Rising Debt and Geo-Economic Tensions Present New Risks

welcome everybody to this bloomberg television and the World Economic Forum discussion in the round I love this format because it's going to allow us to cross talk and really have a great conversation we will open up the floor as well to questions so get your questions going and thinking and raise your hand later when I open up the floor to have a great discussion now the topic is very very difficult the global economic outlook we can talk just about anything but we put the question to the Twittersphere if you want to call it that much like Donald Trump does every morning at 3:00 a.m. the first thing he does is tweet so we're going to go to the tweet that we sent out to the world and about 2,000 respondents said what do you see as the major risk to the global economy now you can see the results and our panelists here are the experts who can probably pick up on this to my left is Helen Zhu of course she is black rocks MD and head of China fundamental equities Thank You Helen also we have Rintaro Tamaki deputy secretary-general of the OECD Zhang Hao thank you so much for joining us he is the deputy managing director of the International Monetary Fund and to my right we have professor Tyler Cowen professor of economics at George Mason University in Fairfax Virginia I believe all right ladies and gentlemen the response are very interesting geo-economic tensions the number one major risk to the global economy right now so that is more than double the next two respondent responses together rising debt burdens 30% that the topic will talk about in the Chinese economy and weak productivity growth 15% we can talk about some of the central bank policies as well targeted to that topic 9% others those are the people that didn't really have an opinion or thought climate change or said or policy overreach or perhaps even cyborgs taking over as our overlords and ruling our last dying days that's my fear and biggest risk alright let's put it to the panelists ladies and gentlemen as we begin this discussion in the round I live in a house with my wife my daughter and a female cat so it's always ladies first Ellen do thank you Steve and I have four daughters and so there's a lot of ladies in my house as well look I think the respondents had a really really good topic which is the geopolitical or geo-economic tension I absolutely agree that things like productivity and debt burdens are indeed threat to the global economy but you know these are not things that were built up overnight they were things that were built up over a number of years and does that make sense we may even see let's say artificial intelligence and other things technology advancement offset some of these concerns over the medium term so I do agree that's probably the biggest issue to consider is really the geo economic issues and that really brings us back to the unpredictable nature of some of these driving forces for example obviously what's happening in North Korea what's happening in the Middle East a lot of unexpected things have arisen over the past six to twelve months and even with that aside we still have all of trumps agenda in terms of protectionism and trade words globally which fortunately so far haven't really panned out to the extent that he had talked about during the election part of that is also related to the fact that perhaps he wants to build some bridges with China to help fix other geopolitical issues but I think this is really the one issue that's got the least visibility and the biggest risk of potentially spinning out of control within a relatively short period of time so I absolutely agree that's probably the biggest concern of the markets all right that's the second reference to Trump already in the first three minutes I'm going to keep a running total how many times we mentioned Trump it's going to be unavoidable I am afraid Tamaki's on your views on the poll results I think it is a mixture of feelings some series and a quite short-term imminent threat for example from North Korea Syria and as a political Thomas and others concerns more more structural long-term issues like Ana climate change disposition aging the the the fall effects mixed mixed feelings up to people and government has to address both sides once paying attention of imminent threat the current economic situation at this juncture it is better than before the years perhaps the best timing this period after the crisis but as we the issue before the government is how to address no structural issues are discrete direction you know imminent threat turn into long-term threat so if the policies are not yet enacted yes appropriately sung your views on the result geopolitical or geo economic risk to the global economy I mean your questions to you or probably can be more about the Chinese risks the debt pile which was I believe the second biggest answer and the global respondents how do you see the biggest risk in the global economy right thank you Steve the I saw from the surveys and I partially agree with it and yeah clearly you just named top three but the way I saw it first of all the the outlook we saw at this moment there is a increasing rooms for cautious optimist dick views for the global economy out look at this moment and but of course the they are risks the to begin with the risk in from my perspective is the the uncertainties associated associated with the inward-looking policies protectionism well that's part of it and up and of course the another one is here is mention is death burdens in my view is this part of the financial risks associated with for example there could be a more than expected rapid rising of the interest rate on so that's the the the basic pictures and of course the as the survey mentioned that there's a non economic factors geopolitical tensions and so forth so I think the in the sense that the some of the risk already cover there but there there might be really more broader for that but but most of them it seems to me that the these are some of them are short-term risk some of our medium-term risk then they need a different set of the policy makes to response we will collaborate more later on professor Cowan from your global perch in Virginia how do you see it first I don't think China is the main risk in