 it, which is very much needed, by the way. But slowing down in China is not a collapse. So last year, we grew at 6.6%. This year, perhaps something around 6%, let's say. And 6% is not a very slow pace. Now, the Chinese macro policy is a very data-dependent, I put it this way. So at this point, the government has already readied quite that strong of fiscal policy, as well as monetary policy. But if things continue to be challenging going forward, on the fiscal side, there's a lot room to expand. Some people worry about the overall debt in China. I think that to the corporate sector is a little bit too high, but the government sector can still leverage a lot. And you're already seeing the local government issuing more what we call project bond. The central government hasn't done so, and the ability for the central government to borrow more is also very, very large. So the bottom line is that China is slowing down, but it's not going to be a disaster. What areas would you say are seeing the most slowdown? I mean, because you make such an important point. It was the slowest pace of growth in three decades in 2018, and yet any country on the globe would love to say it is growing 6%. So can you identify the specific industries that you believe are actually leading that slowdown? Well, export is one example. The data from December for exports was not very encouraging. And we will see. Maybe it's a response to the trade dispute with the United States. It could be also an indication of global slowing down. And we will see how this will unfold. On the consumption side, last year, it actually did quite well. But then I mentioned the real estate market, because housing prices are perhaps too high, and that squeezed a lot of money out of households, squeezed consumptions. So we need to do a lot about housing. And infrastructure is another area, because a lot of infrastructures were done in China by local governments. And during the last few years, China has tightened up the implicit debt that local governments could borrow. But we've expanded the explicit debt that the local government can borrow. So there's a room there. We will see how the slowdown of infrastructure spending is dealt with this year. But again, the Chinese macro policy is very responsive, and also is data dependent. So as things unfold, we will respond accordingly. And the capacity for the Chinese government to respond to economic slowdown is still very high. If anything, we shall not overreact. Ray Dalio, you have to allocate capital, regardless of the environment, as the backdrop. And you've been doing that for years very effectively. In fact, even just in 2018, you were up almost 15% in the face of all of what we are talking about, increasing debt levels, global slowdown, and so many other things. Tell us how you see the backdrop and how you do allocate capital in this environment. Well, let's say the backdrop. Maybe I start with a template. I think over a period of time, there's productivity. And the growth rate of productivity is the most important thing. You learn more. You invent more. You become more efficient. And that rises. Then we have cycles around that. We have a normal business cycle, short-term debt cycle. And then there is a longer-term debt cycle, which has to do with the capacity of leveraging up, being limited when you approach zero interest rates or limitations in terms of the effectiveness of quantitative easing. So that framework is what I use when I'm looking at China, when I'm looking at any country. I think we make a bigger picture. I think we are in the later stages of the short-term debt cycle, meaning maybe we're in the seventh or eighth inning of that, and that there was an inappropriate, mistaken desire to tighten monetary policy at a level that was faster than the capital markets could handle. And as a result, we had a correction. We had 70 basis points change in rates. We had an important change in Fed policy regarding what the direction of Fed policy will be in that tightening. But we're in the later stages of the cycle when asset prices were fully priced and still are somewhat fully priced. I think the key question, like a woman, look at each country when we look at China, look at Europe, look at the United States, we will be in a slowing economic environment. That growth rate will slow, and probably in a self-reinforcing process. But the question really is, where the monetary policy is the nominated one's own currency. These are all cycles. The cycle, like in China, I agree. It's one of those cycles people pay attention to, but they have the power. The debt is in their currency. They can handle that cycle. But there is a weakening there. There is a slowing, certainly a substandard growth rate in Europe. And in the United States, there will be a significant slowing in that particular period, which should warrant an easier monetary policy. The bigger issues, so these are the cycles, and then there's constraints of monetary policy for being able to deal with that, then the bigger issues are really connected to politics and the economic policies associated with that. For example, when we cut corporate taxes and we also made interest rates low enough that it was attractive to borrow, to buy financial assets, particularly by companies having mergers and acquisitions, that caused a lot of growth in corporate debt. And that growth in corporate debt was used to finance those purchases, which supported the financial markets. So that is going to be less. So I think that probably next year, the slow up, and then the beginning of thinking about politics and what that might affect economic policy beyond, something like the talk of the 70% income tax, for example, will play a greater role. So I think that that's, if I'm covering the world, US, and we are living a world economy, US, Europe, China, all of those will be experienced a greater level of slowing, probably a greater level of disappointment. And I think there's a reasonable chance that by the end of that, that monetary policy and fiscal policy will have to become easier relative to what is now discounted in the markets. Yeah, I think you make such an important point, because for a decade, we