♪ francine: welcome to bloomberg's davos debate. i am francine lacqua. and we are talking china. with the new five year plan being presented in 2016, how can the world's second-largest economy shift gears without stalling its growth engine? and what does the market volitility tell us about the perception of china, and the task facing chinese regulators? well, we have, i am pleased to say, an a-star panel. thank you so much for coming on. jiang jianqing, chairman of the board of the industrial & commercial bank of china. christine lagarde, the managing director at the imf.

fang xinghai, vice chairman of china's securities regulatory commission and director general at the intercontinental economic department. gary cohn, president at goldman sachs. zhang xin, chief executive officer and co-founder at soho china. and ray dalio, chairman and chief executive officer at -- chief investment officer at bridgewater associates. thank you so much for joining us. ray dalio, is there something that the west misunderstands about chinese markets? and does that exacerbate the volatility we have seen the last few weeks? mr. dalio: i think there is a lot the west does not understand about chinese markets. i think the essence of what's going on in china is an adjustment. they have four major challenges. they have a debt restructuring challenge. they have an economic restructuring challenge, so they have to come up with a new model for the economy. they have a capital markets challenge.

to build in an efficient way that circulates capital through the system better. they have a balance of payments challenge. having to do with the pressure on the currency. capital outflow, those types of things. these are things that have happened repeatedly throughout the rest of the world. the united states has had three major debt crises. we couldn't pay our debts in 1971. in 1982, we had a debt crisis. we had the s&l crisis. we've reshaped our economy many times. i remember when the steel industry ended, heavy manufacturing, and we have gone into other areas. we have had another of balance of payments and and currency issues. i think that one of the things being misunderstood is, what is a normal balance of payments and economic and too much debt restructuring kind of recession.

in japan, they used to define recession is anything less than 3% growth. maybe in china, it is less than 5% growth. we are going through that. i think it's being confused with the longer-term picture. in other words, i think the reforms going on in china and the leadership, in terms of where it's going, will be fundamentally good. you're looking at something that is a short-term challenge. as distinct from, looking at something where we will be five years after the generation of new markets and vibrant young entrepreneurs and the other economy that is trying to -- now beginning to flourish. francine: why have we had so much volatility since the start of the year? mr. dalio: well, the volatility has been primarily a result in the world as a whole, that we have an easing of monetary policy all around the world. we are not going to have the same effectiveness. with interest rates at zero, you

can't cut interest rates. with asset prices having risen, because of the quantitative easing, the risk premiums have gone down, and there is a big vulnerability. so, when china is dealing with the rest of the world, china is a negative on the margin for the rest of the world. the world is vulnerable, because of a lack of monetary policy, while asset prices are high. francine: how do you explain the volatility? is it something we need to learn to live with? >> maybe there are two factors going wrong. one is china is in the midst of an economy that relies heavily on investment and exports and they are shifting to consumption. in this transition, a lot of

assets get devalued in the process. this is the primary reason behind volatility. another factor is the fed raised interest rates not long ago. a lot of emerging markets did not perform very well. domestic reforms got stalled. you have a combination of chinese transition, plus international influx, and that caused volatility. now, you asked, why a lot of volatility right at the beginning of the year? well, asset price adjustments go by steps. it does not always go smoothly. we hit those steps at the beginning of the year. francine: if there's something we have learned about what the chinese are trying to do in the last few weeks, what is it? madame lagarde: at the imf we don't look at the last two weeks. i'm a little bit too embarrassed to comment on the last two weeks.

if you do not mind, i would like to go back to the basics. it is a fact that depending on how you calculate gdp, the largest or second-largest economy is going through a list of transitions. you have indicated that as well. industry to service, export to conception, lower investment. i think there is another one happening, which is also the governance change. that is probably going to continue to deal with the anticorruption fight as one of the key proposals. that has to trickle down. this is a management change. it has to be taken into account by chinese authorities and chinese operators.

