tv Politics and Public Policy Today CSPAN January 15, 2016 11:00am-1:01pm EST
those cargos for inspection. make it mandatory. those who don't, they would face sanctions from the united states. because i don't think we can afford to have the north koreans trading in nuclear materials, not only nuclear weapons but nuclear materials themselves. because there are groups out there who are desperate to get hands on a nuclear device or nuclear materials and explode it in an american city. i know that's what the secretary has been worried about, has written about. he writes about it in a factual way. i write about it in fiction. we are both concerned that is something that would be a terrible, terrible thing in the world no matter where it take place. that a nuclear bomb has exploded in an urban area causing hundreds of thousands of deaths. it's something we need to take action. >> secretary hagel?
>> a couple things. i think my three predecessors covered most of the issues. but it was just a few days after i took office in february 2013 that the north koreaans launched long-range missiles over the top of japan and other countries in the pacific. that obviously precipitated some new attention. and that within days had me out at a press conference announcing that we were going to build out another eight ground based interceptors in alaska down the coast. now, that alone was not going to deal with the problem. but i say that because just a reminder that wasn't very long ago. and then with the latest
incident that bill perry mentioned we all know is another reminder. but just a couple other points i would make. the point about the chinese. i've always believed there will be openly very little progress made on north korea without the chinese. it won't be because the chinese are supporting our policies or any benevolent reason, but it will be in their self interest. it is very clear, as harold pointed out, that when you look at the chinese situation, the last thing they need is millions and millions of north koreans fleeing across that border. more to the point the south koreans are hair triggered on this. and as joe and sam and others in this audience who know who have been to korea and had responsibilities, working with
the south koreans on this to keep them from doing something here that you can't recalibrate or it's too late, if it starts something, it is a big deal. the third part of this i think, and just another point, i heard from third-party sources, credible sources in asia-pacific when i was there and when i have been here in the united states and from various chinese off the record, this north korean problem continues to perpetuate american military presence in the region even more and more. and we keep using it, the united states, as an excuse to keep more of our military, to protect our allies and our alliances and our treaty obligations with japan and south korea. so the interesting part of that is it's -- if they say that, if
the chinese believe that or some of them, why wouldn't that incentivize them to some extent, plus their own self interest to try to resolve some of this? i think it is going to be a continued manage this process. but i do think we will get a break through. it's for the reasons i think again my three predecessors noted working internationally with six-party talks or another forum, working with the chinese as close as he can. i think what the japanese are doing as they are changing some of their constitutional responsibilities for national security, the south koreans tprb very good as the economy is built out in the asian pacific. more and more awareness and more and more interests here are becoming more and more acute for every country in that area. and it's going to take all of them. >> let's move from an incredibly frustrating subject, north
korea, to one where there has been extraordinary progress since the days of harold brown, which is taiwan where we have seen kind of peace across the straits and away and kind of social and economic integration without political integration in a way that probably when you establish diplomatic realizes was not easy to predict. yet we still have the obama administration recently notified a $1.83 billion arms sale to taiwan. so how does this issue from the perspectives of your service play out? does it just -- we maintain the status quo of continued arm sales, continued chinese objections, continued distrust created by this, or is there something else that can be done?
nobody wants that. >> it falls in the realm of trying to diminish the strategic discrust that existed between china and the united states. just focus on taiwan and say, well, we have elections now to change the scenario in taiwan that maybe more pro inspect than currently has been for the last six, eight years. i think that the strategic distrust overrides it. it was not an issue frankly for me during the time i was there. because we were building better relations, getting closer economically. we were starting to talk militarily. so it wasn't a major issue. and i was able to deal with this as i'm sure secretary hagel and secretary curry has done over the years to say, yeah, this is how relations look like. we recognize one china.
and shanghai. but we are committed to providing defensive commitment to make sure that when there is a unification, if it's to take place, it take place peacefully and not through the force of arms. well, that has been our policy. can we maintain that for the next 20 or 30 years? probably doubtful. can we find a way to reduce the amount of distrust that continues to exist between the united states and china? that's the challenge. and so i think that there has been great progress made actually in the last eight years in terms of establishing across state flights. hundreds of colonies working together in the main land. that has been seen as a nonissue in terms of the kind of intensity that is now going to surface. it goes back to distrust of the goals of the united states.
these most recent sales are not such a significant that the chinese should find them threatening in any major way. so i think part of it is not rhetorical but verbalizing their objection to this relationship which we will have to continue. and second point on this or the third point on this is that other allies are watching how the united states handles this. because if we had a commitment to taiwan and failed to take measures that will reinforce, then other cups will start to doubt those treaty obligations as well and that wouldn't bode well. >> i take it that these transfers, given that admittedly they are part of a congressional mandate. but from a u.s. point of view, they are a signal to the prc
that they can't count on us on the u.s. being passive if there's an attempt which might well be successful. of the prc to take over taiwan by force. in other words, these transfers don't really affect -- would not really affect the outcome of such an attempt. but they signal that the chinese can't be sure that that would not be a major and perhaps a conflict-provoking reaction from the united states. so it's a signal. >> bill, anything you want to add on that since you had ordered the aircraft carrier? >> when i was secretary, i ordered aircraft carriers to
taiwan. i think at the time that was the right thing to do. but not that i was very happy about. ive spent meetings with china and taiwan, trying to see if we could find a way to do something like that. the best i could come up with i could think of no way of trying to deal with the fundamental disagreement about ownership. the best i could come up with is a way to try to reduce the likelihood that that disagreement would lead to some kind of military conflict. social interface, travel interface between taiwan and the mainland.
as secretary cohen mentioned, the big breakthrough i think is when they opened up it up to air travel between taiwan and china. that was a difficult agreement for the two governments to make. they didn't make it. now thousands and thousands of people every day traveling between taiwan and china. the industrial connection between the two is very great and has been deepened quite a lot. what a has happened conscious kwepbt if you think back to the days of the cold war when the united states and the union had mutually assured destruction as a way of deterring ashen, i would say taiwan and china have mutual assured economic destruction. because if anything happens in a military conflict between those
two now, what would be destroyed is billions and billions of dollars of economic values. each month actually. so it's a very huge deterrent. >> secretary brown is correct that the sales are symbolic, and secretary hagen -- and secretary cohen is correct that it is a -- one of the seeds of strategic mistrust, is the current u.s. policy of supporting the status quo the right one, or should we be more actively advocating for a peaceful resolution? i'm not saying peaceful reunification. but a peaceful resolution where you would have a gradual reduction of these kind of arm
sales which some are now advocate something. >> well, i think, steve, the current administration's policy is the correct one. and i say that because i think in this situation, not unlike most of these kind of geo-political dynamics. because this is different. everyone knows the history here. these things have to evolve on their own, their own way, their own time with the right environment. and i said something earlier about another part of the world. we being the most powerful nation on earth with many responsibilities with our allies. it doesn't mean we dictate, we impose. but we lead. and we need to help everyone manage through this.