had such low interest rate zero. And such easy monetary policy, not just in the United States, but across the world, as you see that being removed, it has to be disruptive, right? And I think at the end of the year, markets were reacting to the unwind of the Federal Reserve's balance sheet as much as the raising of interest rates. So I ask you, do we even have the wiggle room, if you will, in terms of cutting rates where they are? No, I think you could look at the level of interest rates and compare that to zero. And think about that times the duration of the assets. And that is the power that you can have in having financial assets impacted by easing a monetary policy. Then you have to ask yourself in terms of the balance sheets, how much can the balance sheets be increased, what would be purchased, and so on. So what scares me the most longer term is that we have limitations to monetary policy, which is our most valuable tool. We have important limitations to the effectiveness of that. At the same time as we have greater political and social antagonism. So the next downturn in the economy worries me the most. I think that there are a lot of parallels with the late 1930s. 1929 to 32, we had a debt crisis. Interest rates hit zero. Then there was a lot of printing of money, purchases of financial assets, drives financial asset prices higher, creates also a polarity, a populism, and an antagonism. We also had then at that time the phenomenon of a rising power like China dealing with the conflict of an existing power. These types of political issues are now very connected to economic issues and policy. So I think that that's the character of the environment we're in. Dr. Weber, you ran the Bundesbank for a time. I want to get your take on central bank policy as well. We also want to get into your assessment of China. In December, your firm announced you can, in fact, own a bank in China. You announced this in December. So we'll get back to that. But first, assess the story as you heard Ray discuss in terms of central banks and the ability to react to a slowdown at the structure. So Ray made the very important distinction between structure and business cycle. And I think that's important. Structurally, interest rates in most of the Western world, as we bounce back from the financial crisis, were very low for very long. And markets have gotten used to that. I think actually rates for at least for the better half of the last five years have been too low for the environment, for the economic environment we've been in. But of course, Ray mentioned the other point that central banks waited very long time with keeping rates low because they were not gearing monetary policy towards the expected state of the economy and to the rebound of growth, but they were in a kind of insurance policy where they wanted to mitigate any tail risk and therefore kept rates longer just to eliminate tail risk to the economy. And of course, when they started lifting rates, they tightened rates in a late cycle stage. So the impact of that is that if you look at monetary policy easing, which is if you look at the room to maneuver, the only central bank that has any room to maneuver is actually the Federal Reserve. If you look at traditional policy moves by the Fed, they lower rate very frequently at relatively large steps of 50 basis point. The Fed can do a number of interest rate steps down if need be. So I'm not worried about room to maneuver short term, but as Ray also said, given that we've had so long rates for long, the market hasn't really priced in much higher rates. If anything, the Fed has come towards neutral. They're not quite at neutral, but they're close to it. And so going back down is an emergency measure they can take, but I think it's more likely if you look at the year ahead that they're on pause now. I think we're going through a soft spot in the economy. Numbers have weakened, both in emerging markets and in developed markets, over the third and the fourth quarter. We'll probably see a soft spot continuing into the first quarter of this year. And then after the middle of the year, we have some hope that, you know, that stuff might be behind us. And that's not the point where monetary policy moves from tightening to easing. That's the point where monetary policy takes a pause, where they become data dependent, where they move into a wait-and-see attitude. I still have penciled in one or two rate hikes by the Fed over this year, but I think they'll take a pause now. They'll look at the data, and even when they resume, in my view, it won't be for mid-year. And then I think the rest really much depends on how the current conflicts that we haven't yet talked about, the tail risk, like the trade war and some of the other tail risks, Brexit, how that affects the global economy, what the spillback is back into the U.S., and how monetary policy should react to that in the United States. So I think central banks are on hold. The downside of central banks being on hold is the ECB will never even leave negative territory if they don't start raising rates this year. We still think there is some expectation that towards the end of the year, they might do a 25, 20 basis point rate hike. But the chances with the European data are also coming in weaker. French data are looking weaker. German data are looking weaker. Eurozone doesn't look very strong. The expectation is still more likely to postpone that into next year. So I think in general, monetary policy normalization is not an issue for this cycle. It's for the next cycle. They won't get it done this time because the economy is weakening, and so I think it will be mission aborted. They will look at normalizing rates in the next cycle, and they'll react to a slowing economy over the next year or two by a more muted and more cautious, more data-driven approach. Should the Fed slow down on the unwind? $50 billion a month is what the Fed had signaled in terms of selling securities. I think the unwind is less of an issue in the United States than it is in other constituencies because, you know, structurally, the Fed used to have a balance sheet that was around $750 billion. Long-term, I don't think