Zhu Min - Deputy Managing Director, IMF HARDtalk

broadcaster. Now it's time for HARDtalk.

The row between the European Union and China over solar panel has put

the focus on a China's over- production in many areas of

industry. It is something solar panels at Alloa or price then the

cost of production. Is the Chinese business model in danger of

collapse? My guess is Zhu Min, a former deputy of the People's Bank

of China and now a top official on the IMF. With Japan are trying to

awaken from 8 years of economic slumber, can Asia put itself on a

sustainable pattern of growth that is good for its people and the rest

Zhu Min, will come to HARDtalk. Thank you. How much trouble is

China's business and export model in? It is investment driven. Before

it was export driven. Obviously, the need moved to a more investment

driven model. Investment issue the Chinese economy is facing - the

good news is that the government is understanding. Authorities agree

that we have to move that way. I think there will be a reform agenda.

That issue of increasing consumption at home but first of

all, in global terms, wherever you go, you hear the same thing - China

is flooding our markets with ultra- chic products and factories are

closing. Is that a fair.? This is part of globalisation. Being able

to bring more and more Labour into the market and at low cost but

relatively high a product to every consumer. Which is very good news.

But it is more than that. There EU is threatening to raise import

tariffs on solar panels because China is producing no - he's

selling them at a price which is lower than producing them. China is

producing too many goods. It is not producing too many goods. With

globalisation, countries should be able to produce as much as they can.

There is unfair competition. That is the issue. Is there unfair

competition - but the point is, is their fair competition? Both have

the right to argue and defend. solar panel is one example of

overcapacity in China. What the former Secretary said it is that

it's not just clean technology - still, shipbuilding, China's

industrial policy relies of an array of subsidy. It is state

capitalism. I will not take that. If you save China has capacity

issue but it is not necessarily from the subsidy of the government

issue. The skill of economy is huge in China. When the world open the

market to Chinese company, to expand, for example - Taiwanese

company which employs one million employees to produce iPads. It is a

huge scale. Right? Is it will bad? I think it is good. Many countries

have benefited from China's rapid economic growth especially during

the economic downturn and many people happily use Chinese products.

But it is how you have done it and that it is not necessarily

sustainable because it relies on state subsidies. US space economist

the a study looking at all to parts in China and they said that it is

not the low labour costs and under evaluation that account for the

successes but subsidies which account for 30% of industrial up

wards. Most of the companies would probably be bankrupt without these

subsidies. These are two different issues. The first issue is the

scale. As I said, China does have a scale issue over capacity. It is a

serious problem for sustainability for the Chinese economy. What you

mean? Is it a skill shortage? capacity. They expect strong growth

but at the turn of demand is a wakening. We have a relative

economic growth. Originally, you were making too many things which

people, because of the slowdown globally, would not buy. But what

about the issue of state subsidy? Three years ago he would deputy-

governor of China's central bank and this kind of support was given

by the state. There is a lot of talking about the subsidy issue on

China. What about Europe? What about other parts of the world?

World Trade Organisation? They are supposed to play the role to handle

this issue. It is very easy for both sides to defend, argue and to

bring information on the table. That is the way to solve it. With

growth in China slipping to 7.5%, China's new leaders, Xi Jinping and

others, have said they want to tackle this issue of overcapacity

because some of these companies which have benefited from the huge

stimulus packages, now have to lose employees, closed down factories

and that is a big problem, or is it not? China's economic growth is

slowing down compared to a few years ago - it was more than 10%.

Now it is more than 7.8% which is slowing down by Chinese standards

but I well standards it is still very high. China has a lot of space

- physical its sector. There is room to move. But the key issue is

not growth but the quality of the growth. Changing the growth model.

Which means you need to give the people more so people can consume

more. And also export as well. the people and not if you're in

danger now, as you say, the business model has been dependent

on a state subsidy. You're going to close factories down if they're not

going to be brought domestically or externally. For example, open a

service sector. If you opened the service sector, and let people

moving, there is a lot of room for people to make money. You want to

be able to consume. You want people making more money so they can spend.

This is important. You have to create more opportunities for them.

The service sector is a big area. Also address the reason why China

consumer likes to save - largely because a large part of it is they

do not feel secure about their future. When I reached 75, who is

going to look after me? I a better start saving. You have to increase

public spending on health, education, and so people know that

they're going to look after them when they get older. I agree with

you. Why have they not done that? They are doing that. China is

building it gradually. They are providing healthcare. Building the

system does take time. You are absolutely right. There are two

things come and China have 49 GDP saving rate. They have a saving

culture. But the most important thing is that people feel uncertain

for their futures so they save more. This has been done and recognised

as a problem. However, you need to do this fairly quickly because it

may be good by international levels up growth is slowing which is going

to cause problems. You're going to have to address this problem but

how quickly can you do it? government is very committed. We

have conversations with civilians, authorities. The government agrees

and changing the growth model is a priority. When you were as senior

Chinese official, looking EU now with your IMF hat on., the IMF is

setting a lot of stores on Asia leading the global recovery. It

says that there Asia, 5.7% gross. With what we have been discussing

about the issues in China and the huge challenge us, is that optimism

misplace? Asia is slowing down. China, India and a few other

economies are slowing down. The second issue is the market has been

privatise because of concerns about the US. It is volatile. The row

concerns about economic growth for Asia. But in Asia, the physical

space is still there. Number two, the debt level is relatively low.

The country, government, household level. It is even a level -- lower.

