 I am Susana Fungaccio, I'm a senior advisor at Bofit and I will be chairing this panel. So in the morning the discussions concerning the debt were focused on sovereign debt and how we will turn, now we will turn to the corporate debt in emerging markets. And we are very happy to have four distinguished speakers with us today. So we have Professor Emeritus Epochon Kapohia from Aalto University here. Then we have Sanjay Banerjee who is a professor of finance in Nottingham University. Then Adam Gulan who is senior advisor here at the Bank of Finland at the research unit and Eva Kedola, senior economist at Bofit here in Bank of Finland. So similar to the previous panel, each panelist will have time for his talk. Here we will have seven minutes for each panelist and let us start with Seppo. So I would like to ask you how do you see the global economic situation in terms of risk to the financial system now. So Seppo please. Okay, it's a pleasure to be here and let me, I have limited amount of time so no further comments on general comments. So in response to what Susanna was asking, I'm going to talk about the financial situation from a general perspective first and then something about the corporate side towards the end and emerging markets as well. So as you all know I'm sure the situation in the world is significantly worsening. This has happened now as soon as the Covid pandemic was being brought under control and so we had the Covid crisis which was a significant crisis and now right after that we are getting a downturn in the economies. And interestingly what is interesting is that these negative trends, current negative trends they stem from supply side concerns from the Covid and so this is an example of a significant supply side shocks which we don't see negative shocks in supply in the economy that much. And so that's the situation and of course as you well know the two main concerns are inflation and the, and related to the tightening of monetary policy. Let me start by with the risks to financial stability and let me just see the, maybe it's not on, let's see, yeah, no it's not on, yeah, there we are. Okay so I'm going to use three figures but they are figures, three slides they are figures not text. So I'm allowed to go about the limit. So anyway the first is financial risks, you know you can see here the financial conditions index for main areas there and also a short term figure about what's the situation in the markets of volatility and liquidity which show these trends and indeed the risks to financial stability we see in increased volatility in both equity and bond markets and of course the near term forecast are showing for a slow down in growth and still fairly high inflation rates possibly slowing down a little bit next year but then that's of course a very uncertain situation. So the risks to near term economic development also like policy rates as you know are increasing quite rapidly and I expect it to increase further as we go into 2023. We are also having starting to have in Europe these problems with the some of the, some of the Euro area countries, some southern European countries. We are seeing increases in bond yields which are now at the pre pandemic level or even slightly higher and of course if you look at the emerging markets there are differences but on the whole, on the whole the stock markets in emerging economies have developed negatively. Of course that's not universally true because there are these commodity producers economies and their stock markets of course have been improving and you can see these phenomena with those two slides here. So if I now turn into the, about what about the emerging market economies some, again there's the financial conditions with the, for the emerging markets and as you can see there are on the whole negative developments for these EMEs. The commodity prices is as I said that's a non-universal situation because there are commodity price producers and but the prices, those markets have been fairly volatile oil, wheat and natural gas for example. Similarly metals is showing similar development and increases in early this year and then volatility in the prices and EMUs have then faced this tight situation and so central banks in, also in EMEs not only in advanced economies are on the whole in the process of tightening their interest rates. Stock and bond prices have fallen in the US and European markets and also emerging markets except for these commodity producer, commodity exporters. The US dollar is, increase in the US dollar exchange rate is of course one other major development here and that has gone up against most currencies in advanced economies and EMEs as well. Borrowing costs in low rate in markets have increased a lot and are higher than those in the investment grade and then portfolio flows have also been under pressure with increased currency flow, unflow that have stabilized it should be said for some but not all emerging market countries and you can see some of these figures here in this, not really the currencies but the financial conditions and also we see that if you look at the banking system so here we have on the right hand side we have the advanced economies, the percent of assets below 4.5 percent common equity at year one and we can see that there is no problem in the advanced economies but there begins to be a problem for emerging economies quite clearly about nearly a third of these bank assets are below the common equity at year one ratio so the interesting thing about these problems is that you know one can argue you know what what sort of shocks did we have of course the covid shock was significant and it created these bottlenecks lockdowns etc and they are significant so but they are not are they global shocks why are they not why are they you know the consequence we are seeing are largely global and not just regional that that's that's not it's not an entirely clear picture the obviously the second thing which we see in Europe but which has international repercussions is the Ukraine war which started in February again it's not a global event but it has had a significant international repercussions because of the energy markets energy