without some conflict occurring through some miscalculation, through some pushing orac accelerating of a dimension that the old architect used to say if it didn't fit, don't force it. you get into a lot of trouble in all affairs of life when you try to force things. and this is one of those. and i think it has to evolve. i think what bill perry said was exactly right. it's imperfect. it's still dangerous. and i am hopeful that if there is a new government, i think that election is coming the end of this week, that the new government doesn't start to unwind some of the progress that i believe is the right progress toward the right kind of an agreement that gets china and taiwan to where they need to be also for that region, for that
part of the world. and also it doesn't, as bill cohen pointed out, it doesn't put the united states in a position where then we have to make a tough decision on whether we're going to support obligations or not. >> maybe because i'm the internal optimist and i got my start on this when president nixon went to china. i always think a dpp election gives them a chance to compromise more because their flank is protected. that is one for the secretary's estate, i think. >> fortune tellers. >> obviously secretary brown, when you were there it was virtually nonexistent. how can you have -- apple is
about to come out with their earnings. my guess is they will have sold $17 billion, $18 billion of product in china, a u.s. company selling that amount. and that kind of talks about how deeply the two are tied. it has had an enormous effect here. how did it effect your thinking when you were secretary, each of you when you were secretary. and how do you think it affects policies today in going forward? >> when i was secretary, it almost made no effect, as you said. of course a lot of that apple
sales consist of pieces made in the u.s., actually. not the bulk of the mass of the product but the value of the product. a large portion, probably most of it, is made outside china. trade with the u.s. is a very large part. trade between france and germany was massive. so by itself it does not ensure peace. it sure would make war more disruptive. and in that sense, it may act as
partial deterrent. >> as part of my tenure, i call upon the administration frequently. i would point out our ambassadors were the business community. that every business that was investing in china and the chinese investing in the united states, they become ambassadors of goodwill, they have something at stake. jobs are a at stake there and here. so the business community in the united states is investing in china. and i serve on u.s. china business council board. these are issues that we, barbara, and others state will discuss on a regular basis. how do we continue to promote better relations? most americans are concerned about what is happening or what island is being artificially constructed in the south china
sea. they are worried about their jobs. so we fend upon the business community to say be our ambassadors of goodwill. forage these links together. as harold browning secretary brown has said, it doesn't mean you're going to always establish peace through economic prosperity, but you have a better chance of maintaining it than if there were no such strands of economic intersection. so i think the economic issue is the butterfly effect. you saw what happens when there is a little bit of bad news, disruption in the chinese stock market. a pretty big one. and it has an effect locally. all the markets effect it. this is the consequence of globalization. we are all inter connected. and what happens in a remote place in a remote town may seem insignificant, but it has major consequences, all the more reason why we have to look at trade, investment, as hopeful
live a stabilizing voice in this relationship. >> it seems it would be interesting to find out what chinese businessmen do in the way of telling their government how important it is to have peaceful relations between the u.s. and china at some of these track 2 meetings. does that come up? >> it depends on the anti-corruption list,ive suppose. >> secretary hagel and bill perry, is there a negative side to this? there are allegations that i see that u.s. technology companies are selling out the united states in terms of our defense readiness. >> i come at these things, steve. and i always try to no matter what job i am in, with as wide a
scope based on as wide a frame of reference as i can and then narrow it down. and i say that in answer to your questions because there are violations of violations everywhere. and that's not new. people take advantage of technology, use technology for the wrong reasons. is there some risk of high technology companies to doing business in areas of totalitarian dictatorships? yes. but i also believe that you have to keep in that wide scope of how you judge these things, that either a president or secretary has to make. it's not theory. and i think this was the iranian negotiation, the overall point. is any of this perfect?
is any situation perfect? no, not that i have ever seen one. but in moving in the right direction is it overall moving the world, economic development in the right direction. we're not going to unwind what we have started. what's been unleashed out there, an interconnected economic world is not going to be unwound or unleashed. we are all now 7 billion global citizens living in a global community underpinned by a global community. we're not going to stop that. the last point i would make, isn't it interesting, at least it is to me, that the very dimensions and dynamics that the united states and the west has pushed since world war ii, economic prosperity and opportunity for all, democratic reform, respect for human rights, dignity. and those don't always come together. china is, in my opinion, a good example of that.
but isn't it interesting that as you are seeing this world build out, the world that we, the united states, have always pushed for, more trade, more development, more opportunities for us and for our trade partners and for people in the world if it's not a guarantee of in stability. but it is a platform of stability. the more interconnected we are. we now get to a point where there is some debate in our american politics. i know that is not the subject here. but it is part of the environment that we all live in. is trying to push that back saying that that's bad. of course china is going to build their economy and continue to prosper and do the things that they think are in their interest. so i think overall you've got to look out for the longer term future. is it in our interest. i think trade very much is.
bill cohen said it. i was. believed it. i think it's pretty clear the more you have engaged commercially. business is as good an pwapls door as we have in the world. >> bill perry, anything to add briefly on this? i have short-answer questions to ask of our panel. >> on the specific question you asked i was going to save myself to the answer chuck gave. slightly broader question, though, is i am concerned that the chinese view the south china sea very different. we view it as international waters that we need to feed the waters as part of our global trade efforts. the chinese have a more proprietary interest in the
south china sea. and i think that sets the stage really for major disagreements which if we're not careful, could lead to some kind of a conflict. it could lead to problems with china, which we need to work hard to try to avoid. it seems to me that is more of the focus of potential security problem today than taiwan is and used to be 10 years ago. >> i want to get -- we have three, four stars here. former ambassadors, former secretaries of commerce and u.s. tr here. i will open it to the audience. let me ask very short questions first. should we be training young plas? forgetting congressional restrictions. this is a policy question. this is a policy question. i know you in washington don't
like policy questions. but we want to -- should we be training young pla officers at west point and other military institutions? >> yes. >> yes. >> yes. >> bill? >> yes. . >> good. did you worry? american command and control are very sophisticated systems. would you worry today about the command and control systems in china where we have incidents that jay skwreupbg was not aware of and couldn't control? >> yes. >> yes. >> yes. >> bill? >> yes. >> this is double jeopardy. >> what's the prize? >> you just won a free trip to
beijing. >> you think the greatest threat to security in the pacific is climate change? >> no, short-term. yes, long-term without defining long-term. >> i agree with the secretary. >> well, both have given political answers, so i will. the only thing i would say is the reason i agree with what brown has said is because i think it is a threat. i wouldn't rate it as the most immediate threat. but it is clearly a threat. >> and security. >> that's what i mean, a security threat. >> bill perry? >> climate change and the ska
taft any that could occur from a climate change and one from a nuclear exchange are both existential. therefore we have direct and immediate attention on what to do now to avoid them from coming. existential threat 10, 20, 30 years from now. >> this one just for secretary hagel. chinese announced the construction of a second aircraft carrier. the first one they have ever constructed. the last one they bought. which you said from ukraine. what are the implications, and should we be worried? >> i would say we should be worried. i don't think, at least i'm not surprised, they would make that decision. i think an aircraft airier not only strategically tactically
for them is important, but i think the symbolism is particularly important for them. i was told incidentally when i was there and when i visited, that aircraft carrier, retrofitted aircraft carrier, which is not much of an aircraft carrier when you look at today's standards and maybe our brothers and sisters here will know a lot more about it than i do. but the reality is that the as the chinese reminded me, the weapons systems they have, the technology they have, to attack aircraft carriers is rather significant. and i don't think any of them said to me they're outdated. but i received a pretty clear implication that they are more vulnerable aircraft carriers than they have ever been.
so my opinion is i don't think the chinese see this as any particularly new tactical strategic weapon that's going to give them any more significant dimension to their defense capabilities. but i think it is important for other reasons as well. and those are symbolic reasons. >> i would go a little further and say it is probably good for us, for the, if they want to spend their money on that. >> the aircraft carrier has always been important from the united states's perspective as a sign of our commitment to the security of other countries. it's been one in which we have always said basically they want to feel us but not see us on their territory. we would be over the horizon as a presence, which was reassuring. if the chinese developed
aircraft carriers, it will be a different reason. it will be so they can feel them as well as see them. it will be an important part within the south china sea, east china sea, et cetera. but i think it would be a very different purpose than ours. ours has been forced projection over the presence reassuring allies we were with them. >> let me open the floor to questions. we still have a few more minutes. the lights are bright enough. all right. are you media? right here. okay. yeah, the chinese woman right here. oh, she's not chinese. >> my name is hey tkpwar. i'm the president of the sill laud institute. there are many experts internationally who are saying
that we are closer to nuclear war than at the height of the cold war due to ava right of reasons. now, if that would happen by accident or otherwise, it would lead to the elimination of mankind. that many other destabilizing factors. one said we are in front of the perfect political storm because of the of the new financial quest. the eu is about to detonate over the refugee crisis. we have isis. >> what is your question. >> so my question is, why can you not make a new dire dime where we answer to the president's office he made to president obama at the apex meeting in 2014 that the united states should cooperate in a win-win strategy with the new court? and in his new year's address he said again we must bid a community of the common destiny of mankind.