the Fed will go back to its old size of the balance sheet. The central bank's balance sheets will be a much more central part of financial markets, and they'll be a multiple of what we saw in central bank balance sheets then. I think what the Fed needs to do is really look at sort of is that different role that central banks now have in the global economy where markets are looking very much for monetary policy as very often the only game in town is that the position central banks want to be in. Our Chinese friends just said the right thing. If you look at macro policies, monetary policy can react quickly because it's done by a committee of elected bureaucrats. The real bigger impact you get from fiscal policy, it reacts slower, it needs to go through parliament, decisional acts are longer, but it's much more impactful. And then the structural policies, don't forget the supply side. China is at the moment reacting with demand side measures, both easier monetary and fiscal policy to cushion the economy against cooling, but the more important measures that China is taking is all the supply side reforms in opening market. That creates a lot of gross potential, that creates productivity announcements. And so along with what Ray said, we're too focused on managing demand and managing sort of cyclical movements. We should be a lot more focused on longer term structural issues and getting those right because I think the other stuff is very much a distraction. You can spend time and money to cushion the economy against the downturn, but it's much better to enhance the gross potential of the economy so that the downturn doesn't really lead to such a big reset every time it happens, and it happens timing again. Yes, let's stay on this point for a moment in terms of China and the structural changes that we're seeing and the impact on the rest of the world. K.U., your thoughts? Let us be reminded that only two years ago, China was considered to be a ticking financial bomb. So what we're seeing as a recent slowdown is simply a consequence of the government's very successful effort to deleverage. So if we look at the different sectors, financial sectors deleveraging has been quite successful. Most of the debt to assets have stabilized. Household debt is increasing, but household debt was very low and one can argue too low for a while in China. So these efforts have made China financially much safer. And as a consequence, there will be a slowdown in economic growth. Part of it is of course kind of triggered by external factors, but much of this is the deliberate effort of the government to slow down the credit growth, et cetera. Now of course, growth has now become more of an issue. The government is always treading between the line between financial risk and economic growth and now they're shifting their focus more on revamping the growth. And as Dr. Fang has mentioned, China has a whole set, the Chinese government has a whole set of tools that are not normally available to other economies, whether it's the massive assets on the government balance sheet or the huge amount of saving in China or just a simply coordination, coordination of different state-owned banks and state-owned local governments, all of these things matter. That said, despite the fact that there are a lot of instruments to work with, I think China's main challenge is really how to unleash the real potential of the real economy. Right now, monetary policy is expanding, you're injecting more liquidity, you're pushing for proactive fiscal policy, reducing taxes, but the credit gets stuck in the financial sector. If it actually goes into the real economy, we are confident that there are real big forces of positive changes for the Chinese economy, whether it's entrepreneurship, it's innovation, the fact that services are rising, service productivity is rising, urbanization. But the trouble is really the financial system and how to match the investment and the savers and also give the household more ability to consume. If the real interest rate on bank deposits, which most of the saving is stuck, is earning zero in the last 10 years or 20 years while the economy is growing at 6% to 8%, you are not giving that potential to the households and to the private sector. So it's all about unleashing the latent dynamism in the private sector. Do you think the opening up of markets, do you think this trade issue with the United States will, in fact, impact the real economy in China? I think that trade war has come as a benefit in disguise because it is serving as the external pressure for China to undertake some of these really important reforms. And as Exo has mentioned, financial services has opened up or is really kind of on schedule to open up vastly. Consumers are now able to purchase many more goods from the US and from the rest of the world. China needs competition. So the financial sector needs competition. It needs to be injected with new blood and it is such things that will help with that. So opening up in general, which is consistent with China's longer term goals, is simply accelerated by the recent trade war. Dr. Fang, you wanted to say something? Yes, Dr. Weber had a very good point and that is as China right now seems to focus on macro demand management, the supply side policy has not been stopped and we continue to push forward for supply side, what we call supply side structural reform. And I'll give you a few examples and open up the financial sector for more international competition is one example. Dr. Weber can say to that. In the manufacturing sector, best BASF recently was given the opportunity to establish 100% own massive petrochemical plant in China. It used to be a 50-50 JV requirement. Now this requirement is gone. China has reduced input duty in a very substantial way. So there's more competition in the consumer market. So the supply side policy continued and that's very important point. And just to this audience, I want to say another word that is that China's vision in the foreign economy is to make it open and large and competitive. So it's not only an opportunity for the Chinese companies but it will also be a huge opportunity for all the companies