low-income countries getting access to affordable vaccines, and the pledges to help the world fighting climate change. So these are things that are important, and these go beyond, sort of, the domestic policy agenda for China.

I'll end here and I'm very happy to field your questions. Thank you.

MS. YAN: Thank you very much, Helge. Before we take your questions, I just want to let you know that if you wish to ask a question, please use the raise hand function or chat with me bilaterally and indicate the questions you want to ask.

Our first question comes from Xinhua News Agency.

QUESTIONER: Hi. Thanks for doing the press briefing. My question is about the IMF projection for China's growth rate in 2021. The latest number is 7.9 percent, a little lower than 8.2 percent, as you made in November. Could you tell us why? And what will be the main growth driver for China's economy in 2021? Thanks.

MR. BERGER: Thank you. We hope and we are assuming under our baseline forecast that the main driver of growth this year will be private consumption. I already mentioned that private consumption has been lagging in the recovery and it should be -- this year, private consumption will be picking up, hence, the pandemic recedes.

The way we assume this will happen is that it will be strong enough to compensate for a smaller role of investment and for a gradual withdraw of public support. Now, this will not happen completely without the government and government policies helping. Fiscal and monetary policy need to continue to support growth and shouldn't be withdrawn in their support prematurely. And I think, I mentioned before, that it will be also crucial to adjust the composition of fiscal policy support in a way that facilitates consumption, and this can be done by strengthening social safety nets, for example.

If you look at what the social safety net in China is offering right now, you know, a good example is the unemployment insurance. It exists, but its coverage is spotty. It's only one in three urban workers that are covered by employment insurance, and one in five migrant workers. So clearly, you know, this being one example and other examples exist as well that there is scope for improvement.

Now, you asked about the revision in the staff report. This relative to the October WEO. That's an illustration, as I made earlier, this was mostly driven by our reassessment of the amount of social support that would be provided under the baseline for 2021. So with lower fiscal support, we also, sort of, pulled back the forecast a little bit, but we are talking small revisions. So I'd say growth will be around 8 percent this year, and we are going to look at this forecast again in the future in light of the most recent developments and developments in the end of the fourth quarter. Maybe I’ll leave it there. Thank you.

MS. YAN: Our next question comes from Yicai, China Business News.

QUESTIONER: I have two questions for you. One is about China's policy normalization. Because, you know, contrary to the global trend, PDOC actually considered to normalize its policy. But do you think the time is right for this kind of policy normalization, and how do you think the monetary and fiscal policy should coordinate in 2021 for China to avoid the so-called policy cliff?

As we know, economic recovery in China is actually still a little bit fragile because the virus overseas is far from being controlled. Yes, thank you. This is the first question.

MR. BERGER: Let me answer your first question. Yes, as I said, I think it's very important for growth this year to gather strength in the sense of this growth performance becoming more balanced relative to last with less reliance on public support and more reliance on private consumption. But this will not be able, we won't be able to achieve this with, you know, without macroeconomic policy, you know, being careful in adjusting to the recovery.

So let's avoid a macroeconomic support cliff, let's make sure that we don't prematurely withdraw fiscal policy support, and that means, you know, some continuing support and for monetary policy it means remaining comitative this year just like last. If you look at the parameters of monetary policy, it's important to note that, not surprisingly, given that we still have a negative output gap, the underlying inflation pressures are quite low.

So much of the up and down of the headline inflation has to do with other developments such as core prices normalizing, underlying inflation is a different matter. So, you know, don't withdraw macroeconomic policies support prematurely, and make sure that you adjust the support that is being provided in a way that facilitates the hand over from public support to private consumption-based growth.

QUESTIONER: Okay. Thank you. My second question is on China's digital currency, DC/EP actually, IMF mentioned in the report that while agreeing with the authorities on the potential benefits from digital currencies, directors considered that more work was needed to assess risks. For example, the AML/CFT framework. So how do you comment on the several rounds of trials on DC/EP mainly using NFC technology? What still needs to be done before rolling it out more broadly? Thank you.

MR. BERGER: So we see developments in the direction of digital currencies supported by central banks in many countries, not just in China, but China is certainly part of the front of this development, and so we are watching this very closely. I think it's important to step carefully in order to learn the most possible about the benefits, but also the risks that are associated with electronic currencies.

On the benefits side, what we're intrigued by is the potential of these currencies to promote financial inclusion, to help monetary policy transmission, and, you know, also, and what leads a little bit back to what we discussed earlier. The possibility of these electronic currencies to help us target fiscal support, for example, more narrowly to low-income households, for example.