why can we not bid international security architecture based on common economic cooperation? >> i think to some extent we have. i think things would be much worse if there weren't economic cooperation. but to say that you're in favor of peace and cooperation is a question -- is just the very first step. the mechanics and the details are everything. >> can i just add one quick comment? because i want the secretary perry to talk about this. i think we have become too lax in our concern about nuclear weapons. i go back to churchill who said may we one day return to the stone age on the gleaming winds of science. i think that we are seeing is a
proliferation of nuclear weapons. pakistan is building more and more. north korea is building more. iran certainly may be building more at some point in the not too distant future, whether it's 10 or 15 years. i think this existential threats that to cause us, as well as climate change, cause us to really think or rethink about how we are going to survive on this planet. because i believe the threat of the spread of nuclear weapons is much greater today because more and more individuals and groups and radical groups are trying to get their hands on them. so i put that in the context of the overall architecture we have to be more concerned about that today than ever before. we had national governments at one point dealing with this issue, even coming to the blinksmanship and possible extinction. >> are we working with the chinese too little, too much, or just right in our counterterrorism effort?
>> well, because i'm most recent secretary of defense, i think the real terrorist threats have really been defined since 9/11 in ways we have not seen before. i would say that we are working with the chinese. we are working with all nations of the world in the areas where we can. to assure our own self interest. chinese have clear self interest. the russians have self interest. that this scourge of terrorism is a plague on all of us. and it is a threat to all of us.
and it's real for all of us. now it varies with the area, the dimension, the threat and all the variables that are in this. there are different views in each nation as to how to handle that, which is not easy to resolve either. yes, we are working with the chinese on this. and i think we have had -- i think we have had some success with working with the chinese. >> it depends on where you sit. because, i mean, from the chinese point of view, one big terrorist threat is from the uighurs. it's not clear that we want to cooperate with them in expressing uighur terrorism. >> i think it is a different issue involved. that is the reconciliation between the dealing with the threat of terrorism and
protecting privacy and rights to privacy. china may have a different view for their citizens skpaeurd to what we and the united states might insist on. >> let alone the europeans. >> not to mentioned europeans. chuck was talking about this. this is going to present a real challenge in how do you reconcile these viewpoints about the need to confront terrorism in a way that doesn't turn you into basically a stalin estate where even some of the candidates are suggesting we start employing everybody to look at everybody else. and so you suddenly start worrying about and listening to conversations and looking at individuals for their signs of misconduct, et cetera. so i think you have to be careful. we have to deal with terrorism and identifiable groups and worry about protecting what's left of privacy in this digital
world. >> let me recognize the woman here. >> thank you very much. very nice, secretary, to meet you here. i'm a reporter with shinnin media group. what is the most challenging decision you will make regarding to the south china sea. and how did you comment on the current situation and what are the resolutions? thank you very much. >> i didn't have have an issue. it did not exist at that time. there were no reasons for the chinese to be concerned about any kind of threat to its sovereignty. what has happened because china has grown as an economic power and they have grown as a military power, the claim of
jurisdiction over the south china that sea, east china sea, parts of it, has become much more of a prominent issue. and i think we will have to really insist that we don't see a -- we see the chinese rising as a military power. we recently had the most of singapore say we have to recognize it is going to be more powers in the region. and that's true. and the united states can't stop that and shouldn't stop that. we are not going to be able to dominate as we have in the past. india may have certainly some issues about freedom of navigation in the south china sea. they have a lot of traffic going through. so it is not just china and the united states, japan and all the countries in the region have an issue of freedom of 1/2 tkpwaeugsz. i think what's most important is we be very clear about what we're saying and not accepted mixed signals. on the one hand, we can't say, well, it's innocent passage that
we are requesting but freedom of navigation in the assess. if we stay with ambiguity we are confusing our own allies and we are angering the chinese. we have to be very clear on exactly what our position is. this is something that goes back to san sue. he said be prudent but not hesitant. we have to be prudent but very clear and not hesitant in terms of what the issues are for us and what we think they have to be for the chinese in the region. >> in my days as secretary of defense, the seven dash line was an unknown document in the archives of the shanghai cech regime. >> one quick question and then we will go to a final question. are we doing enough? is there anything specific you should suggest we are doing that we are not doing to improve the military-to-military relationship?
or are we basically doing everything that we possibly can? secretary brown, anything? >> well, you mentioned one. >> one is sending chinese cadets to west point in annapolis and corsica. >> look, i think we should do more to encourage military-to-military relationships at the senior levels. now, you can't have a one-sided push to do that. and so far i think it's the chinese who limited that. but i think i would push again. >> bill perry, anything? >> well, we should continue to promote minister-to-minister dialogue, which all of us have done. we should continue to support the chinese qaa debts at our academies, which i think all of us could agree to. beyond that, i think perhaps the
single most significant relationship would be that which i think about that we can make with china. they are closely tied with military issues in that part of the world. they can make an excellent ambassador, of course. they can sponsorship business. >> secretary? >> i would add one thing we should consider, although it carries some liabilities, is also including the chinese to some of our exercises so it doesn't look as if it's just the united states, the australians and the japanese conducting exercises which appear to be aimed at the chinese or with the eupbd yaps and the australians and the japanese, et cetera. so i think to the extent that we can find ways in which they can become more integrated. and this will raise the issue of aren't they educated, they can
see pretty much what we are doing. that is a way to try to build more trust, even though it raises some questions about security. >> if admiral locklear was called up here, he would have a lot to say about this issue. as you know, he has recently come out of that job as pacific commander. so he knows how much our military has invested in the military-to-military relationships. there are so many things our military have done and are doing to build the military-to-military relationship, which most people never see, kheudz earlier in my comments today, was inherited as a result of their good work on this. but i think it is a continuation of reaching out. by the way, we are doing more and more military exercises,
training, with the chinese. as harold pointed out, it's a two-way street. you can only go so fast. but marty dempsey, when he was chairman, all of our chiefs, all have been in china the last two years. certainly sam has. but i think this is critically important. that isn't going to fix the issue. but the other part of that is, i would say as someone who has walked on both sides of the street on the political side and the administration side, our politicians have to listen more to our military. and i don't mean changing the institution. i mean listen to our military. they get it better than most politicians on things like this. and some of of the finest statesmen i have met in my life
are military uniformed people. this is not a paid political advertisement for the military. >> as an army man, i can't say that, cody. you know what i mean. across the board. but it is a universal use of all of america's assets and all of our government resources and leadership that i think is the biggest part of this answer, steve, to use them all more effectively with a broader policy and strategy as to what is it that we want to accomplish. >> final question. it's january 20th, 2017, 7:30 in the morning. and president-elect trump -- no. the president has given you one minute to give her advice -- to
give his or her advice on the u.s./china relations. in 60 seconds, what do you tell her? 60 seconds. >> i would say re-run this program. >> let me be serious about this for a second. i think what's happening in our political system is we are witnessing the polarization in our politics, which is really settling in and becoming much more cemented as opposed to in the past. when we make promises in order to appeal to our respective bases, you will find once you're in office, mr. president, you now have to think about the promises you made in order to get elected. you have to be careful. i urge all presidential candidates don't make promises. if you do, make sure you break them because you will have to.