essence people have been talking about that for too long and when you have so many years to prepare for a debt problem it tends to be manageable the truly bad crises come as big surprises number one I think by far is the risk of a cyberattack and the fact that none of you mentioned it makes me actually think it's a bigger risk the situation in the Persian Gulf with Qatar and the possibility of an extension of the Saudi Iran proxy war also the blockade of Qatar is something hardly anyone anticipated that means we don't have a good model of the situation when you don't have a good model of the situation the risk is probably quite high third the interaction between North Korea and President Trump the North Korean situation isn't new but to actually have Trump as president which I think on the domestic front actually will be okay even though he is erratic but in terms of foreign policy there are a few checks and balances we still don't know how to model his temperament people who know him don't quite know how to model his temperament when he is unconstrained and how that interacts with the situation when you have South Korea China Japan other parties all doing their bit to push and shove it in different directions those to me are the three main risks right now Trump three you could have called it in with Korea but either way okay well let's pick up on the cyber security and cyber threats first because we just had the second ransomware major one after one a cry which hit global markets spread to Asia yesterday ishwor prasad an economic peer yours of course from Cornell University in the Brookings Institution he we interviewed him on Bloomberg Television he said there is an underpriced threat right now from cyber terrorism if you will and it affects everyone China has just launched its new cybersecurity law June first you're taking steps as well how much of a threat to the markets and to the economy Ellen its cyber I mean certainly it could be incredibly disruptive and particularly depending on which area the cyberattacks target could have totally different impacts in terms of the markets for sure whether it actually affects the outlook of the global economy over the medium to longer term I think is another question mark but certainly the disruption in terms of near-term stability maybe you know bringing balls back up pretty significantly from a very very low level I think those types of impacts are quite likely should there be more of a cyber attack I think the key issue here is that people will have very little sense of how to deal with it how to contain it and whether it records again next time and in what format so I think those types of issues would certainly increase the risk premium across all asset classes and bring some short-term disruption to people's confidence regarding at least the cyclical aspect is not necessarily structural aspects over the medium term does the OECD look at the risk profile of the global economy as it relates to cyber crime do you drill into that yes say we are so much worried about it the intimacy in terms of punch markets we have of course on a traditional established markets like a stock exchange bond markets but are we are pushing adventurous financial risks outside our convention markets say many Asians company many institution visitors others are taking risk so we are quite concerned about the dysfunction dysfunctioning of those players outside traditional conventional market participants the new cybersecurity law some of the concerns when the international community is that it would be used to perhaps benefit domestic corporations and also maybe you know you have to store your servers onshore there a lot of concerns but also it shows that China can bolster and strengthen their defenses against this type of global attack yeah I think the the cyber securities is has been caught increasing attentions around the world including here in China I think these people had a very good reason to do that from our perspective died IMF it has serious implications of financial stability and also things like the effort of anti money laundering or counter of terrorist financing I've heard so I think the these are new but not brand new but has been like you said the people are trying to get the experiences try to make a best use of it what is the best to practice how to coordinate across the you know the borders these are the things I think is coming out at different forums and of course the all the member countries progress in different ways of the the national levels but I think the work more and more importantly I how the international community would address these issues at the multilateral level the so IMF is working on that the particularly our work is closely associated with the way work on a fin tag fintax the how to you know associated with the implication of the new technologies Brock change this type of things so I think the we're working on it and hopefully we can work together like I said with the multilateral efforts well FinTech is a fascinating subject in itself that is both disruptive and also provides great opportunity as well I think it was the Austin Consulting Group out with a report recently that said the average Chinese adult today has five financial accounts many of them being whether it's WeChat finance and financial from Alibaba or others I don't even have five financial accounts it's amazing what is happening but there's also a lot of risk associated with what summits that has been an under regulated which is not a bad thing some would argue as well an under regulated industry where you have ponzi schemes like a zoo ball bilking seven point six billion dollars from people how much of a risk and how much of an opportunity are we seeing right now in syntek the word Ponzi scheme and the word innovation they're actually remarkably close concepts so I see China as being in a highly innovative moment right now financially more innovative than the United States it's striking to me I can now go to a serious restaurant and say a second or third-tier city in China and they won't take my credit card not because they're backward but because they've leapfrogged me and in essence they want other more efficient payment media I do think wealth management products in China are too risky and something