so that risk can be apprehended and taken in spite of this happening. i would say also that, given those massive transitions that are undertaken pretty much at the same time and accepted as such, there is a communication issue. which, you know, is something that markets do not like. uncertainty -- not knowing what the policy is, exactly what the remedy is going to be valued against the dollar. the currencies -- which basket of currencies is it going to be? i think better and more communication would serve that transition better. i tend to agree with the assessment of mr. dalio, but we believe that all of those changes are perfectly manageable, if the right policies are taken.

given the large amount of reserves, the large amount of buffers that the country has. from our perspective, we are forecasting a 6.5% growth for, you know, next year. and we believe that the chinese authorities can legitimately accept that this growth rate as fine for china as it is for the exchange rate to be aligned with a basket of currencies. francine: does china need to decide if they are a free market or not? or have they decided, but have they not communicated enough? mr. cohn: many of these fundamental transitions that china is going through are real. when you go from an economy, where you're building infrastructure to consumers driving the economy, that is a long transition.

you cannot monitor or affect consumer discretionary spending. it is called consumer discretionary spending. you cannot affect it the way you can government spending. this transition is difficult. on the specific question of china, and whether it is a market-based economy, clearly this is a question the market as a whole is dealing with. there have been signs that china wants to have an open, free economy -- an open, free marketplace, but in certain situations, the chinese have intervened into their market, making it less than a free and open market. now, i must remind everyone that many of the things that the chinese have done in intervening in their market are the replicas

that many other countries, including the united states, have done in certain parts of their modern history -- not even old history. whether it be circuit breakers or limits on certain trading activity. i agree with madame christine lagarde. it's a communication issue. the communication is what is important. communicating what the chinese market is going to be and stick with that theory. no matter how painful it is in transition. transitions are difficult. you've got to stick through the transition. francine: how difficult is communication when you're dealing with such a huge and complex economy? ms. xin: i come from the real estate economy side. what i see is, a difference between the stock market, which is hugely discounted, and the real economy, where we see the easing of monetary policy is

actually pushing the asset price up. that is on the one side. in terms of transition from an investment-driven economy to consumption-driven economy, we used to build buildings. today, we just manage the leasing. leasing is going well. the cities i operate in, beijing and shanghai, we see a massive uptake of space by internet companies. not so much of the old economy, non-internet and traditional companies. by and large, we have new buildings coming up almost every other month, and they are all taken up. we have not seen a building sitting there empty. i think there must be a communication issue. on the one hand, the real economy seems to be doing ok. on the other hand, the stock

market is trading at a huge discount. obviously, the investors are not getting the same message as we operate in the economy. francine: again, to this point of transparency, china promised to give the market a decisive role. since we have had intervention in both the currency and the stock market, when do you foresee china making good on its pledge? mr. jianqing: china has declared publicly to the world that the market will play a decisive role in economic development.

on communication, it is indeed important. especially when the economy is undergoing transformations. many things need to be communicated. in fact, in the past few years, the chinese economy has undergone great transformations. some criticize the growth led by investment. too high a level of investment. it has indeed happened. in china, the consumption has contributed to 65% of the growth. as described by the housing market. there is an oversupply of buildings in china. but it has accounted for only 10%.

but, the consumption of the housing market is increasing. for our bank, 62% of our loans are for buying real assets. it shows the housing market. indeed, we need more communications, and reduce the lack of understanding of policy. some information, some views are understood from the old normal for china.

in entering this age of new normal, it is a test for china to have better communication so as to prevent misunderstanding. indeed, there will be more maturity in the future. mr. xinghai: there are three issues. one is communication. the other is a strategy to move from an investment-led economy to a consumer-led economy. the third is people questioned the execution of the strategy. volatilities by themselves, they should not be worrisome for people.

they know volatility very well. it is the three issues behind the volatility, that has worried international investors. in terms of communication, you're right. we should do a better job, and we are learning. we are doing it. i am here today to communicate. [laughter] mr. xinghai: but, you have to be patient. our system is not structured in a way that can communicate. we are not able to communicate seamlessly with the market. we are learning. china can learn it, i can assure you of that. ♪