from the world. Well, Ray, you've been in China for 30 years. You've been visiting there for 30 years. Axel, your firm just announced you now own a financial institution that you own 51% of, is that right? Yes, we were the first bank that was offered a 51% stake in a joint venture and we've executed that in December and we now are the majority owner. We already had management control and we're now free to increase that stake further. I think eventually as we invest in China and since our major partners are the municipalities of Beijing and Shanghai, there's likely gonna happen some delusion of our partners and we're looking into ways of raising capital also locally. So there is some welcome discussion between the Chinese authorities, not just with Hong Kong on the Shanghai-Hong Kong bond connect but also there was an ongoing discussion with London. I know that Dr. Fang is talking to the Swiss authorities for the more we can connect stock markets, the more we can actually be super connectors as international financial institutions to bring international investors into the Chinese economy and to help Chinese investors invest in the rest of the world and it's absolutely right what our Chinese colleagues have said. The Chinese economy needs competition and they're working I think on three legs of that. First is state-owned enterprise reform and I think that is very important and we've all gone through that in Europe in the 90s of having former official sector conglomerates move to the private sector. The second one is competition between state-owned enterprises and private enterprises in China and the third one is, and the authorities so far have been more cautious, opening up the Chinese economy for international competition because that will really be a major contribution to increasing the competitiveness of companies and of course we as international experienced investors can help in that process and actually can help both Chinese investors internationally and international investors in China. Just to give you an example, banks like UBS, we have a 24% share on the northbound traffic of the A-Share market in the Hong Kong Shanghai Stock Connect. So we're kind of the go-to bank for a quarter of the investors into mainland China internationally. Our market share for Chinese investors southbound is below 1%. We're not the go-to bank for international investments for Chinese citizens and as we're granted majority rights as we're investing in our business, we just doubled our headcount in China over the last few years. We will become a major go-to partner also for Chinese investors in the global economy but that will happen at a more measured pace because there is some concern in China that this will impact on the exchange rate so the opening up process is more controlled but it's happening. Don't mistake speed for direction. The direction is very clear. The speed I think has been really sort of increased recently after what was just in China in the first weekend. The constructive dialogues we had with Chinese authority is really on a totally different page today than it was a few years ago. So I'm very confident about this process. Let's not forget out of the top 20 banks in the world, the top five are Chinese, right? Well, you mentioned I've been there 30 years and I've watched it evolve and I think there are two types of things that are going on. Let's call them the short term and the long term, right? As I say, productivity is the big thing in the short, in the long term and that's the real big thing. And then you have the short term debt cycles and you have the short term thing. So the two things that are happening short term is that you're having a deleveraging that you so articulately dealt with. There was an over-leveraging and there was a development of the financial markets. When I, not long ago, it was really five or six years ago, five major banks, lowering money to state-owned enterprises and the money was clogged at the top. Then there was the development of the shadow banking system and liberalization of that and then now put into place regulation. Whenever you're having a deleveraging, that is something that makes the country healthier because you're deleveraging but it has a short term effect but it has a long term positive. So there's the deleveraging happening, it's a short term thing and then there's the trade issues associated with that which is also a short term thing. But if you take productivity growth, if you take the approach and I think it really has to be admired as Chinese characteristics as it's described, it's a certain top-down, it's a cultural challenge for the West but there's a top-down way of setting a mission for 2025 plan or a plan and working those things in a top-down way with unique resources available that has produced in the time that I've been there, an increase of 20 times in incomes. The movement of, it used to be the below poverty level, it's 88% of the population was below poverty level. Today it's less than 1%. There is an ability to produce productivity but it's a culture clash with the West in some ways because as one of the leaders has described it to me, the United States is a country of individualists and individual is working that up. China is more of a country of, that is an extension of the model of the family. He described, he said, there's the word country in China represents state family and if you go back to Confucianism and how it is to run top-downs and that is where there's an element of a culture clash. At the same time, when you look at that productivity and the policies and things, it's a very effective place. So I would say it's important to distinguish the short-term influences from the longer-term productivity influences and then recognize that we're now in a world where there is a competition and that can mean conflict in different dimensions between the two countries. That means, I think the trade issue is a manageable issue. I think the way of being issue is a challenging issue because you can't expect, Americans can't expect Chinese to operate in a way that is different from that or vice versa. So I think that's the bigger longer-term issue but I think