president carter pledged to pull 5,000 troops out. i thought it was a bad mistake. he came to the conclusion that it was a mistake as well. so i think you have to be careful. on the chinese side, the chinese have much more mature today than ever before about our political system. ten years ago when bill perry, or 15 years ago, the chinese were acting quite differently to our political systems than they do today. they are much more mature in looking at what we're saying and what they are prepared to do. second, mr. president, get a fiscal policy in place. by the way, consult with congress once in a while. they are a co-equal branch of government. >> dr. brown? >> i don't think -- i think specifically with respect to china the advice i would give is
this is, in the long run, the most important bilateral relationship. take it easy. don't take big steps. certainly don't take big steps without thinking it through much more than most of your predecessors have most of the time. >> bill perry? >> mr. president, it is much more important than you realize to get the u.s./china relationship right. secondly, it is much more difficult than you realize to get the u.s./china relationship right. >> okay. secretary hagel, the last word. >> one word, listen. >> to the chinese too? >> listen. >> i want to thank everyone on behalf of the national committee on u.s./china relationships for joining in the beginning of the celebration of our 50th
anniversary. and our four secretaries of defense, i thank secretary hagel summed it up perfectly. this was a great program. tell the next president, take 90 minutes out of your day and watch this and you'll learn a lot about u.s./china relations. but please join me in thanking the four secretaries. [ applause ]. a couple of live events to tell you about coming up on the c-span networks. on c-span, it's a discussion on the persian gulf region, in particular recent tensions between iran, saudi arabia and other nations in the region.
that's at noon eastern. also at noon, on are c-span2, the congressional internet caucus hosts a discussion on issues facing consumer freedom of expression online. specifically, theonline, specif the tactics businesses use to silence critical reviews of businesses. that's at noon eastern on c-span2. british house of commons coverage live monday as members will hold a debate barring republican presidential candidate donald trump from the united kingdom after his remarks about muslims attempting to come to the u.s. a petition to bar him from entering britain has received more than a quarter of a million signatures. monday, 7:30 eastern, on c-span. monday is martin luther king jr. today. with congress not in session, we have featured programs on all three c-span networks. live coverage of the british house of commons debate on whether to ban donald trump from
their country. that debate is expected to last three hours. our coverage will re-air at 8:00 eastern. on c-span2 is book tv. 6:30 p.m. eastern, william p. jones and his book "the march on washington: jobs, freedom, and the forgotten history of civil rights." >> when he went to reorganize this march he had called off in 1941, everyone said you better get martin luther king to get his support. he went to martin luther king, who said, i will support you but let's expand the goals of the march, the march is not just about winning equal access to jobs, fighting employment discrimination. it's also about winning the right to vote in the south. >> at 8:30, georgia representative john lewis recalls his involvement in the civil rights movement. and on american history tv on c-span3 at 2:00 p.m. eastern, an
international history professor at the london school of economics and political science on iran's cold war partnership with the united states. >> iran had to look to a third power to preserve its independence and its sovereignty against the imperial ambitions of russia. after the second world war, a whole generation of iranian states men including the shah looked to the united states, who had no history of colonialism in the region. >> at 8:00, a 1963 interview with dr. martin luther king jr. on his nonviolent approach to civil rights and how ghandi influenced his work. for the complete holiday schedule, go to c-span.org. this weekend, the c-span cities tour, hosted by our comcast cable partners, explores
the history and literary culture of hartford, connecticut. on book tv, author ann farrow talks about the atlantic slave trade and new england's role in the slave trade. >> in these logbooks we have this extraordinary opportunity to see day by day how life was lived aboard new england slave ships, two of which were from connecticut. i came to the realization that these logbooks had been maintained by the son of an aristocrat from new london. >> the impact on the abolitionist movement of the hutchenson family singers. >> seeing frederick douglass and
of course hearing him speak, the hutchensons decide to take that step. and they will actually perform at the american antislavery society meeting in 1843. they'll perform in boston a little before that, their first forays into antislavery singing. and this do this in very kind of formal meeting settings, and they do it brilliantly. >> on american history tv, we'll visit the home of harriet beecher stowe and learn about her time in hartford, where she published more than 30 books. >> her husband was ten years older than her. he was a professor of theology, and he was retired. she moved in with her oldest children, twin girls, her adult daughters. they were in their 30s. stowe was in her 60s and her husband calvin was in his 70s.
stowe was still writing. she was world famous. she had reached that pinnacle of fame in her 40s. and now that's an in her 60s and she's still writing to support the family. >> finally we'll tour the mark twain house and museum and learn about mr. twain's professional successes and private life with his wife and children while they lived in this house until 1891. >> he settled with his young wife and their new family. and he came to the city, fell in love with it, really, and was tickled to death, wrote letters to his own family and said, this place is beautiful. he would come to the library after dinner in the evenings. this was a very supportable spe. the paintings on the walls here and the knickknacks on the mantle, they would ask for a story, and the rule was he had to begin with the cat in the painting on the very end.
from there he had to continue across the mantle and incorporate each and every knickknack. and he could not go out of order and he could not repeat himself. and then he would have to end with the painting of emmaline, and that would satisfy the girls. >> watch c-span cities tour, saturday at noon eastern on c-span2's book tv and sunday afternoon at 2:00 on american history tv on c-span3. the c-span cities tour. working with our cable affiliates and visiting cities across the country. a group of officials from the international monetary fund talk now about challenges facing asian economies and how they can evolve to overcome them, such as aging demographics and the lack of diversification from a bank-dominated system. it's hosted by the brookings institution.
good afternoon, everyone, and thanks for coming, despite the blowing wind and the much colder temperature. but this is a real privilege for us, to welcome deputy managing director min zhu and his team, and on the occasion of presenting a very interesting book on the asian financial system. i won't say too much, but it is one of the hottest topics around, and most important topics around. of course there is china but there is the whole of asia. and i think the financial system as we've all learned is one of the absolute requirements for stability and growth, to have a solid financial system is a necessary condition, though it may not be sufficient. deputy managing director min zhu
was previously adviser to the managing director, senior adviser, and he was the deputy governor of the bank of china, and before that, chairing a working group on financial issues. so there is few i think in the world, if any, who knows more certainly about the chinese financial system but now about the whole world financial system than min zhu, our friend min zhu. and he makes us an honor to come to brookings for this event. so thank you very much. i will cede the floor to him. after his remarks the panel will -- i will introduce the panel and we will have some further remarks from two colleagues from the fund, from our own eswar prasad. i will then launch a discussion where we will go from a panel discussion first to then having some questions from the floor. deputy managing director min zhu, please. and thank you again.