♪ mr. cohn: you started out talking about the question of volatility. we moved on to free markets and communication. i think these concepts go together. when you look at what's going on in china, the chinese are trying

to move to more free market, and there is an inability to communicate more freely. that is generating volatility. the world's standards today for publicly listed companies and publicly listed disclosure on balance sheets and audited financial sheets is pretty high and getting higher everywhere in the world. people, investors, capital is fungible around the world. capital moves at the speed of light today. people want access to chinese companies, and they want chinese companies held to the same standards. number two, they want the market place to determine which chinese companies have access to capital. -- to the extent you start getting more accepted financial statements. corporate governance and a market that determines which companies will be public and which will not be public.

i think you will see volatility. a little bit of this is natural evolution. unfortunately, for the chinese, they are doing this in 2014, 15, 2016, in a digital era. they are not doing this in the 1930's. the rest of the world did it in an analog world. they are doing it in the digital world. we're watching it in real-time. they are doing it in an era, where we just got done re-regulating all of the financial institutions around the world. and we have taken an enormous amount of liquidity out of the markets, and the chinese are suffering from this lack of equity. mr. dalio: i think the chinese policymakers are not getting as much credit as they deserve. i am not speaking from a chinese perspective. you have to get into the

nitty-gritty of what they are going through. if you take a look at the debt restructuring they are going through, local government spending accounts for 30% of gdp. they are running a funding deficit of about 20%. if you cut that, that's about 6% of gdp. if you look at the way it has been restructured and managed, it has been managed superbly. it's a difficult situation. you are in a situation, where you just restructure and you don't provide capital, all of that spending will take place. the same people who are doing that restructuring are the same people who did it in 1998. they know the mechanisms to be using. they are pursuing that.

if you look at the economic restructuring, they are going from one economy. ok, the development of the lending system, that's been done with a lot of balance. it's a risky situation. the free exchange of capital is getting it to companies that would not have that access to capital before. that's not producing volatility, that's quite an accomplishment. if you look at the balance of payments, the bounds of payments is a difficult situation. capital flows are what the capital flows are. in terms of the stock market, handling it, problems. there have been -- some of the responses have not been done by world standards. there has been a big order imbalance. when everyone wants to sell, it was that kind of circumstance. they have to respond quickly.

when i speak to those policymakers, i find people with equal levels of competence for the things they are dealing with. i would say that, if you compare also the politics of the government, there are no loose cannons that are going to be running china. i mean, these are people, if you look at the system of how it is chosen, you have to be a competent leader. you have to be devoted to the country. if you look at the politics in the west, some of the leadership there, that could be quite scary. [laughter] mr. dalio: i think the commitment to market reforms is a very real commitment. in other words, think of the power that's going to liberalize that economy. it's been an economy. the top 10% is where it is passing through. this will circulate. there is a new china. you can speak to that new china.

the new board, the entrepreneurship. i think we are going through a cyclical, you can't help but go over that adjustment. that will last two or three years. it comes at a bad time for the rest of the world, because when you look at its impact on commodity prices -- and not just commodity prices, but the other economies in brazil and so on -- and when you look at the vulnerability of the rest of the world, in terms of monetary policy, that's a bad combination. we'll get past that. a bad year in china is a great year in almost any other country. francine: do you question their commitment to structural reform? what are the dangers, if the structural reforms are not being pushed through? madame lagarde: we went through a couple of years of intense discussions with the chinese authorities, because we were going to review the baskets of currency that define the value. it is the elusive currency of the imf.

