Following is the transcript of an exclusive CNBC interview with Tao Zhang, Deputy Managing Director of IMF at the Annual Meetings of the Boards of Governors of the World Bank Group (WBG) and the International Monetary Fund (IMF) in Washington, DC. The interview was broadcast on CNBC on 16 October 2017.
All references must be sourced to a "CNBC Interview'.
Interviewed by Geoff Cutmore, Anchor, CNBC.
Tao Zhang: The (Chinese) economy needs to continue to move to a more consumption-led, domestically-led economy, rather than rely on investment or exports. So, so to speak, more rebalancing should move on and go on. And it's already happening, it should continue and of course during the process the rapid credit expansion needs to be paid closer attention to, and we observe the authorities are taking measures, and these measures actually already have early, positive result.
Geoff Cutmore (GC): I think generally, most people think that, the economies are more robust, but obviously the debt stock has risen, so does that imply much greater sensitivity now to tighter monetary conditions, given that these debt servicing ratios are so much higher?
Tao Zhang: People in the past few years, taking advantage of lower interest rates, that type of thing, the cheap financing cost. Maybe they'll continue to take that advantage. But soon, when monetary or financial conditions normalize, the financing costs first of all could increase and if you, you know, the public sector and including the private sector as well, don't pay enough attention to it, then people will kind of loosen up, trying to search for commercial loans, more and more, and then that becomes maybe an issue. So the bottom line, we recognize in terms of development of these emerging market, low income countries, is they have huge development needs but they also need to pay attention to how to better use these monies in a smart way. Make sure these public sector spending or new borrowings can be sustainable.
GC: I wonder if you could just talk abit about the IMF view as to what 'One Belt One Road' will do for growth in the region and then perhaps what other political initiatives might come that would be useful to accelerate to a higher level of growth.
Tao Zhang: I think these have high potential, but at the same time, back to my earlier point that we need to make sure first of all, the macro framework is right, so that these financing needs can be appropriately accommodated. Secondly, of course, whatever money flowing into the countries, have the right capacity to absorb it.
GC: And just to wrap up, financial markets have been very insensitive to political risk. We've had a host of elections this year in Europe. And whilst we worried about them last year, this year markets have continued to grind higher regardless of what's taken place. We're now going to see party congress take place in China. We do have issues in Spain now with Catalonia, there's a Russian election early next year. There are a number of political events to come. Should the markets be more nervous around these events or do you think the current behaviour is appropriate.
Tao Zhang: I think the market should pay more attention to the implied vulnerability underlined as you pointed out - geopolitical risk, uncertainty in terms of policies - rather than just enjoy the good times. Indeed what you're saying, the conundrum, whether the market is insensitive or ignores whatever happens. But I strongly believe with everybody's effort, the awareness of the market will be there.