you'd have to be very optimistic when you think of even a five or a 6% growth rate and what that's gonna mean and what the world will look like in 10 or 20 years, it'll be quite a different world in which China's going to be, I think, a lot stronger. So I think that's the picture. Let's not confuse the short-term with that bigger picture, evolutionary picture. But what about the picture of debt? I mean, how worried should we be about debt? Particularly, I mean, the US has to sell debt. China, obviously one of the biggest, most significant holders of the US's debt. Are any of these issues, Dr. Fang, in terms of the trade spat, in terms of slowing growth in China, are they impacting capital flows? You know, China will continue to be what we call a saving surplus country for some time. Although the saving is kind of declining, but it will be a saving surplus country. So we have to invest abroad and the US government bond market turns out to be a good place to invest. So I don't think China will, you know, in any way significantly reduce its investment into the US government bond market. But on the other hand, in terms of capital flow, you know, we do open up. We want more companies from different sectors to come into China. So that should increase capital inflows. We want to increase both ways. And I want to, you know, at one point to what Ray Dalio just said about the cultural shock, right? China does have sort of a different approach to economic management. And I think in this world, perhaps we should, you know, learn from each other a little bit. And I want to give you one example about how we manage our financial risk. Over the last 40 years, you know, China hasn't had a very significant financial crisis, for example. And that's very rare among the developing world. And I used to work for the World Bank and, you know, we have financial crisis in the developing countries a lot. And how China has been able to avoid financial crisis, right? In the last 40 years. Well, we have a very kind of top-down approach to financial risk management. And that is the central government constantly is in touch with the financial sector, you know, getting information from the financial sector in a timely manner. And if there's any risk accumulating in the system, the government, you know, will step in and order the risk to be reduced. Now, of course, sometimes we will still miss something, right? So occasionally we have certain financial jitteries in the market. But once we have that financial jittery, you know, our system is able to react to these jitteries in a very quick way. And we move quickly to contain the risk so that the risk does not spread into the entire system and it does not create panic in the system. And then as the economy grows, right, the risk is diluted going forward. So that's how we have been able to grow our economy by so much and grow the financial system by so much without, you know, incurring a major financial risk. So there's some lesson there. I think that, you know, the rest of world perhaps should take a look at. I think there's, if I may, there's also a point of no return in this whole thing about opening up for China because you have to look at China's weight in the global economy has really increased massively. China is bordering on to, you know, at least 20% weight in the global economy. If you look at exports, if you look at global growth, still today, most of the growth that we see globally is generated by China's inclusion into the world economy. Now, that is reflected by now putting China a lot more into portfolios because you can't just have a big part of the global economy be Chinese and investors completely have zero exposure to that growth in their portfolio. So China gets inclusions into indices like the MSCI and the equity indices or in the bond indices like the Bloomberg index. Our estimate is over the next quarters there will be 250 billion of capital inflows into China basically just by this 4% weight that China will get. Now, so far raised absolutely right. China debt is not a problem because it's largely domestically held. Domestic policies and redistribution of that debt can easily be engineered by policy makers. International investors, if they invest in China debt or equity, they want different standards. They want accounting standards. They want very clear solid products to invest in. So what is happening is that will raise the standards and the bars for equity markets in China because you need to bring international investors in and you also need to allow because you just don't want a big inflow into the Chinese economy that puts upward pressure on the exchange rate. You need to open up in sync international investments for your citizens to invest in the rest of the world. So you create capital outflows. So in the future the whole debate about QFI and QDI quotas will be a lot more interlinked because large banks like us who compete at the top level for Chinese clients will have to do both. Only if our action is not just one-sided by bringing international capital in but also have in Chinese investor broad we will not have an impact in what we do on policy preferences like no impact on the exchange rate. So I think there is a point of no return where you simply once you open up you get included in these index you get drawn into the global economy and that's where I think you really need to do these supply side reforms to do that in a more resilient manner. So I'm not worried about the sort of credit cycle in China at the moment because the Chinese central bank can really create a lot more monetary stimulus without even touching interest rates. Reserve requirements are at 23%. I think it's the last number I saw. You can massively reduce reserve requirements for domestic banks and create credit origination without really doing anything through the interest rate channel. This point of no return of opening up. Well, the main reason is that opening up is good for China. You know, you mentioned the Asia inclusion into MSCI index and the effect that that inclusion is already felt in the Chinese market in terms of raising the quality of the market because we now have to respond to the demand of