there will blow up I suspect it can be contained I think there's a resiliency and a kind of rigidity to the Chinese system where explosions get localized that a lot of outsiders don't understand but from the consumer FinTech side I don't think they'll be major problems here yeah as part of that Boston Consulting Group survey as well they found less than 1% of adults have credit cards here and that's something we've always seen as well how in the the equity markets in the financial markets are you seeing the impact and going forward since this is an Outlook discussion how do you see syntek lane well it's definitely an area phenomenal growth indeed it brings risk because of something new that people haven't necessarily experienced previously but I would guess that 99% of people are sitting in this room who have used WeChat payment or oli pay probably feel like it's really made their lives easier and it's made it much more convenient I think the way that we live today versus three to five years ago is evolving very rapidly in China mostly for the better of course there are risks associated but I think in premiere leaves inclusive growth speech that he made two days ago he made it very clear that China needs to be more open-minded on innovation and to accept that there will be risks and consequences that come with it and just react to it afterwards rather than to not nurture the innovation in the first place and I think you know one time I had a chat with a friend of mine in one of the regulators in China and I said well this has happened how come you guys haven't responded and he said look our organization only has twenty five thousand people I said twenty-five thousand that's a lot of people he said but we're working against the innovation of 1.3 billion people who are you know making up new business models and trying to do things differently every single day so of course we can only respond after these things have come out and have gotten bigger and then we react to see what should be allowed and what needs to be regulated better so I think regulators have to you know act it that way across the board and I think you know innovation and FinTech is definitely going to be a huge force making our lives for the better and hopefully we can contain the risks appropriately at the right juncture the monkeys on how much more innovative does the Japanese financial system need to be when I lived there in the mid 90s no offense but everyone called it Byzantine banking ATMs closed at 3 p.m. right and probably seven people handled the little trade he wanted to make a deposit or withdrawal going to the counter how far have we come in innovation in Japan of course the situation is not better than to be usable in taken seven siblings one is like a chicken-and-egg innovation creates in tech and the FinTech is more flexible more positive in supporting financially the innovation as compared to based on a conventional banking sector perhaps honor in terms of Japan imminent threat is in banking industry in insurance industry their business model is now becoming quickly obsolete and they have a huge presence in the economy and their little bonds is losing and they have to reshuffle the structure their banking structure valid visas on a quiet regulated industry so it is for the full of forcing future it is it would be a quite difficult time how time for banking industry and regulators how to adjust in tech while we're talking about banking and the potential for banking crisis if you go to New York you might hear a lot more talk about the risk in China's banking system and what we don't know that's off book or off balance sheet or at the municipal level and in the wealth management products what is how bad that potential underlying assets are from your purchase as the former PBOC official and now at the IMF how would you see the risk to the Chinese banking system right now well the I just made the the comments on what is the one of the year the main risks around the world is the financial risk certainly that's related to some of the the risks in the financial sectors everywhere this is include for example in Europe the balance sheet problems of the banks and some of the other emerging market as well but here yes we saw the increasing larger amount of the off-balance sheet activities in the Chinese the financial market and IMF just had the most recent apps app we call it the financial sector stability assessment which is the run every five years for major economies which is right now at the very late stage and soon will the report will be you know the discuss at the board and then published so as you pointed out that the there's the risk build up from there and there might be because of many reasons but I think this is in our view is that the in general this is something happens accumulative during the last five to ten years and partially related to the effort to overcome the global financial crisis and and also related to some of the issues with local government financing vehicles right so these are very much already well elaborated in not only the apps app and also included in our most recently concluded the article four consult Asians with our Chinese counterparts from years so from your view though is the deleveraging campaign that were in now does it run the risk of possibly overshooting and ruining the stability that has been created right now that is we have a sort of a lasting holding pattern on the recovery right now in the Chinese economy allowing authorities to push forward with their deleveraging campaign ahead of the Party Congress do you see that this could potentially be a drag on growth further those well I think the the deleveraging issues has been discussed in many places and we also pay close attention to that in general this deleveraging and you see there different types of the d-lab regions across different sectors of public sectors corporate sectors then overall people are trying to address these issues very carefully try to make a balance on one hand to really take off those the the credit which is wrong like you said the may be excessive credit in some of these sectors particularly in the corporate sectors and on the other hand they have to maintain to make sure there's adequate support to first restructuring process and also absolute