[ applause ] >> thank you, kemal dervis, for the kindness of your introduction and also for your warm hospitality. it's wonderful to come to this place, to bring this book to the audience. it's a great honor to be here to speak to this very distinguished audience as well. thank you, kemal. i just realized one thing when i walked in. i thought the brookings has very good budget resources so probably will provide everybody a free copy of the book. i am always very aware of budget constraints. but i realize there is a book shop there.
so everyone, hopefully after this session, will go to the book shop, line up. i can't afford to give everybody a book but i probably can afford to give everybody who purchases the book a sevcertain degree of discount of the book. once again, thank you very much for coming to the session, in the cold weather, as kemal mentioned. i'm going to have sort of a background information, to set the past for the full set of discussions that the authors will be on the podium to discuss the whole issues. let me talk about a few things about the asian financial market. the market grew very strongly and fast.
if you're looking here, the asian financial shares and global shares really increased around 5% to 18% from 2002 to 2013. this is a big, big challenge. it's really big. if you see, it went from 6% to 23%, that's global shares. you will see the asian financial sector is really gaining market share in the past ten years in a very dramatic way. if we add everything together, add japan to it, as a whole, arab is 28% of global financial assets, which is quite a bit. and the growth is very impressive. but overall, this 28% is still
below arab's gdp% share in the whole world, which is 33%. and then you also see the biggest structure is very much banking. you see in the emerging asia, also in china, the emerging asia, the banking sector gdp is roughly 183%. the market is only 76% gdp and the debt market is 52%. this chart will tell us the asia financial sector, strong growth in the last ten years, really grow strongly, particularly emerging asia from 5% global financial assets to 18% chain, from 2% financial assets to 10%
today. if you're looking structurally, very strong on the banking sector, still practically slow. by looking further, the whole financial sector with very strong growth in the past ten to 15 years. there's still room for continued strong growth. if you put asia in the global picture, it's also very interesting. this is international investment positions. this is the capital inflow to-ish sto asia. in the ten years from 2005 to 2015, asia's international exposure increased dramatically. asia sports exports $17.5
trillion. the region's international exposure also increased dramatically. but most interesting is here. this is in that position. asia export, how much asia import capital. so at the net, asia exports a lot of capital to the whole world. now, that's also very interesting chart. the chart says asia's international exposure increased dramatically in the past ten years. net to net, asia export, roughly -- oh, they asked me to not step away from the mike, i guess, i have to be here. okay.
usually this is a disciplined place, but i tend to move around. brookings is a much more disciplined place, i realize today. so you see, net to net, asia exports so far $4.35 trillion to the whole world. the question is how asia can utilize this next export capital for the region. i think that's a big issue. because of that, asia exposed to the international scale. the advanced economy to emerging asia, it's quite high, roughly from 50% equity returns, equity positivi positivities. today, it's roughly still around 50%. so asia's equity market
movements, roughly 50% is associated with advancing economies spill over. if you're looking for today, china, when china become bigger and bigger, china's financial assets from 2% global share to 10% global share and also china played a bigger role. and china spent also have a big player for the region as well. we compare, it's very interesting, in this chart -- i cannot move, i'm sorry -- and the blue bar is the u.s. temporary impact for the region, for the equity market movements, and the returns. and the red bar is roughly the august episodes, the financial impact from china in august last year. if you compare the two things, you will see there is malaysia, indonesia, india, and you will see on the currency side, china have quite a bit of impact to
the region, almost equivalent to the united states, particularly on the equity sides and movement sides. and china today have even big impacts compared with tapering impact in 2013. now, that's also become the new feature of the whole financial sectors are facing today. now, this is very much the system, if i provide some artificials in the few slices. the real economy is changing. the whole region changing in a very dramatic way. the first issue is demographic change. you will see the red line is for japan. japan, the further horizon, 15 years, the people aging over 65, really increased from 60% to 32%, double in 30 years.
so we all move to aging. also if you're looking at the soft careers, the blue line, you will see almost a vertical increase in the next ten, 15 years, roughly from 6%, 7%, increase to 24%. so almost a four-time aging increase. this is absolutely stunning demographic change. if you're looking for china, the brown line, also from 6% increase to 16%, to the horizon. the black line is for the whole world. to compel the whole world, we're all getting older in the demographic structure. but asia getting older faster. this is a big fundamental change. when you're getting older, you will start today, we're looking for the long term investments
instruments, and compared with the financial structure, we need to move to that equity market, and the banking sector may not necessarily provide enough product to serve the asian people and asian population as well. this is a profound force that will shape the asian financial market and structure in the future. the steep of the curve is so big and it's really moving china fast. it's a huge financing cap in asia. this is calculated to meet sdg requirements of how much money asia means. last year is the year of development, because we had the year of sdg replace ndgs, we have climate change, we have finance for developments in ids. back to the region, we realize, in the next ten years, every year asia need $96 billion to fill the remaining cable for ndg, education, healthcare, and
another few things. you need another $323 billion to fuel the capital income for the people under $2 per day and $1780 billion per year for infrastructure investments. the whole financial sector can help to mobile the resource from public, to private, to media is the $1 trillion challenger for one year in asia. to me the sdg target. that's a big challenge for asia financial sectors. and meanwhile, if we're looking further, there is even more tougher challenges the region facing. we're playing the four major economies, china, korea, japan, together, how much they contribute to growth. you can see, take the career line, the dark line, it's clear, the capital contributive growth
roughly from 3.5% and the growth from roughly 5%, down, down, down to 2%. japan roughly see the same thing. china kept contributing to growth job even faster, that means with heavy investments and the capital return, particularly modular return job faster than expected. and meanwhile, because the capital contributing to the growth, also the down trend will show there is productivity contributed to growth, also dropped in quite a dramatic way. you will see the dark line is career, you will see the career productivity increase in the first ten years, on all the way down, grows to roughly less than 1% of contributing to growth. and those years, and also we see japan, the productivity growth is very strong in the first 15 years. in china, the productivity growth remains high, less than 4% drop dramatically in the past
five years because the capital efficiency and the productivity, because the ind innovation, things have slowed down like that. what does this tell us? this chart tell us that asia facing a fundamental challenge that's to improve the productivity, to raise the productivity growth, to raise the potential growth. this also means to support the service sector, particularly when the region getting mature, move to service sector to orientate the economies, to support the service productivities, which the key challenge in the financial sector should and could play a very important role in this area. but i have to say, this is not easy. this is not easy things. for financial sector to support r&d, to support innovations, to support a startup, for more
venture capital type of things, become more expertise in the fit market needed to support growth, to support sustainable growth, that's a real challenge. last, not least, there is inclusion issues in asia. you will see in the region, in south asia, they don't have the banking accounts, yes, increased from 2011 to 2014, roughly 32% to 46%, but still only 46%, way low. half people in south asia do not have a banking account. and even in the east asia, we say roughly 30% still don't have a banking account. so there is a part of it, room to improve the inclusiveness in the financial sectors. we all know today the financial including is a very important drive for sustainable growth.