markets you know the the supply of energies from from and also demand for energies was has has changed as part of the the conflict in Ukraine of course these are we are also in an interesting situation in the sense that we don't quite know we are in the process of of this happening and it's it's very difficult difficult to say what what what's what's going to happen and second of second I should say there are also time lags the luckily the financial data and price data comes quickly but what about the real real economic activity we are seeing we're seeing the first quarter of this year the second quarter second tentative numbers but that's that was most and so that's that's an that's also say that we are in the middle of this process hard to say anything very different definite where this this process is going on and I'm also almost out of time but let me let me show you the third figure which is about the sovereign debt exposures of banks in in emerging markets and comparison to advanced countries so on the on the left you see those situation that the in especially in emerging markets we have banks which have a lot of for you know sovereign debt in their portfolio and and and then on the right we see you know a little bit of the structure of these these debts and we see that yes you know there are you know this is in about bond holdings in in various places and you can see that that there is again the same picture same reason that there's domestically held back held debt a lot and in particular banks banks are important as part of this so what what we are seeing here in this in these figures is that that the after the covid pandemic there has been a tighter situation tighter situation with the sovereign bank bank nexus in the emerging markets in particular sovereign debt holdings are now about 17 percent of assets and you know that that's the left hand figure and in the advanced economies they are something like seven to eight percent so there's a very significant difference there at the same time of course public debts are in many countries high levels and sovereign sovereign debt or credit outlooks are deteriorating so this is this is i'm not saying that this is uncertainty but this is saying that it is possible that that in emerging markets we are in some of them we are going to start to see this this problem over feedback look between the banking and and and the soviet uh the sovereign so and which is we know that if that gets bad then that's going to be a big big problem in macro financial stability and that could that could spill over to the funding of non-financial firms as well if we have a if you have a serious financial crisis of that sort then that's going to be financing difficulties for non-financial first and and the problem again is the same as what i said already before this process is going on at the moment we don't we don't have any certainty or any even it's even hard to give probability statements about what might happen but it's worth keeping in mind that that this problem exists and could get worse okay thank you very much seppo and now let me pose a question to adam so what do you think are the important features of the of the debt of non-financial companies in emerging markets can we see some similarities between these countries yes thank you so i wanted to mention two features that characterize uh non-financial corporate debt in emerging countries and one is related to its structure and the second is related to issuance of that debt so if you look at the first slide this is that the composition of non-financial corporate debt in a in selected emerging countries divided into two main categories bank loans on the right and the bonds on on the left so the measure here is outstanding stock of that that relative to GDP expressed in percent so if you look just briefly at the at the y-axis you see that now loans are still the predominant mode of finance relative to market debt it's it's still much bigger but the trends are different right so if you look at loans over the last two decades or a bit less you see that this bank loan landing has been relatively flat in most countries and you can see some trends in russia which is green and china yellow but apart from that it's pretty flat you see the global financial crisis you see covet here but these are stock variables so you know these are just optics or slight wiggles in the data rather than trend breakdowns so those trends seem to be stable now if you look at bonds however those trends are very different you see that most of those countries plotted here have seen a sharp rise in issuance of market debt and in some cases like again yellow china mexico is brown and the orange is thailand have seen essentially an explosion of of market debt i have reported here most of major emerging countries notably skipping india thai turkey excuse me and and any of the central european countries such as poland they also see the trends but the bond markets are relatively minor so they wouldn't even fit the scale but sanjay will have more to say about this now what drives those trends well you can think of push and pull factors in international finance right and the pull factors will have to do with the fact that we didn't have seen many emerging market crises like the ones we have seen in the 80s and in the 90s so those countries have grown bigger richer more stable economically they became a larger share of global economy so became more attractive investment places those so firms in those countries have accumulated more more equity and clearly they become became more attractive now for the push factors well the main elephant in the room is perhaps the very expansionary monetary policy that the developed world has witnessed over the last decade now the trends as you see they have they have been before 2008 but they have really picked up after the global financial crisis and you know with international investors having hard time to find high return assets in the u.s. or in europe they would essentially search for yield and turn more to emerging economies for banks it's more difficult because banks after the gfc have witnessed the tightening of regulations and you can say that