the international institution investors. So just to give you a very concrete example in the Shanghai Stock Exchange, we used to calculate the closing price of a stock by its last trade and that's not very good for international investors. Now according to their request, we have changed that into the average price of the last three minutes in a concentrated trading manner and now it's much better according to the international investors. So this is just a very small example of how opening up has been good for China and we will continue to do that. I would like to push back on a little bit of this point. If we look back, you know, maybe 200 years back, this century's financial history might well be written by China. Now it's not just a question whether China is ready or not for opening up and here we're talking not just about opening up to trade but opening up capital accounts and exchange rate flexibility. The question is, is the world ready? Let us be reminded that China's still a developing country with a financial system with a whole array of issues because of the weight it has in the economy because even so far it hasn't opened up the financial linkages but when it does, all of its volatility in China will transmit to the world in much greater proportions than we've seen. 2015, 2017, these were small movements in China and they sent jitters to the financial markets. Now imagine a really open Chinese market. The point behind this is, should China not consider domestic financial reforms sort its domestic issues first before thinking about really wide scale opening up in which case the financial linkages would be much stronger? So the world also needs to understand that the second largest economy in the world and the ones that's gonna be transmitting the volatility is still a developing country. That's the first point. The second is, we've talked about how most of us agree that the debt problems in China are within management. I would agree, I would say definitely the same but it's really about how this debt is used and how this credit is used. Since 2009, the 40 trillion, 4 trillion RMB fiscal stimulus has led to a gross misallocation of resources. So it's not so much about the level of debt, the amount of credit in the economy, but where it is going. Is it just going to big SOEs, low productivity firms, infrastructure projects, or is this credit channel to productive parts of the sector? Now if the misallocation of resources can be reduced then there is enormous potential for China to continue to grow. Lastly, I want to point to two facts that we've recently seen. For the first time in decades, in the first half of 2018, China is now importing more from the world than it's exporting. It's running a current account deficit. That has huge implications. Now the two gentlemen on my left have talked about low interest rate, about challenges to monetary policy both in Europe and the US. China will serve as a main source of aggregate demand. Where aggregate demand, as we have seen, is very lacking in the rest of the world. Inflation has not come up, interest rates are still at record low levels. China will potentially be an important source of aggregate demand going forward now that it's importing more. So pushing for a divorce with China is not necessarily a good idea. I just want, oh sorry. I think you reminded me as a regulator of our responsibilities, right? Because as China draws more capital into its financial market, the jitteries inside China can have a huge impact in the international world. And we have to raise our capabilities to do a better job. I think we also have to look at what's happening in the light of the rises and declines of reserve currencies in the world and the normal patterns. And if you look at it from the Dutch gilder, the British pound, and the US dollar, and now China, and how countries evolve, and you look at those patterns over a series of history, we know that, first of all, technology is the leading reason for the developments. We know that each of those countries has to go global with their currency and their banks. We know that they have to develop their financial markets. Every one of those has had a financial center. Amsterdam was, London was, New York was, and now in China they must have their financial markets. We know that that opening up helps their balance of payments, and it also helps the development of, the development of the RMMB as a reserve currency, the going global of China. That will happen. That's an inevitable part of the development. Simultaneously though, we have to look at the United States and we have to think of its implications. There was a cycle that this happens. The rises of these reserve currencies happen because the company countries become more competitive, technologies, and all of those things balance of payments, and they go global. The declines of world reserve currencies happen quite often because they have reserve currencies. There's a lot of lending to them. And in the United States, we have to talk about the United States and the United States debt, a government debt. We're talking a lot about China, and that's part of that puzzle, a big part of that puzzle. But we also have a real problem in terms of the quantity of debt that we're going to have to sell to the rest of the world over the next few years. We've experienced a lot of stimulation because of a combination of the tax cuts and the stimulation. If you do the projections, the pro forma projections, and think who's going to buy that amount of debt and the amount of debt that we have to sell, I think that that's going to be an issue. So when we're talking about the balance, I think the normal evolution will be globalization in which I would characterize China as basically allowing very free markets in many ways within boundaries and then not to let it go outside of that boundary of volatility. So if I was to take a foreign exchange policy, you will have more freedom, but you'll have boundaries so it can't go beyond those boundaries, which I think is a good thing. And then, but you're going to have that globalization, you're going to have the development of the currency. And there is a problem or a