because it provides financings for individual, for smes, for the poor families, which will bring the productivity and the support of growth. so financial inclusiveness is also a very important issue. bringing them together, there is a few recommendations we are looking for the future, current structures in the futures. we'll see enhancing financing deepening and integrations, one, building resilience, and also strengthen policy coordinations in the regions. now, this is very broad. so let me bring them together. what's the story? i think the story just assumes a very few, seven to eight slides is what i tried to say. number one, the asian financial sector grows strongly in the past ten years, for example china funds 2% of financial assets to 10% region, roughly to the 28% roughly from 10%, so
really strong growth. there's still room for the future, because still the financial assets is below gdp shares in the whole world. the structure still remains banking-focused and needs to develop on the equity market and the bonds market as well, and the region export $4.35 trillion to the whole world, and the region imported $20 trillion, exports $17 trillion, which clearly puts the region under huge international exposure, and when china become bigger and bigger and china's monetary policy and the marketing room still have stable region for the world as well. that's the financial sector. with demographic change, i think that's a big one with infrastructure investment need increase day by day, and also with the whole economy structure moving to the more innovative, more service and productivity increase, it becomes more and
more important, and the will financial inclusion still have a hubcap to fill and the future financial systems for asia have to look into those issues, have to meet those challenges. we in this study trying to understand what is asia financial structures, tried to understand what the area we can do we should be able to catch up, and what policy need for the region after two and a half years of stuff is produced. these are beautiful books with red color on the cover. so that's the one. i don't know why they tied the money. they should have freed the mo y money. thank you once again for coming to the session. i hope you will enjoy the book. afterwards, i hope you will buy the book. thank you very much. [ applause ]
previously served as deputy vice minister of finance for international affairs for the government of japan. and cheng hoon lim is now assistant director, western hemisphere department. she reviews the department's financial surveillance work and serves as the mission chief for canada. canada is one of the successful financial countries, i guess, right? >> very much so. >> but you can always get better. she has had 13 years in the capital markets department of the imf where she worked on financial crisis and sovereign debt issues including restructuring, and the development of analytical tools to assess financial risks and bank soundness. cheng hoon is known for working on the effectiveness in many ways of micro-prudential policies, which as you know is one of the big topics in
financial market analysis these days. then we have our own eswar prasad. we have to share him with cornell university where he's senior professor of trade policy. but he is much more fundamentally anchored at brookings. and he is a senior fellow in the global economy and development department. and the new century chair in international economics. he's an associate of the nber. and he was at the fund before, chief of the financial studies division and head of the imf china division. i think we couldn't have hoped for a better panel. so -- which one of you wants to start? >> i think it's going to be me. >> all right. >> thank you very much, mr. dervis. good afternoon, and welcome to
this seminar. mr. zhu has given you a very nice overview of the book. i would like to pick up on one important message from his remarks, and that is asia's financial sector still has room to grow. and it will evolve to meet the needs of the future generation. that could be for infrastructure financing, as he mentioned, or it could be to mobilize savings for an aging population, or managing a higher volume of cross-border trade and capital flows. so it is very likely that we will see asia's financial sector become bigger, more complex, and more interconnected. now, in my next five to ten minutes that i've been given, i would like to talk a little bit about the importance for asia to anticipate and prepare for these
chang changes. i will speak from a regulatory perspective. in our view, understanding new products, new markets, and new risks will help asia build resilience. how can asia best do this? >> we're going to break away from this discussion on asian economies. we'll come back to it if time allows after an update from house gop leaders. they're meeting in baltimore, maryland, expecting to hear from house speaker paul ryan, majority leader kevin mccarthy, majority whip steve scallise. >> today is the anniversary of the packers' first super bowl ring. if he's wrong -- good morning, everybody. we just completed a very successful issue conference here in baltimore. with everything that's at stake in 2016, we've been talking about how do we go on offensive on ideas and how do we make sure we offer the country a very
clear and very compelling choice. they deserve that. we want to earn their trust by offering an agenda that fixes their problems. because if we do not like the direction the country is going, and we do not, we have an obligation to offer an alternative. so starting today, we are beginning the work of developing a bold pro growth agenda. this agenda is going to focus on five areas. first, national security. americans are very anxious right now, rightfully so. how do we go about making sure that we are secure here at home? how do we go about building a 21st century military and make sure that we are equipped to defeat isis and the throat posed by radical islamic terrorism? next, jobs and economic growth. our economy is far from reaching its potential. wages are still stagnant. families are still hurting. people are working harder than ever before but they feel that
they're slipping behind. how do we fix our tax code? how do we rein in the regulatory state? how do we maximize our energy potential? third, healthcare. obamacare has taken us down the wrong path. higher prices, higher deductibles, fewer choices, restricted access. how do we not only repeal this law but what solutions lead us to lower cost and a truly patient centered healthcare system? fourth, poverty and opportunity. there are 46 million americans living in poverty today. what solutions will help get people out? right now we have a safety net that is designed to catch people falling into poverty when what we really need is a trampoline that gets people out of poverty into lives that they want for themselves. how do we get them back into the workforce? how do we restore upward
mobility? and the last piece of this, and it's so critical to all the others, is restoring the constitution. we are a country founded on an idea. and our rights don't come from government. our rights come from god. our rights are natural. and the constitution is this beautiful system of rules. a beautiful system preserving liberty and freedom so we can exercise those rights, so we as people are sovereign and free. how do we restore the constitution? because the president's executive overreach has undermined the constitution and it has damaged the people's trust. people more and more do not trust our government. and it is because we have deviated from the constitution. so what do we need to do to restore the separation of powers and protect our constitutional liberties?
these are critical can questions. these are the ideas we will be advancing. we will work through our colleagues through our committee-led task forces. that means every member and their constituents will have a chance to provide their input. i expect that we will have a complete agenda by the time that we have a nominee. look. this is nothing short of a generational defining moment we are in. the country is crying out for solutions. the country is crying out to be unified. the country is crying out for a positive vision that brings us all together. we want a confident america. and now is the time to get to work. thank you. questions? >> reporter: mr. speaker, you've been sort of circumspect. >> are you asking about expedited rescissions again, john? >> reporter: you've been circumspect in terms of how specific this agenda will be. and you said that was going to be discussed here at this conference. so is there a resolution whether
this is going to be actual legislation or something less specific? >> we're just beginning the process. we haven't finalized the process. we just launched the process. the four of us aren't going to predetermine everything. that's not the style we have here. so we're going to do this together with our members. but believe you me, the people of this country will know who we are and what we stand for when this is done and they will be given a choice in 2016 so when they go to the polls in 2016, when they vote for republicans, they will know what they're voting for. >> reporter: mr. speaker, some of us talked to bill florez in the hall a few minutes ago. he said the republicans should develop an agenda that's in agnost agnostic. >> this is about ideas, not percentage. >> reporter: it's unclear who the nominee might be, there's one person, that maybe the tail will wag the dog here.
>> everybody typically in the media, on tv, are watching the presidential process. we're worried about the constitution. we're worried about solutions. we're putting together an agenda that rises to the occasion. we're not sitting here thinking about who the nominee is going to be. >> reporter: that isn't really in the back of your minds, about who the nominee is going to be? >> no. >> i want to g. >> reporter: i want to get to your poverty program for a second. how exactly are you interpreting this poverty program? is it how the administration would tackle poverty? or is it how you envision a poverty program? because it seems like it would be a completely different vision of how the administration would do it. and if you would -- >> the obama administration? >> reporter: well, i'm just curious as to how you envision it. your base voters right now are thinking, a poverty program? we're talking about billion of dollars. >> good question. so the status quo, which is now
the obama administration, they believe that measuring success in the war on poverty is spending more money and having more federal programs and having washington dictate solutions to communities. we fundamentally reject that premise. we disagree with that. so we believe the better, smarter, more effective way of fighting poverty and combating the lack of upward mobility is to go with the root causes to break the cycle of poverty. that means take our principles and apply them to this problem. what are our principles? we believe in freedom, liberty, self-determination, government closest to the people. we believe in communities. we believe in federalism. so what does that mean? welfare reform is a perfect example. work works. local communities work. washington doesn't work. so we're going to take those principles we have and apply it to one of the biggest problems we have in america, people living in poverty and the lack of opportunity and upward mobility. and we believe that that is where these principles are so sorely needed.
and it's very different than where the administration or the left thinks we should but. because we're living off their policies right now and they're not working. >> reporter: i know you are a policy guy. last night there was a debate. >> i didn't see the debate. >> reporter: at the beginning of the portion of it between the top two frontrunners, cruz and trump, was because senator cruz's eligibility to run because he was born in canada. >> do you think i'm going to comment on that stuff? i don't know. we're not worried about that. i haven't given it a second's worth of thought. thanks, everybody. appreciate it.