At the same time, there are risks of experimenting with the currencies as the China's authorities are doing. I'll certainly help you understand these risks better. One risk is operational. These are not printed notes which we know, you know, have certain risks of them. These are electronic monetary units that are vulnerable to operation risks, you know, cyber-attacks. So these things need to be carefully studied, and, you know, and the proof of the advantages are in the pudding, and so we have, you know, experiment. We have to monitor, and we're got to learn about these risks.

There are other risks that are more interesting from the perspective of an international institution, such as the IMF. You know, it's the e-CNY is not currently planned or designed as international currency, of course. But in principle, any digital currency, you know, could be used in cross border transactions.

And in such a case you have new considerations to take into account, such as that a foreign currency could replace a domestic currency because it's easily transferred. And then currency substitution issues come into play and, you know, we know that there are some macroeconomic policy problems around it. So in overall risks, there are also benefits. Studying them closely is important as we make progress towards this exciting new frontier in monetary policy. Thank you.

MS. YAH: I have received a question from Caixin.

QUESTIONER: Hello, Helge. In terms of the, kind of, balance of the, kind of, recovery, you mentioned we need to provide, kind of, social safety net to make this recovery more balanced. I'm just wondering, is there any measures, both mentioned in the report and the other measures, that can take effect in a relatively short term to support consumption? Because normally these distributional policies normally take effect in the longer term.

And also, you mentioned, perhaps a blue-sky question. You mentioned underlying inflation pressure is still limited, so PBOC can, sort of, wait to withdraw its policy. There is also a view that there is now asset price inflation, PBOC former governor, Governor Zhou also mentioned this. Do you see the current, kind of, stock market exuberance, sort of vindicated under these current circumstances? If so, does that also provide a rationale for policymakers to make this distributional issue more central to their policy agenda to avoid this kind of imbalance between the real economy and the financial economy? Thanks.

MR. BERGER: Thank you for the question. I'm not fully sure I captured the gist of your second question but let me give a try and then advise you to follow up to make sure I'm answering it properly.

So on the first question on the speed of, you know, how fast can, you know, you're talking fiscal policy, obviously. Fiscal policy being leveraged to provide household support. I'd say, you know, very quickly there are numerous examples across the world as policymakers experimented, you know, in exactly this area in reaction to the crisis. Think about the stimulus checks. Think about -- in the United States and elsewhere. Think about extension of unemployment insurance benefits, think about -- many countries. Think about making access to unemployment insurance easier. And here, China is among the countries that I could cite as an example. So there is no lack of possibilities in making sure you can crank up household support in the short term.

Now, of course, not all fiscal measures that we are recommending, you know, in the short term and the medium term are -- you know, can be established overnight. Measures to make the transmission of fiscal policy more effective to households will take time. You know, I talked about FinTech tools. That's exciting, but one has to develop them and learn about how they best work. So that's a bit more of a medium-term forward-looking issue.

And if you think about ways to strengthen the coverage and the amount of support provided by the social security net, you know, with all its assets in a country that's as large as China, you want to think about, of course, where you do this best, and, you know, I certainly think, which is why I mention it, but unemployment insurance and its coverage is one of these tools or one of these issues you want to tackle there, then you need to, you know, plan for this. You need to implement. You need to communicate it well. You need to make sure it's understood by households and it's seen as credible by households. Then you will get all the medium term, these kind of more lasting shifts in consumer behavior that come with the households deciding, yes, we can trust the public safety net as an insurance in the next downturn. We don't have to go into precautionary savings as much as in the past. And that will generally lift the level of consumption, which is great for growth, for healthy, balanced growth. It's also great for issues such as the current account balance. That structurally should be adjusted if we get stronger consumption.

So, you know, many measures, I think, can be used very quickly, other measures will take longer and should take longer to be implemented, but I am very optimistic in ways in which -- about ways in which fiscal policy can be leveraged to help household support and doing on short notice.

Monetary policy. Well, you know, all type of things look at a variety of economic developments to decide whether or not, you know, a change in the monetary stance is called for. If we put ourselves in the shoes of the PBC, these are big shoes, you know, if we try, we would point out that underlying inflation pressures are still very low. We understand why that is the case. It is the case because the output gap is still very large, and until this closes, we don't think that underlying inflation pressures will be too high, indeed, they will be too low. So the central bank should have reason to provide, continue to provide monetary condition.