challenge in terms of debt, which relates to the currency issue because a bond is a promise to deliver a lot of currency. It's just basically a pile of currency spread over a period of time. And I would say that if you were to take a longer term perspective, two or three or four years, that that's going to be an issue. And so I do think the capital flows and the nature of that balance of payments issue is going to be a factor in the years ahead. Do you want to comment on that, Dr. Fang, before we move on? I want to get the questions from the audience and I do want to turn back to Europe. But first, can you respond to what Ray just presented? Yeah, essentially what Ray said is that the Chinese economy is so large, so whatever happens in China has a lot of impact on the world and as we draw capital in, there will be capital flowing out. I think one of the lessons that China learned over the last few years is that we know that we are a large economy, so our impact on the rest of the world is something that we have to take into account when we make policies. So we want to make sure that the policy changes in China as well as the economic variable changes in China is not so large because if it's very big or it's kind of very steep, it's going to have a very big impact on the rest of the world and we understand that. Dr. Fang, let me ask you before we close the loop on this subject, obviously opening up the markets in China appears to be a priority for the Chinese leadership to the rest of the world. How much of a priority is the forced transfer of technology and IP theft? I'm not an expert in this area. You know, we are against forced technology transfer and IP theft, of course, is not something that we would like to see. I think we can sit down and talk about these things. Would that be something, as far as part of a deal with the United States, that you would try to make progress on those issues? We are willing to talk to the United States on every issue that the US raises. And our overall objective is to have, you know, a cooperative relations in economics, as well as in other areas with the United States. This is such a rich topic. We can continue talking about it, but I want to hear from all of you because we have such an informed and experienced group in the audience. Yes, sir, right here. Please say who you are. And by the way, this is being live streamed on Top Link, World Economic Forum, as well as on Fox Business. You should know that. I wanted to say that from the beginning. Please, sir, go ahead. Thank you. My name's Anthony Hobley. I'm the CEO of the Carbon Tracker Initiative. I guess we're mission-driven, philanthropically funded investment bank analysts. The title of this session is Rethinking Global Financial Risk. In the WEF survey that just came out of global risks, I think three or four out of the top five is climate change. So why hasn't the C-word or the double C-word even come up in this conversation? Is this what Mark Carney said? It's the tragedy of the horizon. So Mark Carney, the governor of the Bank of England. We've just had last week, I think, PGA and L, the California Utility Company putting itself into Chapter 11 to protect itself from the liabilities from the wildfires which have been exacerbated by climate change. So I guess my question to the panel is when you're talking about Rethinking Global Financial Risk and the community that makes up WEF thinks that's one of the biggest issues of three or four of the biggest issues in the world. Why haven't you even raised that as part of this conversation? I think that there are a number of issues that we haven't raised at the limited amount of time and there's a flow. But I mean, of course that's going to be a big business issue, I think that's correct. We didn't deal with the wealth gap and we didn't deal with technologies and we didn't deal with artificial intelligence and we didn't deal with a whole laundry list of important things, limited amount of time and I guess we became more focused on China but it's an important issue. And we will touch as well on Brexit because this is another on 13 Europe. How much of an issue are the issues in Europe as impacting the rest of the world? Very quickly. Well, I think it's an unfolding story and last year I remember when everyone felt that the sky was the limit and there was a huge sort of common belief that things could only get better. This year I think the mood is a bit too gloomy. I still have firm beliefs that policy makers are elected to provide solutions. Sometimes it's a winding road, sometimes there are setbacks. So this has been a pretty volatile evolving situation. I think ultimately it is not in anybody's interest to have an unorderly Brexit without new rules of the game being defined. If that requires because they started late and they didn't gain traction and they didn't agree early, if that requires more time to negotiate, that's the rational thing to do. I think creating domestic acceptance for a deal you're about to sign is as important as having the other side agree to that deal with you and so I think the commission and everyone should give themselves the time in order to mitigate what is a tail risk for Europe. I don't see the calendar and basically triggering exit without really having the solution as a why strategy. I didn't think it was a why strategy at the time. I think we're starting to see that the clock is running out and the other thing for me to do when that is the case and you're not done is you should stop the clock and stop negotiations only then when you've got a deal. I think a unorderly Brexit in nobody's interest and I take some reassurance by the fact that the British Parliament is more deeply involved now in these discussions because ultimately the Parliament has made clear that we want to move to a new stage but we want to do that in an orderly way and not doing it without a deal is not something that is the preference of many. So you think Britain leaves the European Union but they will not do it in a hard way. They will do it with a well thought out trade situation with partners. I've been in so many financial rescues 10 years ago. It always looked a very difficult situation