>> reporter: you talked about putting the agenda together. it sounds like you're trying to -- [ inaudible ] >> reporter: will there be a document uninvade? >> as we work towards this, we don't want to prejudge whatever -- do we roll out everything together, do we roll it out individually? the conference will decide together. because he does not want to go around committees. but when you take those five different budgets, right, there's different committees working within that area. you look at healthcare, three different committees.
tax reform, economics, you've got kevin brady. you're going to have these different groups of committee chairs working in this task force so it goes through committee. thank you all very much. look forward to seeing you back later. house speaker paul ryan at the top of this briefing saying the gop policy meeting over the past two days here in baltimore has been successful. scott wong with "the hill" tweeting the republicans rented out a movie theater to watch the movie "13 hours" about benghazi, based on attack in the consulate in libya. you can read more about that at th thehill.com. we take you back to the discussion on asian economies hosted by the brookings constitution. >> asia has received quite a lot of capital flows. in the process the capital flow went into the real estate.
and the real estate price went up. so many of the jurisdictions used the microposition policy to combat inflation in the context of the increasing or incoming capital flows. but now, with possibly the reversal of this risk sentiment, and possibly the region will be facing outflow of capital instead of inflow of capital, and at the same time, we are facing with a bit of a softening of the economy. if the economy softens, we loosen the monetary policy. if you loosen the monetary policy, then asset pricing may be stopped. what are we going to do with these monetary policy, conduct the monetary policy? you have to on the one side combat the demand management. you have to loosen to accommodate the economic activities. at the same time you have to make sure that it doesn't stock
the asset price inflation. so it's useless in that regard. it would become very important. thirdly, you know, the capital inflow would be somewhat more precious in the future. i mean, in the past years, we have abandoned inflow into the region. now we are not so sure that the capital inflow continues to be that lax. so in the years to come, we need to think about more effective use of the capital inflow to perhaps usher the capital into more productive rather than sort of into some superfluous investments. how are we going to do it? many countries has its own structural reasons or historical
reasons, have alignment of incentives. for certain countries, because they wanted to encourage house ownership, they may have certain barriers toward buying a house rather than saving. so these kind of things may have certain impact on the choice of investment into productive active investments. these are the types of things we'll be looking to within this umbrella of future of asia's finance project, we'll be looking at in the context of each of the member countries. thank you very much. >> thank you very much. eswar? looking forward to your comments. >> finance has become the life flood of modern economies. unless ut finance right, you don't get growth right, and you get a lot of volatility in return. so for the most dynamic region
in the world right now, despite recent bumps in the road, which is asia, i think taking a close look at what is happening and what is needed in financial systems is a very valuable service which this book does very nicely. so in my remarks, which build up on those of the previous three panelists, let me talk a little bit about what's been happening on the ground in asia, which in many ways is intriguing, then i'll talk a little bit about what is needed for financial systems to work well. and then talk about one specific example that i think drives home many of these issues. and assuming there is some interest in china, i will draw it into the discussion. if one thinks about what happened after the global financial crisis, there was a sense that finance had gotten too far ahead of itself. interestingly, the year after the financial crisis hit, india
introduced an instrument that had not been seen there before. credit default swaps. two years after this, china introduced or opened up its foreign exchange derivatives markets. at one level these might seem like fool hardy moves. after all, it was derivatives markets and in particular derivatives like default credit swaps that caused much of the turmoil in global finance. but this speaks not for the folly of these countries, but to the sense that financial market regulators had that there was genuine demand for financial products in many of these countries. and one might think about credit default swaps as having gotten ahead of themselves as toxic, overly sophisticated financial products, but there is a good reason. the economists like to talk
about financial products as insurance for all the states of the world possible. we don't quite get the complete financial markets. the problem is that on the transition to complete financial markets, many instruments, if you have the wrong incentives, if you have the wrong regulatory frameworks in place, can cause a lot more trouble than the benefits may bring. i think what you're likely to see is at some level a measure of converges where the western world was before the financial crisis and where the emerging markets were before the financial crisis. i think the ideal meeting point is somewhere in the middle, a much more well-developed set of financial markets, but perhaps not to the extent that we saw in the western world before the crisis. and this book nicely lays out the path. so what are the key attributes that are necessary for finance to work well? i would argue that there are
three. breadth, depth, and inclusiveness. and all of these are touched upon in the book. breadth refers to the scope of financial markets. as mr. min zhu pointed out in his presentation, asia still remains very largely bank-dominated. and i think having a very broad set of financial markets can serve a variety of purposes. not only does it provide more competition and discipline to the banking system in itself, but in addition, it give us savers opportunities to diversify their portfolios. it gives firms other avenues of raising capital. this competition ultimately will work towards a much better financial system. as mr. sumi pointed out, if you have good bond markets in particular, they're not only very good intensive intermediate
finance, but also intermediate foreign finance towards longer term productive products. if you take asian countries, india for a prime example, there is a crying need for finance. what is crucial is that there be ways for foreign investors to participate in the india growth story but in a way that also serves india's long term growth needs which can be done through bond market development. but you also need depth in these markets. if you have shallow markets, arguably you get a fair bit of volatility and these markets don't work very well. so the amount of liquidity, the amount of turnover in these markets is important. and here i think the part many of the countries in asia have taken towards opening up the capital little bit more, does play a useful role. much has been said about how premature opening up of capital accounts can be a potential problem. and there is certainly truth to that. but i think there is a different perspective that opening up of the capital account in a careful
and caution way can in fact generate what i had referred to in some of my research as collateral benefits. that is the benefit of developing parts of the financial system through foreign versus' expertise, their money, and their better assessment of risks and so forth. in addition, you do need to have the financial system reach a large part of the economy. if one thinks about the fact that growth in many economies in asia has been somewhat unbalanced, and you think about the fact that structural reforms of a variety of sorts have not gotten much traction, part of it is related to the political economy. in many of these countries, it is a very viable and potent argument that many of the benefits of reforms arguably go to the political and economic elite who are very well concluded, who are able to benefit from the rereforms, whi the short term dislocations often end up having costs borne
by those who are not well-tied-in. and tying in ends up being closely related to financial inclusion. because if you're not tied into the financial system it becomes difficult to participate in the economy more broadly and to participate from the benefits of growth. so i think that is not only a macro based but also political economy based environment that makes financial inclusion an important incentive. we've seen the government recognizing this and taking significant steps to improve financial inclusion. so then let me come to the last part of the discussion. and i think china is a very good example of what i think is necessary beyond financial market liberalization and capital account opening. in case you've been watching the news, you've noticed things have been happening in china for the last few weeks and months. my view is that this is not the result of policy mismanagement
by china alone, although certainly things could have been managed a lot better. i think the signal actually is that things are proceeding in the right direction. you might say, what the heck do i mean? i think what china has been trying to do is in fact let markets work well. the problem that china faces is that if you try to liberalize financial markets without the supporting framework, things don't go well. what do i mean by the supporting framework? the book refers to needing a much better regulatory framework. if you think about volatility in the stock market, why is the chinese stock market so volat e volatile? part of the reason is that you don't have the good institutional framework to support it, that needs better corporate governance, better auditing and corporate standards, better transparency. if you don't have those, what happens is even retail investors become momentum traders because they don't have enough information about the corporations they're invest in,
so they tend to get pulled along when the stock market is going up and pulled down when the stock market is going down. and of course when the government has as its own tool somewhat heavy handed government intervention which looks very haphazard and the strategy is not clear, that makes things worse. so there has been a great deal of criticism, some of i think misguided, some i think is perhaps more right, that the government is making things worse by trying to intervene directly in stock markets or currency markets. but i think the fundamental issue here is that for financial markets, equity markets, currency markets, bond markets to work well, you need a better supporting framework. so here again, i think the book alludes to these issues. but this is really going to be the core issue in emerging market economies. not that you need to hold back on financial market development or capital account opening, but make sure that the other faults in the economy, both real side
