China's role in world monetary system positive

III. The basic target of the international financial restructuring

The basic target of the international financial restructuring is to provide more funding services to the real economy instead of the financial economy and to cut virtual or fictitious financial transactions as much as possible.

That means low leverage ratios, simple and transparent products, and closing to customers activities rather than complex structured products and self circulating financial business. It also means to promote free trade and FDI around the world.

The United States' proposal to limit current account imbalance and set a fixed figure target for major economies does not make any sense. Actually it is not important to divide countries into deficit and surplus groups. The economic structures are different and in the globalization era, differences between countries can help them complement each other. In the past twelve months the surplus in current account for China is nearly 300 billion U.S. dollars, which accounts for 4.9 percent of its GDP.

The ratios of surplus to GDP for Germany, Norway, Switzerland, Malaysia and Singapore are 5.2 percent, 14.3 percent, 11 percent, 14.7 percent, and 18.4 percent, respectively. I do not think we need to change that. The ratios of the United States and the United Kingdom are both negative 3.3 percent at the moment, much smaller than before. If we set a limit for how much a country can export, it would be bad for the division of labor.

China does have huge potential for overseas investment. We have more than 4 trillion U.S. dollars in IIP, but 70 percent of which, or 2.7 trillion U.S. dollars, is the central bank’s reserve. Overseas direct investment is only about 6 percent, and the net assets are around 250 billion U.S. dollars. So there still remains huge potential for China to increase its direct investment.

Chinese enterprises are really willing to invest in other countries all over the world.

It is strange there have been so many tangible and intangible constraints to direct investment, especially for Chinese enterprises. It is very difficult for them to invest in the United States and European countries. And even when the Chinese companies invest in developing countries, the behavior is criticized as new colonialism. That is very odd.

China has so much money that needs to be put into portfolios. Therefore, China will continue to buy government bonds and treasuries. I think China should do more direct investment. It is also surprising that though there are no incentives to do foreign direct investment, and we are encouraged to carry out risky leveraged financial activities. But that is the reality.

All countries can cooperate in foreign direct investment, especially developed countries with their technology, capital and sophisticated financial services industry. They can do more. Yesterday I read a piece of news that a French Industrial Bank began to finance Chinese companies investing in Africa. It is a really good phenomenon.

Also we can see the World Bank and other regional development banks invest in developing counties in South America, Africa and Asia. China can be more active to involve in financing and we can increase our share in the World Bank and other regional banks. China can play a better role in providing funding in these areas.