they became more risk averse in terms of purchasing assets from from abroad so hence disrebalancing two bonds and overall that the supply of for investment funds or pension funds in developed world due to aging population has been growing so the necessity to invest those funds goes up now the second thing i want to mention more briefly is the is more about data reporting so most of the data that you will ever see including the graph that i have shown before is residents based debt if the firm is registered in the country within the country border then its debt will be on the debts of that country's that statistics but it frequently happens so that firms have their daughter companies offshore and it is those daughter or even granddaughter companies that issue that debt and in which case the debt will actually be reported in the offshore country so take a clear example of china which would have due to capital controls daughter company in hong kong and that daughter company in hong kong will issue the this debt so it in the drastic case if you look at the right panel which is emerging countries and you look at the black dots and the very right y axis this is percent this is percent of all international debt of nfc firms for a given country and the 90 for china which is the left column tells you that 90 percent of chinese international debt is not issued in china itself but offshore and it can be caribbean offshore centers it can be east asian centers so in other words the international nfc debt is 10 times bigger than than what the residents based tell you and so this is an issue because it it matters for interpreting the numbers it it matters for you know knowing how much debt do we really have that debt which is issued offshore is essentially 100 dollar rise or euro rise in some cases and there is also a lot of off balance sheet items like foreign exchange rate swaps etc that so this is this is a challenge for monitoring and this means that we don't have a very good picture what how big that that actually is and how it will behave in in times of stress thanks thank you very much adam this is you are perfectly on time very very nice and now we will move to two big emerging markets and we will look at the situation there so adam has already mentioned india and that it was somewhere else not on that graph so let's ask sanjay how has the corporate bond market developed in india and yes thank you and thanks first i really kind of a thank the organizers to for such a brilliant workshop conference because i also since morning have learned a lot of new things okay now i will be mostly talking about the indian experiences but i have decided to go a little bit a different route because i have seen most of the speakers were concentrating on the debt market right so i will be talking about the debt market experience in india first and then i will talk about since the innovative finance is kind of one of the topics i will be kind of a coming to uh to as a later part of this talk on the some experience in india the innovative finance part so corporate bond market indian experiences actually had been quite piecemeal okay there have been um some periods the government and the investors have tried had succeeded again failed succeeded failed okay so compared to you know what adam kind of has showed uh you know the corporate debt markets in the other countries so the indian scenario okay was kind of a pretty dis smell i would say that is though it is increased by four fold okay from last 10 years say from 10.62 billion outstanding debt to um 48.24 but compared to say the trillion levels like in us 17.6 even korea is 2.2 trillion china is 26.7 okay the market is kind of a pretty much uh not not in very good in shape and also the corporate debt to gdp ratio i mean what's actually what the matter is that compared to the gdp of the country how big your market is right so we have to can absolute number doesn't matter much so the tail of o's could be traced to say like india could suggest like 22 percent compared to 85 percent us and you know 101 percent on average recently so there are multiple hurdles okay um we had kind of a sometime back mentioned those okay and i'll be just uh just referring to this uh and the passing for example in order to have a bond market you have to have proper infrastructure right the infrastructure means like you know there's the intermediation so like the bond dealers must be holding the inventory of bonds you know to make the market for you know buying and selling and etc so there's a lack of intermediaries lack of secondary markets right one buys bond in case of a liquidity shock they want to get a get get out but then you don't find the counterparty to sell or buy right so so all these things now yet the government has made for the last couple of years one very big changes okay because in the bond we kind of forget like the fixed coupon unless there is a bankruptcy so what the investors tend to worry about how much i get if the companies go wrong right so in the bankruptcy kind of india was say almost like you know for a typical time for resolution of bankruptcy was almost say 8 to 12 years but very recently there had been a kind of a banking sorry um uh insolvency bankruptcy code and that exactly tried to resolve that issue and of course recovery rate has improved from 4.1 percent to 45 percent okay the time for the resolution that has kind of gone down under bankruptcy okay to nearly two to three years even sometimes less but the haircuts have been massive okay which means that although the number of recoveries have increased okay but each case the slashing of the price in bankruptcy that has been extremely dismal sometimes 90 percent of the cases so i'll be kind of stopping for the for the indian experience on the corporate bond market over here okay because lots of efforts have been made but we didn't make much of a move okay but on the other hand the financial architecture even today's mornings talk about the green finance and etc we're talking most of the times only the bond market but the financial market actually kind of has a huge architecture like bond is kind of one part of it i mean there are equity markets