Q&A on Trade Disputes And the Renminbi

Q:Against the background of continuing trade disputes between the US and other countries，what is your assessment of the Sino-US trade conflict? How do you see this playing out?

A :The Ministry of Foreign Affairs and the Ministry of Commerce have released their assessments of the conflict on a number of occasions. I don't want to go beyond the official government statements. As for future developments，it is still too early to tell. What is worth considering，however，is the nature of the conflict and the factors driving it. The US ¡ª the largest developed country ¡ª and China ¡ª the largest developing country ¡ª  have their own comparative advantages and weaknesses. They can learn from each other and make up for their own disadvantages. For the two countries，cooperation is better than competition and competition is better than confrontation. Cooperation is the way to maximize benefits，while competition is the way to minimize costs. Confrontation，however，maximizes costs and minimizes benefits. The choice should be based on logic and wisdom.

It is clear that there will be twists and turns in the road ahead. Negotiation is based on mutual sincerity and promise-keeping. It also tests the patience and wisdom of both sides. The process of negotiation is a lengthy one. Why not wait and see what the outcome is? I suppose that wise people will focus on seeking common ground on major issues while accepting small differences.

Q: The currencies of some emerging countries have been on a roller coaster of late. The Turkish lira，for example，has depreciated sharply. Do you expect this to have an impact on the renminbi exchange rate?

A :Generally，the financial position of different countries or economies can be influenced by one another. However，I don't think there will be any impact on the renminbi from a weaker Turkish lira. There are two reasons. First，the economic relationship between China and Turkey is not that close. Second，China has a big economy and its industry can stand on its own feet. China's economy is not so frail that it needs to "take medicine when someone else catches a cold".

Q:The renminbi has been on a weaker trend，slipping from 6.2 yuan to one US dollar at the beginning of the year to almost 7 now. Is this the result of the Sino-US trade conflict? Do you expect the yuan's depreciation to continue?

A :The decisive factor in determining the renminbi exchange rate is supply and demand. This can be affected by market expectations which are influenced by issues such as the Sino-US trade conflict. The Sino-US trade conflict is one of several factors in the recent depreciation of renminbi，but it is not correct to say that the trade conflict is the reason why the renminbi has lost ground. Various factors，including domestic economic developments，will determine whether the depreciation will continue.  Generally speaking，no dramatic swings are expected as the People's Bank of China will employ comprehensive measures，including monetary policy and macro-prudential policies，to ensure this does not occur.

Q:As the US Federal Reserve continues raising interest rates，will China see a build-up of pressure from capital outflows? Will foreign exchange purchases and payments be examined more strictly?

A :Data show that as the US moved interest rates higher China did not experience any abnormal cross-border capital flows. This demonstrates the maturity of market players. Capital seeks profit. This is the law of international capital flows. It determines the direction，pace and volume of capital movements. Modern financial supervision emphasizes compliance and order. Compliance refers to the authenticity of transactions，meaning the underlying trade cannot be fictitious. Order prevents any negative impact from malicious capital movements which could result in large inflows or outflows in a short period of time. China's foreign exchange regulatory system withstood a serious challenge from abnormal cross-border capital flows in and around 2016. With stable and neutral monetary policies，I think the system can withstand this kind of challenge in the future.

Q:In recent years，China's economy was described as being "stable overall and making progress in a steady way". Now that has been adjusted to "stable amid changes". How should these "changes" be interpreted?

A :There are two such "changes". The first is the change in the external environment. The Sino-US trade conflict that started on July 6 has not eased despite several rounds of negotiations. China is a major trading country，with exports as one of the four drivers of its economy. A shrinking of external demand will inevitably lead to a search for substitute markets or an effort to