support to the so some of the social sectors so it's a balancing game right and again we've all talked and heard about the bifurcation of the Chinese economy or there's probably even divided up more than just in two halves there's the new economy and the services which Luca Chong talked about accounting for more than 50 percent of GDP now but there's these old state-owned enterprises as well and there's over capacity issues in steel and coal and the zombie companies if you will what is the risk you said China is not the biggest global risk but there must be underlying risk if China does go on to a prolonged issue resolving the issues that are underlying just a Productivity risk for China even in the medium term much less the long-run and much of that comes from the state-owned enterprises think of China the country is actually a big burst of fiscal policy and most of all that goes through the SOE s and that makes the Chinese economy in some way remarkably robust but you keep on doing that you keep on doing that you invest forty eight percent or even fifty percent of GDP it's hard to get that right for so many years on end and when you're doing simpler things we need a road we need a bridge we need high-speed rail it's not that hard to get it right but you're now more and more at margins where the potential for decision quality DK is higher I'm not convinced how much China actually has to leverage so far I'm very familiar with all the claims that it's going on but things actually seem to be going too well to believe that there's been a lot of deleveraging so I would focus on that what's the actual timing of deleveraging when you look behind the rhetoric I think we don't know at least I don't know but I see that as key very well for China right now Moody's downgraded China's debt what impact China's kind of shrugged that off at all yeah I think that has very little with the deal over to do with a deleveraging process effectively China has very little external debt exposure so you know it's negative for sentiment but in reality it doesn't really hurt the economy in a meaningful way the way that it might hurt some other countries let's say within emerging markets that have a significant amount of reliance on external debt but I think the deleveraging process just as we just talked about really hasn't really begun in a meaningful way the definition would really be that credit growth is slower the nominal GDP growth we probably got close to that and the first quarter of this year because nominal GDP growth was in the low teens and credit growth was probably a similar number but I don't think the policymakers have come out and said they need to achieve deleveraging this year for the economy as a whole the objective is really to take out some of the financial sector risks in the near term and then focus on corporate deleveraging over the medium-term just corporate deleveraging that means the government and households which still have relatively low leverage could still lever up and indeed some of these fiscal reforms shifted some of the corporate debt burden over to the public sector over time for example but if we're looking at the outlook I mean the underlying issues is reform we must push forward with the underlying structural problems in the Chinese economy and we can use the municipal the local governments as one example of corporates is another but the local municipalities have a huge restructuring issue for raising finances and and not being able to sell bonds directly and going to the LG Fe the local government financing vehicles and we don't know the extent how much of a risk is a crisis at the municipal level yes okay I'm looking at you okay the I think you touch upon the yeah very crucial areas here certainly the accelerations of the reforms is very much needed here which we believe by the IMF that will be very much useful and helpful to sustain the economies in the more appropriate levels of the other groves but looking at the different areas different levels municipalities and so forth so these are the areas people are working on it for quite a bit time period and I the for example the there has been the the reforms going on between the central local fiscal relationship try to address this these problems they you can go on on in any dimension sure the in terms of the how to set up the debt limit how to finance the municipalities what exactly exactly so these are the things going on for a while and it seems like the it's working to some extent so we have a risk though of a local municipality defaulting we're having rising default in the corporate side which it seems as though the government is allowing that but is there a risk of the fault that the municipal level or is that just out of the question I think we are average or in in overall ways I don't think that that's a case but you have to look at issues case-by-case and given the locations by different okay there be different the situation out one economy here exactly yeah it's a default not always so well defined in these situations I think that's a key point how do you mean the law is not clear on financial matters in the way it would be in the United States where you have a lot of experience with municipal and other defaults and anything that might be a default you can call not a default and actually be within it in order the can down the road or swept under the rug something whatever you need to do gram something down someone throw and all of a sudden it's not a default yeah build another business park or a bridge or stadium though that is not having any cash flow and they can't service the debt I've seen it all across China these projects that are not gaining any way to service their debt are we am I seeing something different well well I think you know this issue was actually discussed by the regulators a couple of years ago in effect the LGS fees were set up with relatively unsustainable structures whereby you have a potentially a social project that was in a corporate entity that didn't necessarily have legal relationship to the local government and so on and so forth but since then a very sweeping local government financing and fiscal reform has already happened and we've been doing significant work in terms of seeing the government do local government debt swaps