Don't worry too much about market, they will recover: expert

"The market always gets panic with all of this kind of overreaction and panic, even worse than the overreaction, and the market expected the other party would react... So the calculation from market is not only on what the U.S. take, but also what China will react."

-- Fan Gang, member of the Monetary Policy Committee from the PBOC

Fan Gang at the Boao Forum for Asia [Photo: Xinhua]

Boao Forum for Asia has officially opened in the southern town on Sunday. Our reporter Zou Yue talked with Fan Gang, member of the Monetary Policy Committee from the People's Bank of China, the country's central bank, on the just released report on Asian integration and competitiveness, as well as Sino-US trade tension and global markets' reaction.

Q: Mr. Fan, the reports have been released is talking about Asians competitiveness and integration. Of course there are external factors, but how do you evaluate Asian integration? 

A: I haven't read the report, but the integration of Asian economy has been the phenomena for a long time. This is not something organized by somebody. It's just market forces. It integrated into supply chain. It's a division of labor and then everybody have its position. Everybody has competitiveness, special competitiveness, or comparative advantage in the supply chain. So that's why… because of the market forces, market driven, so that's why this competitiveness is well…

Q: Why Asia can develop such a natural chain that of values. 

A: That's… uh… we need to think a lot of things including the cultural issue, including the stabilities in the past decades, including the government efforts, government policies, but anyway, start with the East Asia, and then go to Southeast Asia, now more involved with the Central Asia and Western Asia, Southern Asia, you can say. So you know, just one by one people realize this is a way of economic development, before we most of us are developing countries in low income. Some are very low, but we realize this is a way, this globalization, regionalization and joining the global supply chain is the way for the economics of…

Q: So everybody is climbing up the ladder of value in Asia. Is that so…

A: Yeah, one way or another. At the beginning, It was so-called the leapfrog leading by Japan. You know and then the four small dragons, South Korea, Hong Kong, Taiwan, yeah and then the Chinese mainland, then the four tigers, small tigers. So all follow up. So that's an interesting phenomenon because this is a market force. So the competitiveness is real. So then it turned out this is the most interesting place in the world, most dynamic place of the world and it contributes to something like 60% of global GDP growth, not a total GDP yet, but GDP growth. So this is a really something we need to put more analytical effort to tell the people and tell the world why it happened. 

Q: But there are worrying signs, for example, the down trend of, downward trend of trade to advanced economies, Europe and North America, and there is a downward trend of trade from Asia. Is this something that we should worry about?

A: U.S. and Europe are actually in the upturn of the economy and the export to those two markets has been increasing in recent years. The only problem is trade frictions, which are looming there and people worried, that may cause a down turn. That just shows, you know, when you have one trade friction with one country. Now maybe have chain effect on the other, because we are on the same supply chain. If one spot on this chain got the problems, everybody else may feel the impact. So that's why this anti-globalization is really anti-globalization, because anti one country means anti-globalization. 

Q: So what should China and to a large extent, Asia, deal with this kind of protectionists' impulse?

A: Well, first of all, you need to deal. You deal with whatever you do in normal actions, reactions that you have to do, but most importantly, I think we should continue the globalization. We should continue our market supply chain, with the other countries. Even though we have trade frictions with one country or two countries, but we still can do business with other countries, right? We still can do business with Asian countries, and that's the strength of Asia. I don't know if you know the word called emerging Asia. Emerging Asia is the most dynamic part. We will not only, you know, do the business with the developed Asia, like Japan, like Korea. We also develop market with the emerging countries.

Q: Apart from trading within ourselves. What particular measures should China do, tit for tat against the U.S.? 

A: Well this is normal, so called the reciprocal action or reactions. What do you do? Retaliation? Yeah, so called retaliation. Well, I'm not going to do other things, but if you increase tariff on my products, okay, I increase tariffs on your products. That's a normal so called reciprocal process. It's called a trade war. Hopefully it's not escalating right? Hopefully it can be more rationally dealt with, but we need…at the moment, we need to prepare for anything happen. 

Q: The ongoing trade spat between China and the U.S. has become a global issue of concern. It's also one of the major topics of discussions at the Boao Forum for Asia. There's no backing down from China and we have already seen the market reacted after Trump announced the tariffs against China. There are sell-offs. Do you think market reading is correct or can we look forward to more volatility? 

A: Well, the market always gets panic with all of this kind of overreaction and panic, even worse than the overreaction, and the market expected the other party would react, right? So the calculation from market is not only on what the U.S. take, but also what China will react. So that kind of reaction we should expect.

Q: What will lead to further escalation? 

A: That could be, if both sides cannot stop. You know that's why it escalates, but markets sometimes, you know, are able to digest some future news, you know, expectations. So when they feel some not necessarily real good news, but if they see some kind of exchange, they will act or react immediately. So don't worry too much about the market. They will recover and there will be panic but they sometimes are over optimistic. So that kind of things are happen in the market anyway.

Q: You don't think this tit for tat spat will further deteriorate and trigger more market panic.

A: No, definitely yes, definitely. We don't know. We still don't know, and U.S. action is not very clear, either. So this one hundred billion U.S. dollar what I mean and what would be finally listed still not known yet, and what China take a reaction, not yet clear. So that's why the markets sometimes overreact on the lack of information rather than…

Q: Clarity is something we need here. Thank you very much, Mr. Fan. Thank you.