if you asked me, if the chinese authorities would complete the reforms, that they had to take in order to satisfy the criteria of that currency, i would've said i don't think so. yet, when the authorities put their mind, and are determined for strategy, we have seen in that case an absolute -- i would not say perfection, nothing is perfect in this world. but, determination and ability to deliver what frankly what have considered as undeliverable to begin with. so, if the same determination is applied to the reform of state-owned enterprises in relation to the clarity of messages concerning the transition, clarity of communication concerning the framework, in which they will

define their policies going forward -- even if the growth rate is not 7% and closer to 6%, it will take a little bit of time as we said earlier. but, we believe they will deliver. it's a massive undertaking. reforming state run enterprises is going to require a fund for these issues. they have done that in the past already with certain sectors. i have no doubt that it is part of the exercise, like the supply-side reforms in beijing. it will happen. francine: there is commitment? last month, we had a mysterious person quoted saying, "that china must get used to the l-shaped recovery, unless reform is pushed through now." what are the dangers of waiting too long?

mr. jianqing: reform, for china, we have reached a point of no return. we have to evolve. it would not only affect billions of the population in china. it would have major impact on the world economy. superficially, the growth rate has reached 6.9%. it would, maybe, drop to 6.5%, but, from the point of economic growth, we are paying more attention to the quality, not the quantity of economic development.

we have to proceed to structural reform. in the future, we cannot depend on investment. we have to rely on innovation. to promote economic growth, economic reform is, indeed, a huge task. as the chinese authorities have undertaken supply-site reforms, we think the debt ratio, including local debt, is not that high. local government debt for overcoming the debt, measures have been taken to reduce the rate. for example, our bank has reduced 40% of such loans. so that it would also increase the transparency of individual,

personal debt ratio is also very low or relatively low. this is another engine for future economic growth. what we have to do is the debt ratio of enterprises. it is indeed a very difficult task. to reduce, for example, overcapacity, the steel and iron industry, they were built during the high growth. that is why we have over-capacity. now, we have to reduce such capacity. it will be a bit of a painful process. so all in all, i think china has to undertake this reform,

although it would be very difficult. but only by finishing the reform could we succeed. francine: how concerned are you about an outright financial crisis, given the amount of leverage in china? >> the leverage levels are not intolerabley high. the problem is the debt is still growing at a rate that's significantly faster than income. that's an unsustainable circumstance. it's also an understandable circumstance, because changing that rate abruptly will have a negative effect on the economy. i think the issue of instability is more of a balance of payments currency issue. that becomes one that i'm more concerned about, that might require more of an adjustment in the currency.

and that adjustment in the currency would have an effect on the rest of the world, which would also transmit deflationary pressures to the rest of the world, because those exchange rates would essentially appreciate. that has an effect at a time when there is a weakness in the rest of the world. we have to look at the impact that china has on the rest of the world, and that the rest of the world has on china, and the fact that there is not much of an effectiveness in monetary policy. those two things combined create a risky situation. >> in relation to exchange rates and the under currency, i think you're completely right, and i think that this illusionary pegging against the dollar has to be dismissed. there is a basket of currency in an effective term. it has been quite stable against that basket of currency, and not just now, but for the last few months. and that should be just acknowledged and understood by markets.

and this complaint, that there is depreciation against one currency, no. you're doing that against the basket of currency, which includes the trading partners of china. so again, communication on that front, i think, is an important one. mrs. xin: i just wanted to remind everyone that china built its massive reserve, not because of monetary policy, but because of the last 30 years of incredible reforms. and mainly driven by the incredible entrepreneurship, and largely driven by private sector. so, i think the government's commitment to continue its reform, and to support the private sector, is important. now, i would just like to remind you, that the promise of the board is not that style of stock exchange, that would enable the smart, medium sized enterprises to be listed, to get funding without producing profit.

a lot of the companies listed on nasdaq are not producing profit. remember. and today, in china, if you are an amazon, and you can be as good as amazon, but, if you do not produce profit, you're not qualified to be listed. now, that commitment has to be, you know, has to be kept. i think that the government came out. the policy makers talk a lot about the fourth board is going to come out. we'd love to see them coming out as promised. probably the fourth quarter of this year. i have a company i need to float it, and i expect you to come out with good news. [laughter] ♪