swapping from the LG FE format into the bond issuances that we have seen so we're talking about trillions per year of debt swap with new structures that are more sustainable with setter matching of duration with a project separating the projects that have cash flows and the projects that would never have cash flows and linking the projects that never have cash flows with other sources of Crisco income doing multi year fiscal budgeting to ensure that there is some way of sir the interest payments as well as the principal so I think the way that the government has handled this whole local government debt refinancing is potentially the brief blueprint for other types of reforms within the financial sector where you address the flow first to make sure the incremental isn't low quality and unsustainable and then gradually start to digest and swap or alter the stocks to defuse the risk further so I think we'll continue to see that model use two similar effective outcomes then how transformative will the new bond connect be on the Chinese economy as far as attracting foreign investment foreign inflows into the bond market here in China which is what about ten trillion dollars the third-largest in the world it's surpassed the UK Japan's the next one the United States do you see that attraction of foreign investment and foreign money into the bond market helping take a little bit of the pressure off an economy that is so over leveraged I think the bond connect has to be considered in a structural manner or not just as a short-term cyclical impact it's definitely a very momentous step forward and I think it's something that China needs to do sooner or later in terms of financial sector and capital account opening reforms that said even though we do believe that the stock connect the bond connect will be announced fairly imminently we don't think that the amount of inflows in the very beginning are going to be substantial in terms of having meaningful impact on the overall economy and environment in China and that comes from a number of factors like for example the fact that a lot of people globally still feel that women B will depreciate and therefore even though you get slightly higher yields in China maybe it's offset by the FX risks that people perceive it also comes from structural factors like people feel like maybe the rating agencies aren't has fully developed or maybe there isn't a proper debt pricing you know developed or inaction in the Chinese domestic corporate bond market and therefore people feel like if we don't really know whether you're getting paid for the risks and they don't necessarily want to participate but I think all of these things will be resolved over time with more structural reform and more announcement of the systems so I think over the medium to longer term the debt market opening up will have tremendous implications but it doesn't necessarily mean that it all happens together on day one since we're talking about the outlook I mean obviously the ratings agencies have come into question here whereas a corporate issuance by one ratings agency might be down here but another one might give it a triple-a rating and transparency is an issue is it not for the development of the Chinese corporate bond market interacting foreigners I would step back and make a larger point there's a lot of countries when you look at the ratio of debt to income or GDP de pere is unsustainable but I think that's the wrong comparison if you look at the ratio of debt to national wealth which is typically six to eight times higher than GDP then pretty much always including for Japan that number is entirely manageable so I would ask the political economy question is this nation capable of somehow mobilizing its wealth to address its debt problems for China and Japan I think the answer ultimately is yes so you may see messiness but a crisis where things collapse and implode I think for that reason now you look at Greece which in some ways their debt numbers are just like China's but Greece cannot take the wealth it has and in some way pull it out and use it to pay off its debts and perhaps neither can Italy but that's the way to think about these it's not just the flows but converting the stock into the flow but why couldn't Japan do that the in Thomaston macroeconomic sustainability she maybe wraps the professor maybe right the Japan accumulated wealth as compared to the accumulated debt so it is manageable the issue is more intergenerational it's a quite substantial part of our expenditures are held by aged people in and in the future younger generation has to pay back such kind of accumulated debt particularly that this is an issue of intergenerational distribution of button but someone inherits the Securities right so you inherit the if you're the younger generation you inherit those liabilities but you also inherit the address but as the situation is it's a such kind of extremely a society inheritance happen from ninety five years old to sixty five years old never coming around to working age so he doesn't solve the problem the behind the Year accumulated debt in local means pipe in China we should see the distribution of taxes in between central government and local governments local disparities particular has no stable revenue sources to find out their their needs so perhaps an assay after successful reform of v80 in China local tax reform is an quite urgent how key is the consumer in China BCG again Boston Consulting Group out with the report saying the consumption boom will add about 1.8 trillion dollars to the economy by 2021 one of the problems in Japan has been the household savings they keep it under the kotatsu they're not spending they're worried about their future there's no social safety net but China is trying to get people to unlock their closet and bring out their money yeah well you see the there's a continuous progress in terms of moving towards domestic demand including the consumptions but we have to realize that the the consumption behaviors related to many other issues policies regulatory and also cultural the the Asians societies things but what I what I see this the way is the very much related related to how to make sure you can make the the increases of consumptions on the sustainable basis which is the dvd issues