there are different equity related product bond equity related products and etc so um i would kind of just mention like uh there's some success in the equity market especially for the small and medium um sectors okay so in india basically there are i mean there are many other countries as well but the way the success of india kind of a came in is that so there are sme platform there's two big sme platforms so they are the rest the less restrictions of kind of a you know making an ip over there and so that many small and medium companies could uh kind of pursue it and one of the interesting features is that there you can get upgraded to the main sector from the sme's which means that is the firms first initially starting with the sme sector platform but if they grow in size okay make inroads into the sales and growth okay they can migrate into the upper like you know the topmost uh tier right so they are actually what we have seen okay is that the quite a bit of success okay like um so we kind of just had a study whereby we kind of compared the companies which are joining the main board from outside versus the companies which first initiated in the sme and then kind of got upgraded to you can think about the football league you know you can join the first division or someone in the second division become champion and go to the first division so that kind of a thing so there you could see that is there like you know again for the shortage of time I'll just say that is the firms which is kind of migrated from the to the main board from the sme board okay they have done better performance in their equity in the sense of higher expected returns as well as their lower volatility so what I'm just trying to say here okay especially I'll kind of just tie it up with this uh in fact this morning's context as well okay that think about a very broad kind of financing where say think of a green finance where ultimately the problem is that adaption to the new technology right so it's a kind of a technological progress now the technological progress actually if you look at the technological firm okay none of them had the bank finances to begin with in fact actually the earlier speaker was talking about the difficulties of the bank finances bank will always confirm look at the resellability redeployability of the assets okay now somebody is doing changes in the technology you will have no assets if they fail right so for them the bond market actually would be also going to look luke luke warm as well but at the same time in order to supplement the bond market what my main point here is that one should have different kinds of equity market not for the top tier firms but for a range of firms very different kinds of products for example date sustainability issue that that in the morning was talking about the firms could for example change swap from old date to kind of a new date but they could swap from you know old date to kind of an equity as well right so which means that it would be giving investors kind of a more choice okay it would be kind of giving the firms more choice so the most innovative finance would be kind of integrating both equity and the debt market together rather than thinking in the silos am i right on time or yeah you are already over time i'm sorry okay all right yeah thank you very much and i didn't take too much of time right no it's okay but i started to look at you that's why okay but now now we we still have time to move to china and eva we have already heard about the high levels of debt in china so eva will tell us how have we come to this and if there is a way out possibly yes thank you and thank you for the organizers for inviting me to this panel it's been a really interesting morning listening to to the previous talks so um let's start with the figure of we have seen like some some some of these these figures already especially with with adam but but here's a figure of non-financial corporate debt per GDP in china and then in in four other countries uh japan spain and thailand to give some comparison of countries that have also experienced high levels of corporate debt in the past so china has accumulated a massive amount of corporate debt during the past 15 years and today it's equivalent as sanjay was showing the number 27 trillion u.s. dollars so it's equivalent to around 30 percent of the total global non-financial corporate debt and and the accumulation actually started in earnest after the great financial crisis in 2008 and nine when when china stimulated the economy by by massively encouraging um different agents to take on more debt and then invest that money into infrastructure and other construction projects and according to the initial plan the funds needed for the stimulus would come from three different sources so central government local governments and then banks but local governments were already back then quite fiscally constrained and and because they were prohibited to directly borrowing either from banks or or back then they couldn't issue their own bonds so what they then did was they established these own financing corporations or the abbreviation is lgf v's or local government financing vehicles so then then took care of the borrowing and and and the investing and the stimulus worked well as we know and because of that i guess this has been the the way that china has boosted its economic growth ever since today the lgf v's make up around 30 percent of the of the corporate debt in china so one peculiarity in the chinese context with regards to the non-financial corporation debt is in fact that large chunk of it is at least implicitly guaranteed by the local governments now today it's estimated that almost 60 percent of chinese corporates are today highly leveraged or highly indebted the highly indebted here by definition is that their cash flows are less than 12 percent of their total debt and half of those corporates that are highly indebted are in property and construction sector and so as we can see from the figure debt levels this high as we see in china today are at least in the past and in different countries have resulted in some kind of economic slowdown and deleveraging process now