at one o'clock at night. Two o'clock when the Japanese markets opened we needed a solution. Usually that last hour was where most of the things moved. So I'm still you know we're we're still sort of almost 60 days away from from that March end date. And I think there will be some own dynamics in this. In the end I think people have to start making compromises. This is you know it's OK to insist on your position if you're negotiating but in the end if you want a deal everyone needs to compromise. I haven't seen the compromises on the table. Let's get as many questions as we can and go ahead sir. Just very quickly my name is Marcos Brujiz. I'm the chief executive of the IFC asset management company International Finance Corporation. One thing that we've seen in China is that reserves have gone down from around four billion dollars in 2014 to four trillion dollars 2014 2015. They are now below three. So it's more modern a trillion has been spent. A lot of this money has been spent through some of these sovereign and quasi sovereign wealth funds. SAVE CIC the money that went into AIB. And a lot of this money has gone to very risky markets. I'm originally from Latin America so I've been worried when I've seen some of that money going to Venezuela which if you ask me it's going to be hard to collect. Let's put it mildly. My question to the panel is if as a result of these very aggressive investments in very difficult markets in Africa, in South Asia that not all of them will go great. If you will see that China will all of a sudden begin borrowing a little bit in the United States style in order to continue funding. For example it's Belt and Road Initiative. Comments? Well I think three trillion, we are still still slightly above three trillion. And three trillion is perhaps more than enough as foreign currency reserve. Now of course we can always make better use of the foreign currency reserve that we have. And you pointed out Venezuela, these countries, whether China is using this foreign currency reserve wisely or not, well it remains to be seen. We still need some more time. But we can always make improvement in these aspects. 15 years ago people were complaining that China was purchasing US treasuries and losing money. And they had to go for higher return, more diversified assets. And you're seeing the consequence of that. Yes, sir. My name is Gilberto Marina. I am the president of Al Quimara. I would like to hear some comments about the abuses on risk in Latin America, especially in Brazil and Mexico. Great question. And we will hear from the new president of Brazil at the World Economic Forum today at 3.30. Comments about Latin America? I think that the cycle in Brazil has been a good cycle in terms of the changes. Terrible balance payments. It became expensive. It was bank subsidies by the government, a number of things that created a classic balance payments crisis, a classic debt crisis, in which then the exchange rate became very cheap. And you had then the funding. And it became somewhat attractive to invest in. And now we're dealing with the political questions that will come out of that. So I would say, by and large, it's in a good track. But there are questions in terms of pension reforms, political reforms, corruption issues. All of those enter into a picture of what Brazil will look like coming forward. So I would say, on a good track, but there's a lot to be seen. And we'll see what Mr. Bolsonaro says today from here in Davos. Yes, sir. Jacob. Thank you. I'm Jacob Frankl, chairman, JP Morgan Chase International. First of all, it was a fantastic panel. It was taken for granted that the US is ahead of the game in terms of recovery. But I want to make sure that we recognize that it's not just a cycle and we just need to wait and everything else will happen. It was the results of policies. There is a consensus. The reason why the US performance has been so positive, it reflects the corporate tax reform. It reflects policies concerning the trapped capital. It reflects the deregulation. It reflects the attitude toward business and the like. So it's not a political statement, but it's a statement that says, you want to see results, you better do some policies. And it is the corporate sector that does the growth. Therefore, it needs to be not to be the enemy, but a partner. Having said all of this, and given that there are so many other sessions, still, there is one overwhelming subject of risk that we do not have a good systemic answer to. And it has to do with the cyber. We do not have the international agreements about it and the like, and that's something that all of us are really losing sleep about. Thank you so much, Jacob. As we wrap up, let me just reiterate some of the points that were made on this panel. It does appear that we are in a slowing economic environment, although Dr. Fang mentions that 6% growth is still quite attractive. And also, KU made the point that China will ultimately be the solution for the world in terms of demand and the place that we will see many imports coming in. China is now importing more last year than it actually exported. Ray Dalio made a very important point in terms of capital flows and what your expectation is in terms of, as this deleveraging goes on in China, what the impact will be on the dollar. It sounds like you will have concerns there. You made the point on Brexit, and the point on the European situation is what? That you believe Brexit will take place, but you do believe Comerheads will prevail and it will not be a hard exit. At least I hope so. You never know. But I think it would be completely irrational to let this situation get out of hand. Europe has been challenged over the last decade with homemade problems. If you look at France, if you look at Germany, there are major leadership issues in all of our countries and adding Brexit as an uncontrollable risk to that mix would just set Europe back for years to come. So I think it is nobody's interest to really do a heisty exit without an organized deal. So yes, I hope and I believe that policy makers will have their concerns. Thank you, ladies and gentlemen. Thank you for your esteemed panel. Have a good day.