♪ francine: on to another point, we have some news. the imf opened its selection process for the managing director, when your term ends in july. you've had the support of both france and the u.k. do you want a second term? [laughter] madame lagarde: you'll appreciate that i'll be waiting a little bit before i'll be

saying anything about that, but thank you for the question. francine: if you do get a second term, how much do you think we'll be talking about china in the next four years? madame lagarde: well, in the next few years, you know, given the growth rate of that country and given the state of the development, i think we'll be talking a lot about china. is one of the two largest economies in the world. it is the second largest economy in the world. so, i think we would be crazy not to talk a lot about china, and the transformations that are at play, at the moment, are going to be both fascinating and will matter a lot for the rest of the world. we've seen it over the summer. surprise, surprise. we're going to see it more going forward, because there will be spill-over effects in the vicinity because there is a china supply-chain. we'll see it across the world as well. and any, you know, significant reduction in the growth of the largest economy in the world -- or the second largest economy in the world, depending on how you calculate it, is obviously going

to impact the rest of the global economy. francine: from 2010 to 2015, growth rates, for china, have fallen by four percentage points. looking at 2020, what do you think the growth rate will be? >> now, okay. let me -- >> before you answer that -- >> go ahead. >> it's fascinating. people say, oh, china's growth has collapsed at 6.9%. well, look at the output relative to six or seven years ago with 12% or 13% growth rate. we have the same. so give us -- sorry. i'll stop here. mr. xinghai: i understand there is some concern about this coming year in china. some people forecast that, because of the volatility and so forth, somehow 2016 would be a very bad year for china. that the growth rate would slow

down dramatically. i don't think that will happen, because, in china, we cannot afford to let growth rate to job go sharply, because that will ignite a lot of financial problems inside china. so, we will have what we call appropriately expansionary, supportive, physical and financial policy in this current year, to make sure that growth rate is still appropriate. china has the means to do so. we can expect quite a lot. there is just no worry for a sharp decline of china's growth rate. some people think, well, you are 6.9%, and that it's just not accurate to begin with. now, i admit our numbers can always be more perfect, more accurate. let me give you a supportive figure.

that is, taxes in china last year went up by 6.76%. that is not far from the 6.9%. which means, that the figure is not far away, and madame lagarde mentioned china's contributions to the rest of the world remain extremely large, which is true. you talk to these multi-national company c.e.o.'s having business in china, most tell you their businesses in china are still expanding quite well. ford motors, for example. ford is not the biggest car seller in china, but it sold 1.7 million cars in china last year. so, china remains a huge contribution to the rest of the world.

this is something that, you know, the rest of the world should appreciate more. [laughter] francine: you pointed to something also a lot of observers do under-estimate. which is the strength of consumer spending, and the strength of services. how resilient are those two when you look at the chinese economy? mrs. xin: i think, still, the dynamic force of the chinese economy is its entrepreneurialism, and its private sector, and especially the small to medium sized companies. not the gigantic s.o.e.'s, though they come out with a lot of power. it is the millions and millions -- that matter the most. in that regard, the reforms still need to be more focused on giving them the support. whether it is a capital market support, or tax support, or monetary support. those are very important for the continuous growth.

that will continue to be the growth engine for china, and now, from where i sit, i see incredible innovation coming from the young, internet, mobile companies. that really is an exciting part of our economy, that very rarely gets featured in the news, because we talk so much about the market volatility and so on. in fact, most of these s.o.e.'s don't even get a chance to participate in the volatility. i think it is important that we remember that. especially the policy makers, like mr. fang, and it is important to include these s.m.e.'s. they would reduce your volatility. francine: a comment?