Financial stability issues which is what I thought I heard you say are, of course, also on the mind of the PBC like that of other central banks. You know, at the Fund we tend to say that while this is, of course, important in many cases, part of the mandate of central banks. There are important other tools that policymakers have to deal with financial stability issues. That is macroprudential policies, for example, regulatory supervisory measures, and, you know, we would stress that there is room to use these instruments proactively to deal with financial stabilities concerns. And our understanding of what's happening in China is not -- is, indeed, the case which, you know, in turn should free the central bank to focus on these more economic considerations.

QUESTIONER: Quickly follow up. So on one hand there is very weak consumption from the relatively less well-off people. On the other hand, there is so much money flowing into the stock market so what you just said means it's not entirely monetary policy, central banks role to tackle this. There should be other policy measures, including distribution-level or other measures to try to solve this conundrum?

MR. BERGER: Thank you. You know, this goes back to when I discussed earlier the need to strengthen consumption. So when you hear me talk about the scope for improving the social safety net, what I do have in mind is helping particularly the households that have been hit the hardest by the pandemic. These are the low-income households like in any recessions, but in particular in this recession that is closely related to the pandemic. So I think we're talking about the same thing here. As you do this, you also make sure that income support flows to households that lack it the most and, you know, this is the reason why this is a particularly effective way of strengthening consumption.

MS. YAN: Thank you, Helge. Our next questions come from Inner City Press about overseas lending. Please go ahead.

QUESTIONER: Thanks a lot. I noticed in your report you talk about China's overseas lending and you mentioned it in your opening. I just wanted to know what the IMF thinks given rising debt levels among African countries and elsewhere. And some skepticism being raised about the so-called Belt and Road project. How do you think that will either impact it or be addressed in going forward? Thanks a lot.

MR. BERGER: Two issues here. One is, you know, very short term, you know, dealing with low-income countries that because of the pandemic feel the pressure of existing debt more than other countries. And there, you have seen the IMF being engaged in a number of initiatives related in conjunction with the G-20 in providing additional financial breathing space for these economies. So this is a combination of IMF lending itself, but also, sort of, debt relief organized at the G-20 level. Here, China is playing an important role and we welcome this, of course. And we, you know, we hope this will continue in an effective manner.

The question of the other side of this is China's engagement in supporting investment in low-income countries as a lender. For example, as part of the BRI. There be, perhaps, long-standing policy positions we -- you know, we -- that this is welcome, per se. This sort of engagement. And it's particular helpful if it's conducted in a transparent way so that it's clear, you know, how much money is flowing where, for what purposes. When the projects being supported also sort of are productive ones in the current context. What the world needs, we heard our managing director say this many times, is a shift towards green growth which would sort of make sure that we are making the best of the need to provide public support by doing it in a sustainable way that helps us also finance other global issues such as climate change. So that's broadly what I can say on these issues.

MS. YAN: Our next question is from Peoples' Daily. Please go ahead.

QUESTIONER: Thank you. My first question is about fiscal policy. So in your report, it mentioned the medium-term fiscal consolidations was necessary to ensure the stability. Just a few days ago, Mr. Liu Kun, the head of the Chinese Ministry of Finance, said that China will make appropriate regimen of deficit, debt, and expenditure policies, hidden debt risks of local governments. So my question is are you concerned with the hidden debt risks of the China's local governments? And can you elaborate more about how to focus on broader concepts of the fiscal deficit? Thank you.

MR. BERGER: Yes. This is an important issue. You know, we all know that fiscal policy is a very powerful macroeconomic policy tool. That's true in China, as it is in all other economies. The trick to use this tool most efficiently is to look at all of what general government does, and to make sure that one has a very good understanding of how fiscal policy interacts with the macroeconomy, right. And there are influences going both ways, fiscal policies changing demand. We talked about how fiscal policy can help consumers, for example.

On the other hand, what fiscal policy can do in terms of fiscal space is a function of growth, because growth translates into tax revenue which ultimately is needed to -- for government to be able to do what it does. And so let me link this to your question, local governments. We see local governments and their activity, be it, sort of, on budget or off budget, as an important part of what is general government in China. And, you know, the same applies to other countries, and so we welcome this broad focus that Chinese authorities have here. And that's, indeed, the same focus that we have.

I think, you know, this speaks generally to the ongoing effort to improve the macroeconomic policy framework for which China's using fiscal policy as a policy tool. I know that the authorities are working on improving this framework, and I would note that the IMF is engaged in helping them doing so through our capacity development efforts that, you know, pre-dates the crisis. And we'd be, certainly, happy to continue this going forward.