and that's related to which we just talk about it the demographic changes the Asians particularly East Asia's the the societies become agent rapidly and and and and more importantly they become ageing as a whole before the getting rich okay so you have people have a numbers on it and that's certainly you highlight the issues how to build up the the public the fiscal of buffers to support you know the next generation things the including these consumption issues professor Cohen how big an issue is this is longer-term I've been talking short term the next couple years but demographics with the aging population in Japan the aging population in China and elsewhere where people putting off having babies or career-minded how big an issue is this as we start losing twenty thirty years down the road from now people of working age maybe it's become a little overrated as a problem especially for China if you think here how early so many people retire there's a lot more effective labor force participation you could get just by fixing how retirement is done and then if you ask well people in rural areas who could move to urbanized areas and be much more productive how much more of that is left in the system in China again hard to say but I think actually quite a bit over some time so labor force effectiveness I think in China will be much better than just the age numbers or the TFR numbers look Japan is so much different they've already had significant gains in getting women to work more they're now ahead of the united states in this regard which is great for them but the problem with success is that it can be harder to have a bit more success but physically Japan seems to be sustainable they have a low rate of price inflation they can monetize when they need to what's even government dad is here a coupon bond or money in the Japanese system can be blood earn as much as they need to do and you know per capita their productivity is okay maybe not spectacular and they can kind of glide into a lower population low everything in terms of rates but pretty good lives would be my best sense of Japan that is that kind of achievements coziness is a concern social concern the status quo is the people has two mixed feelings one is they appreciate the current current quality of life status quo so they want to maintain the lifestyle business model everything but on the other hand say they are looking at the risks in the future are aging and a globalization distillation decolonization everything has to start now to address those structural issues so it's a mixed feelings in Japan say this sales ability is not necessarily good world for Japan right because we've had these years of a dynamics and where are we now and the governor Kuroda will be stepping down do we get a whole new approach we've had zero interest rates that AB anomic we're nowhere close to the inflation target then we have perhaps and we have overcome the fridge did they feel a big deflation is some assail achievements but I'll say this the issue is making use of this opportunity the the government and the society has to step up our efforts to address the few issues how about the United States economy we'll talk about that briefly before I open it up to the floor for questions reef Lading the Trump bump there's number five for Trump seems to be petering out a little bit I know the IMF was out recently with a not a downgrade of the United States but a down our lower outlook for growth basically taking out the prospect for stimulus meaning tax cuts because we haven't gotten really a plan yet and also infrastructure stimulus is and then at the same time we're on a tightening cycle at the Fed where what you outlook for the US economy and as it relates to what the Fed might do because unemployment is it gives you the argument that perhaps they will go tighter on tightening write more cuts more hikes or against sluggish inflation picture one of my heresies is I think that what the Fed does now doesn't matter very much if you think about the White House I think Trump is a domestic president is highly ineffective and on any policy foreign or domestic there are three or four different points of view which are the administration policy and they simply coexist and flow together and this already is sapping consumer confidence just as our allies are worried people are postponing investment decisions because they realize we have a government with three or four different views in it which never seemed to get resolved and probably most things won't get done now that's not the end of the world American business in some ways is still pretty spectacular but I see confidence there being an uncertainty increasing and a slow dribbling away of the advantages we had from the recovery and I think they'll be from slowing the Fed will be moderate and maybe I'm slightly pessimistic biggest problem is long around productivity our best companies are tremendous but there's too many companies in America that are seeing zero productivity growth your daily blog is the marginal revolution right your latest book I'm going to plug you here average is over powering America beyond the age of great stack complete their no.12 if thou yes all right what's that one about how Americans don't take enough risk right now really yes because you also said the kind of the summation of that last book is if you're not at the top in the United States you're at the bottom we are losing a middle class this is true of many countries the problem of not taking enough risk is common with Japan as was said before it's not a problem here in China you know if you do not take risk risk will come and get you and that's stressful but it's also very useful but I think most of Western Europe Japan and much of the United States have this problem of complacency and just getting by and life is good enough that on any given day you can do not very much and in the short run it's fine in the long run it's very worrying you actually increase your aggregate risk that's my worry about Japan - yeah very you you called mr. Abe a brave you called mr. Kuroda brave or at least brave policies when you and I talked in February of last year but do they need to take more risk he variable omics of an administration and government crota to connect write a brave action to