reforms and institutional reforms, but in parallel, perhaps waiting for those reforms to take place before moving ahead on financial market reform would be waiting indefinitely. but i think that's where these economies are going to have to go. so i think this book makes a very valuable contribution in terms of honing in on what china really needs, which is better financial markets, and also pointing out what else is needed to support good finance in asia. >> thank you very much, eswar. let me ask one or two questions, and then we can go to the floor. one question i have to the group, and you can decide, maybe our imf colleagues will have the first kind of go, either one or both, and then eswar prasad also, but it's very hard to separate financial sector management from exchange rate management. it's not the same topic, but they are deeply linked by the
balance sheets of the corporate sector, by many other factors. and is it the problem that the capital stock or the financial assets stock adjustment that may be happening with liberalization in china particularly, in other words more capital outflows starting as opposed to inflows, which is, you know, an asset diversification maybe trend, maybe other things, at the same time as the -- while the current surplus is not at the highest levels it's been, but i just saw yesterday that the trade surplus with the u.s. is at an all-time high for china. so that on the one hand, you have, you know, a capital outflow that will tend to depreciate the exchange rate, and there is a lot of confusion,
you know, in the nonspecialized press as to what should be the exchange movement, and on the other hand, there is that big surplus and depreciation, other things held constant, might increase that surplus. how do you look at that problem? >> generically, in the imf we have this -- the external assessment. and then we look at each country's current account deficit and surplus and positions. and then try to explain it from the fundamentals and the desired policies. and then we -- in each of the countries' surveillance, we come to explain, suppose you, country a, has this 4% of gdp, but then
that is explained by certain factors, and then what is the residual which cannot be explained by these fundamentals and long term desired policies. then we say that look at these country-specific issues and try to come into more balance for that particular country. but i'm not in charge of china. and i'm sort of somewhat reluctant to go into china's specific issues. the china teams currently now in china have scheduled stuff with it and they will be talking with the authorities as we speak. but each of the country cases we do look at what makes the current account surplus as it is, as opposed to what we think
the fundamentals of the economy and the desired policy would dictate the current account level to be somewhat different. so what are the differences and why is it happening. and then we usually ask the country authorities to think about why this is diverting from the norm and what can they do to reduce that diversion. i know i'm not answering your question in the way you like. but that's how we sort of -- >> let me rephrase it, maybe for eswar. when you have a system where -- which is liberalized on both the trade and the capital accounts, you still get a lot of volatility. but in china, parts of -- other parts of asia, you have a capital account that was pretty managed and maybe the goods account more and more liberalized, and you have a fairly sudden or at least rapid
relaxation of capital account management, and therefore a stock adjustment on the capital goods side. and will that stock adjustment be a challenge to macro predeposition policy, let's say corporate balance sheet. banks can be very well capitalized. but if the corporate sector has an open position vis-à-vis for an exchange, that may not mean very much. i'm not saying that's the case. but i mean, how is the kind of change in capital account policies of china and of other countries impacting financial sector both analysis and policy? do you have any views? >> i think it's important to remember that since the asian financial crisis in 1997, asia as a whole has cut down significantly on its external debt. so there's a lot less foreign currency liabilities on the books of the corporate sector than it was in the past. and this actually has allowed
many asian countries to adopt a more flexible exchange rate. and you saw that that flexible exchange rate served asia extremely well during 2008 crisis and acted as a very effective shack absorber. so i think from an exchange rate policy perspective, we have seen a sort of a very nice transition from largely managed exchange rate regimes to a more flexible exchange rate regime. that has served asia well. from a macropolicy perspective, and those for those who don't know the term macroprudential policy term, at the imf we forget people don't know these terms but it's not supervision of visual financial institutions but supervision of the financial system from an aggregate perspective. so you look and see where are the risks coming so it may be
that individually financial institutions may not be at risk but on aggregate if there is significant exposure to real estate, for example, that could pose systemic risk to the financial sector. so from a macroprudential perspecti perspective i think it's important also to keep in mind that it is different from exchange rate management. if there are significant capital in flows into asia as we saw right after the 2008 crisis the mac macroprudential policy would be the useful tool to use to address exposure of the financial system as a whole the real estate prices or the some other asset class. now in the event of capital
outflows, macrocrucial policy could be loosened in the event that buffers have already been built. if there are no buffers left -- if buffers have not been built then it's important to make sure macroprudential policy remains where the vulnerabilities or the exposure of the financial sector remain manageable. this might be a long-winded way of saying that i think asia has a sound exchange rate policy. it's a much more flexible exchange rate regime to absorb shocks. most central banks have a framework for macroprudential supervision and asia has led the world in terms of implementing macroprudential policies to address systemic risks in the financial system. >> let me force one more time and then i will stop but vis-a-vis eshwar because he's
written so much on the monetary system but i think we have a strange situation in the world now from a macro point of view that links up with the financial sector. we have two countries which have very large surpluses. china was reduced but it's going up again and germany. both of these countries are embedded in regions -- china in asia and germany in europe -- but they resemble each other in terms of trade position quite a bit. yet both of these countries have exchange rates that are depreciating whereas in a kind of global imbalances sense you would hope they would appreciate. any thoughts? >> china is from that traditional framework a conundrum so the chinese trade surplus relative to its levels
before the global financial crisis has come down a lot. although in the last three quarters it's gone back up to 6% of gdp, which is high. but the current account, this is referring to earlier china, has been experiencing capital outflows so there is that complex being dealt with right now and chinese currency is managed against the u.s. dollar and the u.s. dollar has risen sharply in the last year or so, at least until last summer so in china you had an expanding trade surplus at the same time that the currency was appreciating and trade weighted or effective exchange rate. a large part of that was decline in imports, not so much import volumes but import prices because the prices of a lot of china's imports, especially commodities, have been very weak. so the configuration is not easy to map into traditional configuration that we might
think about. in china's case as your initial question pointed out, i think there are some significant challenges. china has been opening up the capital account aggressively, not only inflow but outflows. even in the midst of this turmoil, the official capital account opening is continued although china has started tightening up on administrative requirements to limit capital seepage through what it sees as unofficial channels. the problem is the timing was not ideal because you have an increase in capital outflows for what i think are very good reasons because after all there are about 170% of gdp worth of deposits in the chinese banking system, about half of which is by households, half by corporates and 10% by the government and it makes good sense to take money out of the banking system for diversification reasons and it would provide competition for the banking system as well.
the problem is that the unofficial capital flows as a reflection in the netter or ares and omissions have started creeping up at the same time that we have this capital outflows for the right reasons. diversification outflows compounded by outflows that are exacerbated by concerns about the economy and possibly the anti-corruption drive and this creates very unstable capital flow dynamic which is i think is what the government is contending with so i think as was referred to earlier, the notion of asia as a whole shifting towards flexible exchange rates being good for the region is a story that continues to this day. china is trying to move towards that but without the right supporting framework in place it just creates a lot of turmoil. so i think what is going to be needed to pull things back is not any more direct intervention in the financial markets or equity markets but really this broader complex of reforms and
policies that will be needed to stabilize expectations. >> one more question and then we'll turn to the audience. i do remember the london g-20 meeting and one of the big issues, which was partly because of political but partly real partly political messaging was tax havens and information exchange in the financial system. i think it's becoming more and more important issue from two points of view. i think there is much more decisiveness in the world to fight against illegal tax evasion, and it's large, estimates are very large. and second there's also now increasing decisiveness on
dealing with legal tax avoidance issues and a lot these are financial sector issues. one sometimes has the feeling that in asia there's a lot of reluctance to open up the information exchange and to end whatever tax shelters that may still exist. any views on that? >> well, i think it would be fair to say that the imf has done a lot of financial sector assessments for arab countries. one component of those financial sector assessments is an assessment of the anti-money laundering infrastructure. what you call tax havens and so on. and i think by and large the results have been relatively robust. there are areas for improvement,
absolutely but i don't think that the findings for asia are any different from other regions of the world. i think globally we need to do more to combat illegal transfers of money and as well as anti-money laundering. so i don't think this is specific to asia alone. >> anybody else wants to -- okay. i hope -- i mean, there is, of course, that international movement but i think if you look at the last five years, particularly with the oecd in the lead and also some governments there is a much more decisive move on that then i think it would be welcomed if various asian jurisdictions joined in that. it's one of those typical global public goods that a large part