mr. xinghai: i agree that the s.m.e.'s are a great contributor to chinese growth. our stock market should have done a lot more to support growth. it is doing quite a lot, by the way. i mean, just take last year. people focused so much on the jy rations in the stock market last year, but, last year, the chinese stock markets raised $1.4 trillion imb, in money for the chinese companies. that placed the chinese stock market number one in the world. yet, we can certainly do much better. and just one, you know, very short sentence about financial risk. china's different from other developing countries, in the sense that our growth is largely fueled by domestic savings, by domestic capital. that gave us a confidence in our ability to deal with whatever volatility and risk is coming out of the financial market. if china was a country relying largely on foreign capital for growth, you bet.

any major financial risk can derail our growth. china is different. this is just a fact that a lot people should pay attention to. francine: how inclusive will china's growth be in the future? mr. jianqing: i would like to speak on two points. first, i think paying attention to the growth of s.m.e. is important for china. s.m.e. has a huge potential and vitality. it's an important sector for solving unemployment. last year, we underwent an adjustment, but the year end result was better than the earlier predictions, paving the

way for structural reform, as has been criticized on this financial sector in china. as a banker, the loans to s.m.a. is a manifestation of inclusiveness in china. in our financial statement, $1.8 trillion is spent on s.m.e. of course, we could do better. inclusiveness includes another aspect. green economy. we have undertak much work. we are very determined.

any industry, any sector that is not in line with environmental protection regulations -- we would not allow them to be established. we will be able to create a new and greater economy in china. francine: with global trade stagnant, when will china take the role the u.s. has had for years in spurring demand? >> i don't think we're going to see that for three years or more. we are going to see -- china is going through this adjustment process.

it'll be, i think, at least a three-year type of adjustment process, with a lot of these structural things. so, it is going to be a negative on the margin. a negative for the world economy, and that passes through emerging countries. those who have the dependence on exports to china or commodities. and that is passing through, in turn, to a number of countries. so, there is a world of deflationary pressure that's in existence. that is why, when we think about the fed's policies, there's not a country in the world that should not ease its monetary policies. but, by and large, we have that self-reinforcing negative circumstance, in terms of growth. that is a problem, because the rest of the world also represents a weakening in china for the exports for their demand. that is also weakening.

so i think the question will be, where is the locomotive? francine: where is it, and what does it mean for fed policy? if you look at these deflationary pressures -- you have a valuation for oil, how do you look at this? >> i think the federal reserve thinks the business cycle -- the classic business cycle, is when your demand is increasing faster than your capacity, and you are at a fairly high capacity, unemployment rates are low, g.d.p. gap is tight. you should tighten monetary policy, and that is the policy overriding the fed's issue. i think they're paying too much attention to the business cycle, and not enough to the long-term debt cycle.

you can't squeeze much more out of this, because of the lower interest rates and that. we're seeing the world, that they're getting feedback about, is a deflating world with asset prices coming down. and i hope they'll remain flexible in their thinking of monetary policy. be hesitant. there are asymetric risks, because there is no doubt the federal reserve can be effective in tightening monetary policy. so, if they are a little bit late, i do not think that will be a problem. they are not as effective in easing monetary policy. the pushing on a string, like in the 1935 period, is a real issue. so, they have to wait for the whites of the eyes of inflation before they enter on that, because i don't think it is going to be so easy to be stimulative, and move to quantitative easing and create that reversal. francine: do you agree? mr. cohn: i do. i think one of the new paradigms -- again, going back to this digital world we live in versus

the analog world -- a lot of the fed policy that we're relying upon is analog policy. it has been the same policy for generations and generations. the world we live in today is completely digitized. meaning, we're real time. we've got a global workforce today. we've got global free movement of currency. anyone with a handheld digital device can move any amount of currency they want around the world. trade any bond they want around the world. so, fixating on employment in the united states is interesting, but we've been unable to create wage inflation now for multiple years, where the fed has told us multiple times that it will come every year. it will come. but, in some respects, when you think of a globalized work force

today -- which, i think we have a globalized work force in china -- which, i think is part of our globalized workforce -- if you can go hire the incremental worker for less money in china than you can in the united states, where does the wage price inflation come from? i think we're seeing that in the numbers. we see that we can create jobs in the united states. but we can't create jobs that pay real money. you take most companies that we represent, clients of ours, and we talk to them about how they're running their company. they will talk to me, or talk to our representatives about how hey are optimizing their work force. how they're moving jobs and opportunities to china. how they're moving jobs or opportunities to warsaw, poland, because these are places, where they can hire workers at huge discounts, relative to a london, hong kong, new york.