In Asia, and growth is slowing down because of mostly of external

issues. Still allowed the room, Asia would be able to move into

growth. What about Japan and barking on an ambitious programme

of economic reform under Prime Minister Shenzou- RBA, Abenomics. -

- Shinzo Abe. Pumping money into the financial system. Is Japan on

the right track? It has had more than 20 years of economic slump.

Japan took decisive actions and move the economy out of the 20 EO

recession. This is good for the world. -- 20 my tea. They have 2.2

% of GDP for fiscal stimulus. government spending. 7% in GDP

growth for the sheer. This is good. -- for this year. But nothing is

for free. You are borrowing money. Japan has high debts all ready.

Over 250 %. The key issue, currently, is taking decisive

policies is important but they also have to take seriously the

consolidation plan to make sure you are able to stabilise the debt size.

The row concerns globally about big economies that this will amount to

a weaker yen which will make Japan's exports have much cheaper

and more attractive. That will bring up a whole new set of issues

and intentions. There is an possibility? The global community

have been very understanding. It is good news for Japan to move forward.

And let in the yen and go down? We have heard rumblings of these.

It will help the global financial stability. The IMF is keeping a

person, person, how do you feel working at

the IMF? You are familiar with the criticisms, run by the West. The

West make up more than 50% of the vote rise in the IMF. How does it

make you feel as a Chinese person? Who quarter has to reflect real

global structure also changed. The government reforms have to bring

more emerging-markets and has made increased shares. But even as

things stand, Belgium has more than twice than Brazil with 200 million.

Belgium, slightly less than India with a billion. Look at his figures.

It is not quite right. After 2010, we had a few issues. One issue was

GDP. The court will formula has many variables. Briefly, you make

it simple. My main point is that the West represents cost % of the

global population but their combined global vote in the IMF is

more than 50%. They control it. It is reached. Is that a valid

criticism? Yes. That is why we had the credit 10 governance reform.

But after that, the emerging economies, the top ten emerging

shareholders, in Japan, India and China, they were the top ten

shareholders. At the moment, China has 20% combined voting power were

on the 24 member board. The IMF contributions Asia makes he's a

small percentage. The US and UK make up more than 50%. His China

prepared to pay more as a result of having a greater say? That is the

rule. I think 2010 gave China and the voting vote of 60%. China has

to pay for the 60% of voting power and voice. That will be 2014?It

was the 2010 reform. When will it be implemented? The deadline is

24th October of. You past the deadline but it has not changed.

Why? It was the T20 initiative.In 2009. In 2010, in fact. -- G20.

Today, in all the G20s, one country has not validated the reform yet.

We need it. This is a major issue. We are still waiting. Even as

recently as October 2012, the Governor of the Baker of Korea said

the IMF does not reflect Asian interest effectively it its

decision-making process. You accept that is one of the key reasons why

IMF lacks legitimacy in Asia. have to keep reforms, the

governments reform, breezy shareholding structures, popular

structure. Then we have legitimacy. When an investigator from Singapore

says that there is an indisputable correlation between IMF assistance

and Western interest which reflects the fact they control the IMF as

things stand, does that mean when we see Asia as having a bigger say

in the IMF, the IMF will reflect the geopolitical interests of Asia

more? That is not the case.That is not going to happen? The voting

power is one thing. The main principle is dealing with countries

in different cases, maintaining fairness and transparency. We treat

every member with the same standards. Is that the case?The

voting power is true. It is different for markets. But overall,

that is the most important principle. When you look at Greece,

and IMF had an internal report in the fines and loans the IMF makes,

64% go to Europe. Next year, 80% of funds are for Europe. It makes you

wonder whether be. The professor makes is that the IMF reflects

Western interest is a valid one. -- point. Not really. Fines go to

countries with a crisis. That's all in Europe. -- funds. If you are

looking at five-97, the crisis in Asia from lending went to Asia. --

1995. It depends on where the crisis is. The crisis is in Europe.

Principally, you are looking at Greece. It has had many billions of

euros going to the assistant bailout. But the IMF admitted when

it came to Greece, it got it wrong. We got it wrong because of a few

things. We did not have the proper information at the time. We became

more you optimistic in terms of sustainability and grief. It is

good for the fund to do reviews afterwards so we can learn from

experience and integrate lessons, learned from those experiences in

the future. We thought you would have emerged from the experiences

by now with the Asian crisis in the mid-nineties and criticism of the

IMF policies like the Indonesians not properly assessing the impact

on people socially with austerity measures. But sailing with Greece,

the IMF said it was optimistic in its assumptions on growth in Greece.

Why was that a mistake made? Who was responsible? A few things. The

most important issue is, we do not have the proper information at the

time. It did not reflect the fiscal conditions in the system. You got

wrong information from grace? And the European Union? We made it

a clear case that we were too optimistic. But if we go back to

the same days, we would have made the same decision with the

information today. We do not break any rules. I'll give you one

example. You thought unemployment would be 15%. It is now 27%. He

made wrong assumptions. There has been a bit of concern that there

has been a blame game. One person said it is not fair or just for the

IMF to wash his hands and through be. Water on the Europeans. That

was said at a conference in Helsinki. We are not washing our

hands. We are learning from experience. Not only for us but for

everyone. We have good working relations. With the European

Commission and the central bank and Krikor? Will you carry on working

with them? Yes. -- troika. It depends on the situation. In Europe,

it is better to have three parties working together. In those days,

people recognised free parties working together to find a solution.

And the IMF did not give you the correct facts? That was the

information they had at the time. We had a proposal for the fiscal

plans. You are deputy at the IMF. Will somebody from China White you

become head of the IMF soon? depends on international community.