QUESTIONER: Thank you. My second question is about the Chinese government put forward the new development pattern of “dual circulation” which takes the domestic market as the mainstay while letting internal and external markets boost each other. So what's your comment on those development patterns? Thanks.

MR. BERGER: So I mean, we, as the IMF, if you go back to staff reports of the past, but also, certainly, if you look at our newest staff report have long supported the transition of China towards more balanced, more high-quality growth. And that is what we understand, this philosophy of dual circulation to be about, in its essence. And so the policies that should be attached to the strategies are two-fold.

One, in the short term, is, as we discussed earlier, is avoiding a premature withdrawal of macroeconomic policy support this year, and of making sure that the support, you know, drifts away from traditional infrastructure investment, a long staple of Chinese policymaking, towards helping households, as discussed, but also by moving infrastructure spending away from traditional infrastructure projects, more to smart infrastructure, to green investment. I would think in the short term that's an important part of any strategy towards more high-quality, balanced growth. But there's the long-term issue as well.

You cannot have a balanced economy and strong dual circulation without being serious about structural reforms. I mentioned earlier that some of them have continued throughout the crisis, others are a bit slower, especially the SOE and competitive neutrality reforms, and we think that if you take all this simultaneously with social safety net reforms, you can make headway towards healthy growth, unbalanced growth going forward. And, you know, we would think this is part of the government's strategy around dual circulation as well.

MS. YAN: Thank you. South China Morning Policy has as a question on China's property loan. QUESTIONER: Thank you. So my question is the PBOC made an unprecedented move in December by setting caps for the proportion of outstanding property loans to total loans in five different bank tiers effective on January the 1st. How would that impact China's growth this year? What happens if the property sector slows?

MR. BERGER: Thank you. Yeah, we have seen this measure and we're still studying it. The question of, you know, what the particular impact is on this specific measure is actually a little bit complicated because of the way this measure is constructed. So, you know, that maybe goes a little bit far for the purpose of this conversation here.

But, you know, we're looking at all the measures that have been announced, even before this particular measure last year, and we have factored this in for our baseline assumptions for growth in 2021. So the growth numbers we're projecting include a certain normalization of real estate sector activity, both on the financial side and on the output side, which, you know, I would say is part of that rebalancing that we're hoping for to occur under the baseline towards growth that is a little less investment heavy, and that includes private sector investment related to the real estate sector and is a bit more reliant on private consumption.

MS. YAN: Our next question comes from 21st Century Business Herald.

QUESTIONER: Thank you. I have two questions. The first one is what is your projection of the exchange rate of renminbi against U.S. dollar? If it resumes to appreciate rapidly, would it become a threat to China's macroeconomy? Thank you. This is my first question.

MR. BERGER: So I'm very grateful for the IMF policy not to ever make exchange rate predictions, you know, so we don't have an exchange rate prediction for next year between the renminbi and the U.S. dollar. What we do assume, however, is that the general flexibility that the renminbi has shown this year will continue going forward. You know, so I appreciate your question because it allows me to stress this point. The renminbi has been quite remarkably flexible in the course of this year.

When we started in December 2019 with an exchange rate that was around 6.9 versus the dollar, then as China went into lockdown, the exchange rate against the dollar fell to something like 7.2 and today it's around 6.5 or even below, you know, reflecting mostly shifting macroeconomic development patterns between China, the U.S. dollar economy, and the rest of the world. This means that the exchange rate this year has been a helpful tool in macroeconomic policymaking, buffering some of these shocks that have been pushing around the global economy as the pandemic hit.

So we think this is important to have this kind of exchange it makes it also you're assuming that this flexibility will continue in the future. So the answer to your question is the renminbi should and hopefully will be going wherever these macroeconomic developments in China versus the rest of the world will be leading it this year and in the future.

QUESTIONER: Thank you. And my second question is are you expecting China/U.S. tensions to take a brief timeout under a Biden presidency? And what is your comment on President Xi's statement that China is considering joining the CPTPP? Thank you.

MR. BERGER: We are, as an institution, are optimistic when it comes to the, you know, the ability of countries to come to joint solutions about problems that are concerning to all. We hope that China, the United States, but also other countries will continue this year to strive for monumental solutions to trade disputes, to trade problems, and finding solutions that will be part of the global trade system, even help to strengthen it further, but making it more stable, more rule-based, and more transparent. So we're eternally optimistic and we are certainly optimistic at this point in time that will also be true for U.S.-China relations.