and so, therefore, to the extent they have to pay -- for the next worker, they'll export the job. i agree with ray. until you see the reality of this inflation in the system, i'm not sure assuming it's coming is a good assumption. francine: we're almost out of time, so i'll just ask each of you. give me your best advice or prescription to try and bridge the divide that we were talking about between making market perceptions and what the policy makers in china want. mr. jianqing: certainly. we hope there will be a recovery in the world economy. that this, volatility would be reduced.

and i also hope that, china will succeed in its structural reform and adjustment, and to avoid the middle income trap. madame lagarde: i would say, number one, clarity of communication. i would say, number two, clarity of purpose. i would say, number three, implementation of the reforms that have been identified. and for all of us a bit of patience for this massive undertaking. francine: germany has backed you for a second term. can you say, you would consider it? madame lagarde: look, i am honored and very grateful and extremely, you know, pleased to hear that and i thank you. i thank those who have come out like that. thank you. mr. xinghai: they just said that china is on a margin, a negative contributor toward growth. i was thinking, who in your mind would be a positive contributor?

mr. dalio: just to be clear. what i'm saying is, as the rate of growth slows and the complexion of the economy changes and demands on the margin, that's a negative to growth. i don't think right now that we have a locomotive. i think that would be exchange rate rising in the united states, and also, with the negative wealth effect we're going to have, because of the stock market going down, that we're going to -- even in the united states, experience a lower level of growth. my concern is that we don't have a locomotive. mr. xinghai: that's what i wanted to say as well. in this world, in fact, we have to -- all the major countries and economies have -- simply have to work together a lot more, and cooperate a lot more, in terms of policies, and understand each other a lot

more, in terms of overcoming respective domestic difficulties. and realize that, you know, we are -- the economy is globalized. we are all on the same boat, and we just have to cooperate a lot more closely to overcome this soft patch going forward. mr. dalio: just to follow through with that, would that be monetary policy cooperation? fiscal policy cooperation? in what form will that cooperation take? mr. xinghai: all of that. mr. dalio: it'll be a challenge. mr. xinghai: it is. but, you know, just one sentence, in terms of u.s./china cooperation and other issues. we are working very well with our u.s. counterparts.

francine: a challenge, but doable. you are confident this will be done? mr. dalio: i think monetary policies will not be as effective. that is a big change in the world, because we require monetary policies to be effective. and then, i think on cooperation on monetary policies, because you can't move interest rates as much you move currencies. i think, we are entering an environment, in which there will be more currency volatility, as a means of easing policies, where they need to be eased. that smacks of currency wars, not as much currency cooperation. when i think of fiscal policy, i think fiscal policy is very politically sensitive. you get into a bad economic situation, and and somebody will say, "you need to be fiscally more responsible." and someone will say, "you need fiscal stimulus." when there are political shifts, particularly, let's say the political shift taking place in europe or even in the united states, those things may not be easy decisions to make on fiscal policy.

francine: gary, 20 seconds? mr. cohn: so i agree with the chairman. i want success very much. i agree with madame lagarde. we all want clarity. i agree with the chairman. we're hoping for success in all the policy areas. one area i would throw my two cents in is, china seems to be more receptive, in your point, to more trade policies. and getting some of the trade policies done, with the united states, would be very beneficial for both, in growing both economies. francine: final words, 20 seconds. mrs. xin: i think china is going through this transition period, and there is going to be a lot of volatility and noise. it is important that policy makers and the media are not focused only on the short-term noise, but are committed to the long-term reform. thank you. [applause] ♪

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