officials in china are of course aware of this of this fact and they they know that high high levels of debt is a challenge and from time to time they actually try to do things about it and and try to bring it down but for a country that has a custom to to boost its growth by taking on more and more debt and investing it in less and less productive investments it escaping this corporate debt trap is really difficult and especially problematic it is in china that has been stuck to these very high and very tight GDP growth targets for like over 10 years now and one crucial reason also for the ever-growing debt in the corporate sector with these LGFVs is that the local government officials their careers are are really dependent on on these high unrealistically high GDP growth targets so they have actually if if if GDP growth is stagnating they have no other choice but to take on more debt and invest in in infrastructure or or or construction so what china should do is to move away from these numerical targets and allow growth also to slow down from time to time so for china to lower indebtedness would mean that they should tolerate also declining growth rates and this is actually now what we are seeing is happening in the real estate sector so so the real estate sector has been highly indebted for years already house prices have increased massively and and they have gone somewhat already out of reach of like normal workers so it has also posed a social issue in the country and people were no longer buying houses to live in they actually bought them just to keep them empty for for investment sake because they thought that or they think that house prices will will grow up forever so now about two years ago china really decided that it was high time to do something about it and and and they started to pose restrictions on the debt so in the figure here I have some indicators of the real estate sector in china so you can see floor space starts then there are sales of property and and real estate investments and the two gray bars vertical bars are then the most important policy decisions that were taken to curb this excessive debt so the first one was in august 2020 officials imposed these three red lines for the developers to to tell them what was the maximum amount of debt they could take and then the second one came some months later that was restrictions for banks so there was a maximum limits how much banks balance sheets could tolerate real estate dependent credit and then as a result when the highly highly indebted developers could not get any more money from banks they were left with their sales income and at the same time of course 2020 was the COVID year so there were some COVID restrictions and and actually the demand for houses was declining so the developers were left with next to nothing so they couldn't pay their subcontractors they couldn't pay their loans they missed their bond payments they had to hold some of their construction projects and as developers started to to really be in trouble and it started to be visible then then people grew more and more uncertain about about the thing and the demand fell even further so as you see in the figure now we are the the slump has has lasted for around 18 months already and there have been some estimates that demand could fall for yet another six months or so and so it has already had a quite big impact on on growth rates but presently officials have hold on to the initial goal of lowering the excess in debt and so they haven't stepped in massively to to stop this decrease so overall as a concluding note if China really wants to reduce its corporate debt levels it would need to fundamentally change the economic growth model so move away from the heavy and heavy investment and credit driven growth and towards more consumption driven economic growth where perhaps the growth rates would not be as high but but growth would be more sustainable okay thank you thank you very much Eva so we are a little bit over time I have to say so let's see if there are questions from the floor uh anybody yes let's start with you go uh microphone I have a question for forever so I've done some work on on Chinese debt and one on a special day I always have a problem writing that but but I don't want to talk about this so another paper that we look at was on the with Richard Portes and Yi Wang was on the sort of possible negative consequences of regulations and what we found that when when the the Chinese central bank tried to limit borrowing from what they defined risky sectors then we had other firms acting like banks so we had very large firms which were not linked by this that would issue bonds in dollars in Hong Kong and then relent to the firms which could not access the credit market so I just I don't know if that's something that that you have been thinking about because that's so it seems that this this regulation actually backfired that made the the system even more fragile in a sense yeah thank you that that that's definitely true and and in China they are really innovative in in how to get money if something is regulated so there has been this really huge increase of the shadow banking market during the 2010s like from 2012 onwards but then they curved the the shadow banking market and then it moved forward to something else like you just described so yes that that that is a problem and and one part of the problem is that we don't know where it is and where it comes from and and it can't be tracked so yeah fully agree we have two more questions at least here in the front microphone microphone please thank you my comment is really about linking what we discussed now with the morning sessions because in the morning we talked about green transition from a capital allocation point of view and also from a policy point of view this session is really about deteriorating financial conditions so I wanted to hear from the panel if they see channels directing from financial conditions to green transition challenges for example if a bond becomes more expensive a local business group in a developing kind of mind cancel cleaner technology applications if working capital becomes more expensive the same for