overcome different different to diss against deflation and they are achieved partial some partial success and the we are staying afloat in such an app not so bad not so good situation but the my police to step up their brevity present braveness to reform to advance the reform to prepare the future of Japanese siding and to increased on productivity increased as a health service and as a father aging society to change the structure of the society is an equation so an imminent issue but the current situation is too cozy for everyone right I want to open up the fourth question so let's get the microphones going around while we're getting the microphones here right in front if you have a question and please everybody keep the questions to one short question we're on television very fast and what's your opinion on the banking industry in Europe and about the European outlook we've not spoke about Europe so I like to listen about that yeah my fault there the ECB of course we had Mario Draghi as saying he sees room to pare back stimulus Europe seems to be on the path of recovery despite all the noise that we seem to dominate in the media about brexit and the like and of course the bubbling potential troubles again in southern Europe and the banking system but Europe anyone want to tackle that one you know in my view they'll never be truly effective banking Union in the European Union the differential treatments of the bailouts in Spain and Italy shows this quite markedly it will end up is every nation on its own with aid at the edges to smooth over smooth over the biggest bumps I think that's okay actually you know the Germans and other northern European countries they understand that banking union is indirectly fiscal Union and they have to bail out those other governments through their banks the bank the government fiscally it's ultimately the same thing so the mess that we know is the European Union life there is still good but I think it can continue for a long time in a kind of low growth stability and I think that's what we're seeing voters will always be unhappy but there's not really any other other place for them to go yes my question is on productivity growth or the lack of it despite all the new technologies digital AI and all of that we yesterday heard from Professor Cohen for example about the decline in productivity in some countries are less than 1% in most countries except China I think so why has this not flown true and would we see somewhere this flowing true in the next xes what's your view so let's take ok I think that's accident questions we we see technology advances at the same time we see the productivity growth is declining and there must be a reasons and people are actually struggling to find out the visas the way I saw it there could be one is the agent because there are some studies saying that when people reached a certain age of the limit and productivity innovations is coming down but that can be debatable but the that's one of the using but but another reason is the declining of the trade the the ratio of the trade growth to GDP growth is about half since the financial crisis so with the trade going down the innovation is coming you know the also will not contributed too much to the productivity growth so the the main things to me is we have to maintain the the openness to in order to you know promote the trade so back to the year the theme of this the the summer summer summer Davos then innovation is the seems we have to push forward to promote innovations so that the openness the trade can be real immigrated that's the key to maintain the year to bring back the product instead of innovation in isolation action ISM and those sentiments border taxes what does that do to the root of his question another aspect of productivity is divergence between a limited number of high productivity company leading companies and the rest so the issue is one of the issue is diffusion diffusion when you took technology to ever compare other part of the society you are discussing the average productivity sluggish sluggish but the reality is small number of high-end and large number of low-end so how to integrate this divergence is a difficult issue but I say this is really clearly challenge for the policy makers or question back here sorry those behind me I can't see you you'll be like you have discussed the perspectives for Japan China US Europe let me ask you what do you think about perspective and role in the global economy was another that one my wife was born and grew up in Moscow so I hear about this everyday and what I hear is so unremittingly negative I feel I'm not objective it seems to me Russia has incredible human talent and potential but there's some political problem there which seems to be perpetual and that Russia politically has some of the worst aspects of kind of 17th century Asian corrupt clan systems and it still hasn't gotten out of them so until that happens I suppose I'm pessimistic but again I'm really not objective my father-in-law he lives with us he listens to Russian radio half the day and then he comes and he talks to me about it there ought to be a better way to use all that human talent the fact that it hasn't happened yet we have to somehow take seriously and again the news media and the time a part of tends to again recycle the issues between the allegations between Trump and the Russians and it becomes a self-perpetuating noise cycle in some ways but for my understanding I'm not an expert on the Russian economy but the Russian economy seems to be picking up a little bit but there is the threat though of more sanctions coming from the US Senate I believe so I hope we discussed a little bit of Russia back here this gentleman let's fast-forward to 2030 do you think the quality of life of more people would be better or worse and if it will be better what do you think those factors would be because from what I'm hearing political leadership innovation and all the climate just points to a very iffy economic outlook at present so how what does the future look like 2030 anybody wanted look into the crystal ball 2030 that's a long time for China you know the obviously I believe and I'm confident by 2030 the life will be better right now there's a good reason for that first of all the we talk about