China's Ex-Central Bank Governor Optimistic on U.S. Trade Truce

(Bloomberg) -- China’s former central bank governor Zhou Xiaochuan says he is optimistic after a weekend trade truce with the U.S., saying it highlights a mutual desire to tone down tensions.

The agreement between the world’s two largest economies “shows that both sides have a desire to de-escalate trade differentials,” the ex-head of the People’s Bank of China said Wednesday in a Bloomberg TV interview in Rome.

Zhou, who retired just this year, cautioned however against relying too much on a bilateral approach and said some reforms of the World Trade Organization are necessary. “One of the risks is if we use too much bilateral negotiation, or bilateral compromise with each other, it may cause a problem to this multilateral mechanism,” Zhou said on the sidelines of the Ambrosetti Asia-Europe conference.

China has swung into action to start delivering on the trade commitments that led to its weekend truce with the U.S., even as uncertainty over what was agreed lingers. Beijing will start to quickly implement specific items where there’s consensus with the U.S. and will push forward on trade negotiations within the 90-day "timetable and road map," the Ministry of Commerce said in a statement on Wednesday morning in China.

Accelerate Legislation

Zhou said China will seek to “accelerate the legislation, the regulation but especially the law enforcement” on structural issues including protecting individual property rights and technology transfers. “I think the 90 days period, personally I am quite optimistic that both sides can reach a certain kind of agreement on that,” Zhou said.

Asked what are the most imminent issues Chinese policy-makers must address next year, Zhou said the Chinese economy now is trying to “shift gear” into a new growth drive and must “shift more to the service sector.”

“As an emerging market we need to accelerate the development of the financial market, not only the money market but also the capital market. We need to develop the financial derivatives market,” Zhou said.

Domestic demand is still slowing and the economy will expand at the lowest pace in almost two decades next year, according to a Bloomberg survey. Managing the slowdown as the clock ticks toward a new deadline for a trade deal in March will be a key task for the Communist Party’s annual gathering to set economic policy, which is usually held in December.

On the chance of a benchmark interest rate reduction, Zhou said he didn’t expect one. “Up to now I don’t think so because domestic inflation rates have been relatively stable around 2 percent so there is no need to consider that,” he said. “But we closely watch international developments” including any U.S. interest rate hikes, he added.

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