cleaning applications so I wanted to hear more about this and also related to the policy issue if they can see any segment of industrial policy that can tackle this these problems and these market failures as they evolve thank you shall we take the second question as well in the back yes thank you so much this great great presentation a specific point for eva I think it's important to when you talk about the the Chinese targets for growth the origin actually was related to figures on unemployment I believe that the the figure of like some five to eight percent whoever was was calculated because it was it was believed to be needed to to address the unemployment was growing from for the restructuring of the SOE so it actually that doesn't change at all your analysis but it's it's like you know it was actually a great target to have because they were worried about social unrest and it wasn't a particular financial but you're probably still right it probably still needs to be addressed the question I have is also to you because but but for the panel in general maybe relates to the previous question if I look at your first slide the I hope this was your first slide I can't quite read it the credit to non-financial corporate percent of GDP that increase of China I'd be interested to hear a little bit what those thank you what those comparisons mean they they I was saying to my neighbor when you're telling the story about China that that sounded a little bit like the history of Donald Trump's business is like the question is how long people do get away with the debt they accumulate the trust in governments I think it's really important to what people explain to me is that what China has been has has been able to have such a active private sector was that they have a trust in the government fulfilling their commitments and I'm just wondering what the implications of this are and and they're on that graph specifically it's like there anything in there why it it it is become higher in China and is it actually you know is it actually a problem if those government commitments are still to you know people still believe they are upheld thank you thank you so let's start whoever wants to answer well maybe I can I let me take the green one I'm stay I'm not an expert on this and I should really look at the sector more closely but but surely surely you know if the financial situation is overall deteriorating that's going to have an impact on on on that segment as well that green financing and this this project financing is going to be going to be more difficult how how much more and so forth I have no idea but but I think that this risk is and this tendency is it's likely to be there now in the right right now I should also add which maybe a little bit to what I said is that the you know I've looked at various various other other information concerning how people how is the situation viewed and and and and you know the the slowdown is is is fairly clear but as I said you know there is certainly central banks and other forecasters are suggesting that this inflation is slowing down now has started to slow down and they expect a significant significantly better situation next year and and that of course if that happened that's going to mean that central banks tightening of monetary policy will also also be less less than what what what was perhaps perceived perceived a little while ago so that's that's certainly one one important thing here as well there's also the question of the real growth of the economy which I didn't have time to talk talk but but there again you know this slowdown but still the basic for the main forecasts in various institutes are on the positive side but I have seen also some risk scenarios which even suggest negative growth slightly so so that's the that's the situation concerning the other forecasting institute so so I think it's telling us that yeah they now we have difficult times ahead but how difficult this is indeed very difficult to say say right now okay yes Sanjay I would kind of add something related to what is talking about that is the world has probably kind of a gone too much with the debt financing but we already can even know that there's a debt overhang problem the risk shifting problem in the sense people take lots of riskier projects with debt financing and etc now two issues one is a post pandemic situation obviously like in the similar circumstances equity would be better than debt because the production instruments are already there it is because of the problems of the contactability and disease that's why you cannot pay the banks or the investors right on time right so that the government has to kind of come up with a massive level of subsidies printing of money and I'm sure there is some of the problems that we are facing about this inflation partly due to all those kind of a liquid monetary policy carried out from those days but with equity financing of course there are many negative some negative aspects of there I'm not denying but given the situation that if a shock is struck okay by the forces for which no individual is responsible right then one should not like you know I mean basic information theory says that is then you should not kind of ask the person to pay for it okay which is the interest is a kind of commitment but the dividend is not right and secondly also like in a today's in the morning talk about the sustainability and etc so which means that like if you want to do this debt restructuring now obviously corporate debt restructuring not just for the date for the date sake for example debt restructuring means what you extend the maturity of debt that's only one instrument but you could for for example convert date with equity as well so for that you need some sort of a development of the equity market as well especially for the Indian context I'm kind of suggesting is that for the small and the medium units right so because much of the technological things would be coming these days from the small and medium sectors because we are not kind of going to see this huge GM or you know these guys are coming there are many many app-based technology many kind of a new technology are coming