productivity but the I'm sure is where when the policy is was more policy put into place then that productivity will come back and I believe the the either the policymakers or private sectors which is entertained by the strong entrepreneurship which these days were talking about that will all support the the make the economy grow further and more importantly these days people after the the the the financial crisis and particularly during the last couple of years people realize that we have to make sure the goals can benefit for large and larger portion of the populations so that the piie population can gain the wider based support to moving forward in terms of the particularly the openness so I think if as well as we put out all of these efforts in in one directions and make it the effort more in a more coordinated way we will be successful to reach that which means we have a better life in the futures but I think you know the one point that I wanted to add is that whether life is better in 2030 kind of depends on what we do from now until let's say 2020 to 2025 if we choose the easier path which is no reforms but we kind of keep the status quo and keep kicking the can down the road I think that means potentially by 2030 life won't be as good as it is today if we're willing to actually take some risk and implement a lot of the changes that have been talked about on this panel whether it's in terms of pension reforms in China and hukou reforms or in Europe a lot of the very difficult challenges that haven't yet been addressed or pushed through in a number of peripheral countries if we can address these in a very decisive manner in the next three to five years we have a very bright outlook for 2030 do things look good in South Asia we fairly mentioned that Pakistan also it's a lot of people so be optimistic well that's what I wanted to get a pulse here we have four people on the panel here do we have more optimists or pessimists here do we have more of a chance to have another global financial crisis by 2030 or will the protectionist walls be somehow chipped away and we'll have a more integrated global economy in 2030 course I'm on more optimistic sight oh come on no I mean you have a beaut yeah I mean we have past experiences in four years we are human beings we have enough or you know with them to overcome the challenges yes I really have a lot of challenges those risk we're talking about but we will you know get through just speaking of this you know the industrial revolutions we have 4.0 all the way through 1.0 2.0 until now each and every times people get scared and each a number times we we went through all the way coming out to hear a lot of crisis when your financial system become much more complicated yes we have a problem but people in public they're dissatisfied some of them are we thought in the United States you talked about the erosion of the middle class we saw the people in the middle England they voted brexit there is protectionist sentiment in the parts of Europe as well marine lepen or was almost elected there is populism on the move on the March how do we conquer that if that's what we truly want in this society isn't glow I would assume this audience are global globalization advocates so how do we overcome the protectionist sentiments and getting those who feel left behind onto the gravy train very short very short you have to show people the globalization's can work so that's that's how that's why we are focus on and I believe they will know discussing globalization is good or bad the question for before the policymakers and how we can make globalization work for all so we have many many issues to make globalization work for all and I say in that sense we proceed makers of an instinct all and some duty we have to make we are optimistic to see the future work because some say we are working to make an award of six to the bright I've been told we have one minute quick question okay I also know carries my name pick question to the issue of the middle class and those that are left middle class disappearing and those that are left behind it supposing we change the mindset a bit because what we have now is Dean capitalism that is seems to be to be built on stream greed what if we change it a billionaire is someone to touch a billion lives than has a billion dollars in assets thereby what we are measuring is impact rather than accumulation to keep would that work in this new dispensation in an encouraging philanthropy or we also learn to be but really at investment in social that there are social in nature but still portable Elon Musk things here things like that what we hear it from Jack Ma we hear it from others who are trying to promote this type of investment and when you have any views on this or look I think policymakers globally are trying to push for these types of further endeavors I think that if you look back to the last ten years we've had a very tumultuous period in the global economy sometimes when the pie is not necessarily getting bigger people fight over the pie and it becomes harder and some people end up getting a bigger slice and some people end up getting a smaller slice what we're seeing now is fingers crossed the first more synchronized global cyclical recovery period in basically since 2010 and under that scenario since everything's very much interlinked if we continue to see good momentum and pragmatic approaches to managing economies and not making irrational decisions towards you know non-inclusive types of growth then I do think we can keep this virtuous feedback loop going and over the coming years keep making the pie bigger and once the pie becomes bigger it becomes easier to share with everybody involved versus the kind of situation we've had to deal with in the past ladies and gentlemen I hope we tackled the global economic outlook it's a big topic one word from each of you optimist test miss optimistic optimism optimistic of course optimism I'm a pessimist I'm a journalist thank you very much everyone [Applause]

Channel: World Economic Forum

Views: 16,645

Rating: 4.4285712 out of 5

Keywords: world economic forum, WEF, Davos, China (Country), Dalian, rising debt, debt, economic recovery, recession, economy

Id: iRX3IpoSk7g

Length: 59min 0sec (3540 seconds)

Published: Thu Jun 29 2017