On your second question, we have noted, sort of, the statement. We also, of course, follow closely China's joining of the RCEP. All these developments go to strengthening or potential strengthening this type of multilateral approach to trade and making sure that trade, sort of, can take place in a positive environment. So looking at this, we are pleased that these developments are taking place, and we certainly think that this will help to not only improve trade going forward, but also lead to more investment into more growth, not just for the Asian region, but also, sort of, beyond the Asian region.

MS. YAN: Thank you. We have also previously received a question from Press Trust India. What are the lessons that other developing countries can learn from China's handling of COVID-19?

MR. BERGER: That's a good one. I think China, but not only China, but other countries in Asia. Look, for example, at Vietnam, have shown that there's a way of dealing with a pandemic, even in the absence of a vaccine, that will allow the economy to get back, at least close to normal operating capacity by learning how to deal with local outbreaks.

The playbook here is one that includes local restrictions, rapid testing, rapid tracing, and, you know, seeing these measures until the end, until localized outbreaks subside. So I think that's an important takeaway, you know, in a narrow sense from the experience of China that is particularly applicable to low-income countries that are facing pressures for the vaccine.

Other developments that I would stress have to do with digital enhancements of otherwise, sort of, not online businesses, for example, in many low-income countries you do have well-developed electronic communication networks through cell phones, for example. So progress along these lines is helpful as well.

But maybe the last point, vaccines, of course, are, ultimately, sort of what we will need to make sure that all economies and the global economy gets back to normal, defined as the pre-pandemic normal. And here, I note that China has pledged to help facilitate the supply of the four vaccines to low-income countries, together with other economies, of course. It's not just China. But that is an important endeavor and at the Fund we encourage this, and we think it's important for the global economy and to help us all to overcome the pandemic, ultimately, and go back to normal.

MS. GAO: We have two more questions and then we will have to wrap up. The first question comes from The Paper. Please go ahead.

QUESTIONER: Hi, my question is how does the IMF evaluate the level of China's financial risks and what are the main problems in China's banking system? As in the reports, you suggested that reconstruction of the banking system could have reduced financial risks. Thanks.

MR. BERGER: Thank you for this question. I think there are two components to financial stability risks which are a prominent risk which comes in on the downside around the outlook. One has to do with corporate debt. Corporate debt has to be improved. It has been increasing, like in many countries, as a natural outcome of the crisis, corporate debt jumped to fairly high levels. It's around 130 percent of GDP at the end of last year, in our estimate. That's a high number by international standards.

And while this is harder to measure, it's probably safe to assume that the quality of this corporate debt has been decreasing. Again, like in other countries. So there is a potential issue that needs to be tackled. One is, you know, we want to be careful withdrawing the direct support measures that have begun to go into corporate, but eventually, as the recovery takes hold, if these measures need to be withdrawn, we need to make sure that we have a robust corporate restructuring mechanism in place which takes a lot of complicated legal, regulatory steps that we discuss in the staff report.

The banks share this problem because many of these corporate loans that we just discussed are on bank balance sheets, and so our concern is mostly with the smaller banks in China's regions which, as you well know, have been showing signs of stress even before the COVID pandemic. Here, it is important to make sure we strengthen the financial support regulatory frameworks which is a continuing effort, but it's also important to strengthen the balance sheets of the banks that are liable. You need high-quality capital, that means equity and not debt, to put these banks in a position to withstand the repercussions of pressure on the corporate side.

But you also need to work with some energy in constructing a framework around these smaller banks that allows bank restructuring in a way that is well-anticipated, that is well-understood, and which will have to include some form of government support, you know, as a last resort. Again, I invite you to look at the staff report itself which has very specific recommendations here. They're a little bit too detailed for this purpose, but, you know, of course it sort of gives color to what I just said.

MS. YAN: Our last question comes from China Review News Agency: Thinktanks predicted recently that China would overtake the United States to become the world's biggest economy in 2028, five years earlier than previously estimated. Do you have a prediction in this regards or what do you think of this estimation?

MR. BERGER: We don't have a specific prediction about the relative size of these two economies but let me just note size is also function of your measurement, you know, whether you look at the relative size of economies on market exchange rates, or in terms of purchasing power, gives you way different results.

I invite you to look at these different statistics separately. For practical purposes, China is among the world's largest economies, and whether it's coming in second or third or first now or the next five years, sort of does make little difference, I think, in terms of its role in the global economy and the possibility that given its size, it can contribute to global solutions just like the other large economies and the other members of the IMF.

MS. YAN: Thank you very much, Helge. Thank you, everyone, for joining us today. Have a great day and have a good night to those who joined us from China. Thank you very much.

MR. BERGER: Thanks, everybody. Good talking to you.