from the relatively SME means that this is small levels of employment right so one should be kind of you know I mean it should be a kind of a until a complementary you know platform to date is kind of a developed then it means all the shocks are absorbed by one particular sector that's not good for the economy let's let's continue with China go ahead the Chinese yeah the Chinese so yeah definitely there is a high trust in government that it will step in if if needed and these implicit guarantees have been one problem in the final in China because the risk is not visible or you don't like you think that there is no risk in in buying bonds of of corporates that are somewhat related to to government and actually they are now trying to do also something about the implicit guarantees especially with the LGFVs so so Beijing has started to say that that if an LGFV goes insolvent it should go in bankrupt and local government shouldn't step in so they try to actually break this implicit guarantee now for the LGFVs let's see what happens I don't know if if one big LGFV goes bust and I don't know what would be the implications for the whole market yeah so so that's one reason why China has been able to sustain these debt levels it has and also one like institutional I don't know if you could say it's a flaw but but the need to save excessively so so the savings rate in China is like 48 percent or 45 percent or something like that because they don't have safety nets and they have to save for their old days and that's one reason why why the debt levels are so high in China because there is so much excess saving so that's on the other hand it's a good thing that it's domestic backed debt but but on the other hand it's like the money would be more efficiently spent elsewhere I would say thank you we have question here Tony thank you my question relates to the the growth of the ESG mandate in the investment industry so the environment social impact and corporate governance mandates which have now you know risen up quite considerably in the marketing of funds and there are you know very mixed opinions about whether ESG is actually a valuable contribution or not but but I wondered what implications this has for getting more capital either equity or debt investment in the developing world because of course you know there are now emerging market funds with ESG criteria which are relatively sort of small scale on the global financial landscape but you would think there are potential opportunities particularly picking up on the themes this morning about companies that have a very good innovation technology in environment climate you know a small SME that's doing excellent work in that area is it investable in terms of debt or equity could it attract the ESG emerging market funds or is this you know something that's for the far future thank you that's a that's a question for anybody on the panel yes and let's take Cornell as well this is a very different question I mean this so far we've been talking with the debt crisis since the morning but I was listening to presentations on the data it seems there's also financial crisis looming you know not to fall in the future the kind of data they suggest that you presented the examples of massive haircuts in India the China property boom so is there a process of the debt crisis a sovereign debt crisis but financial crisis are where banks and non-financial corporations go under is that possible in the emerging market context as we've seen in 2008 in the mid-19th century station Latin American debt crisis financial crisis what's the possible financial crisis going along with the debt crisis which would be the worst of all possible words thank you so who wants to start okay so maybe I can say something about the financial crisis well there is no unknowns and unknown unknowns we we already know from the experience of of all times sort of how the emerging markets some types of emerging markets crisis work like the sovereign debt crisis in the 80s or then the east asian crisis now we have already learned from that so presumably some of those mistakes are partly avoidable to the extent that we know the data so we for example know the problem of dollarization right now this has for example the problem of dollarization has changed so back in the 80s and even in the 90s a lot of emerging markets sovereign debt was fully dollarized so those countries faced clear currency mismatches in the sense that a lot of debt was in dollars but revenue is taxes and taxes are local currency so clearly an exchange rate movement creates a problem today with this huge pile of corporate debt the picture is more mixed a lot of firms that issue that foreign debt or international debt it is dollarized but only some of those firms would have the currency mismatch so commodity exporters a typical thing in in emerging and developing countries they don't have this issue because it's oil and it's food and this is all traded in dollars but Eva will have more to say about this if you have debt say in the housing sector in china which has all the revenue in yuan i mean as long as yuan stays on fixed exchange rate it's okay but there is a clear potential currency mismatch there now another risk is a bit perhaps related to this offshore problem is the lack of data and the overall development of finance the fact that a lot of financial contracts are not even on balance sheets because they're foreign exchange rate swaps or or different types of derivatives so they are only conditional a lot of derivatives are used for hedging but not necessarily and then we will presumably only know expose because we don't have that data how how those risk will resolve thank you well i've already said quite a quite a lot of things this especially this currency mismatch much issue which is which can be important for developing countries i think otherwise i think you know again my my feeling is that you know the the this time the first of all the situation doesn't look that bad at the moment the trends are are worrying but they so far you know it's it's serious but it's it's not not really a crisis yet and and then the question is are we you know which Adam already posted have we learned from the past past mistakes and certainly yeah we have one thing we know as he said we have the corporate corporate debt is one part of the story which which is bigger than than than than before in the in the earlier earlier crisis but but there will but there are a lot of uncertainties so i will not put any bets on any any directions and the second thing is is is the chinese chinese debt which i must say i you know this is this is a continues to be a puzzling i remember some i think it was eight years ago i gave a talk talk talk about the international debt situation and i i showed a graph where the chinese debt ratio was much higher than the historically other ones i've read and said that that that is suggesting trouble well let's say eight years ago there's still there's maybe some trouble but not not really a crisis yet in china so so maybe maybe the answer is that people trust the chinese government still or they they have deep enough pockets to handle this this situation and the will to handle this situation okay i can for address this esg and the governance issues okay see that like the esg is an objective not necessarily it would be a form objective right it is social objective and in a typically kind of a you know in a company with the agency issues with some small founding shareholders and lots of dispersed stakeholders so one needs two things not only a large shareholder that we already kind of know for the proper governance but a large shareholder with an esg objective for example pension funds for example okay so until and unless you know in equilibrium in endogenous it would happen only in the market there would be a sort of large investors who'd have a high stake enough to exert their pressures in the governance but then their objectives must be aligned with the social objectives than the firm's objectives until that sort of things happen or even i really don't know how those things happen in equilibrium even because you know different of the institution's objective the different so the answer is that like we probably should not expect much to see the financial markets to make some progress towards esg unless there is a matching of the objectives okay ever do you have anything to add on china no except echoing seppo in that probably it is the deep pockets that that's ultimately the the thing that is refraining china from from experiencing a financial crisis because there is like these ownership ownership and financial linkages are really opaque and and and complex and one would think that there is like a high risk that something bad would would come out of that but it hasn't yet so let's see we have do we have any more questions we have time for one short question if there is any i can ask about the about the future maybe so what do you think are the cost and benefits of the rise of the in in non non-bank financing what do you see like going forward very short answers in clear any ideas i guess i can take some of it well so there is short run and long run in the short run in the short run it is more likely that i think that the growth in bond issuance may stop and this may or may slow down and the simple reason is that bonds are instruments that are more attractive in good times and they also require the investors to have a fair amount of skin in the game now as the economy is subsiding now globally clearly you know this is this becomes an issue now bank financing is more attractive in bad times because you know it's renegotiable debt so from that point of view i would say that short run is is more in favor of bank loans now in the long run no bonds tend to be cheaper they have been also it's a more long term type of instrument that is used by larger firms as as firms grow larger in emerging countries more of them will be seen to issue bonds okay thank you any other predictions for the future yeah now you see that is innovative finance let me kind of just uh only i think i'll just say this look at say today's technology this everything that we are in this room right it has kind of completely non-existent 15 20 years back right so it has been kind of a made possible through the venture capital organization of those intermediary within the financial sectors in a very big way with making complex contracts with the investors okay i mean there are you know several studies okay documenting how the venture capital kind of works now nobody actually asks them to produce internet right so that's how the market kind of responded like you know with the new technology number one thing you're not going to get bank because bank always looks for the safe ventures right the equity market okay they would be kind of for just too risky to be listed so you need somebody kind of you know like you know helping them to grow so similar to i say an intermediary not exactly as a replica of the venture capital before but something with this esg objectives and finding it out so that probably over time it may happen may not happen but looking at like you know because we're still like you know today's whatever i've just learned okay a little bit from today's discussion that still all this esg is still confined with the traditional modes of finance right green bond green bond is after all yeah at the end of the day is a bond right so whether it's called a blue bond and etc just can we say kind of one particular thing on in this context okay say for example if a green bond pays money then people don't ask questions okay whether there's been invested in the green technology or blue technology or whatever it is the investors are kind of quite happy so which means that there is no rating agencies that will kind of give diamond that will give the ratings in both dimensions the probability of bankruptcy and also the quality of the project right unless those sort of instruments do not rather institutions do not appear in the market probably i'll see that is the traditional finance is a bank or this will kind of grow and then if there is some need or some vacuum then probably that will kind of come up okay thank you this is a good time to finish so let me thank all the panelists for for their contribution and everybody for the attention