Pan Gongsheng analyzes global economic imbalances from multiple perspectives, directly highlighting the inherent flaws within the international monetary system

Questioning AI · How do flaws in the international monetary system affect global economic rebalancing?

On March 22, Pan Gongsheng, Governor of the People’s Bank of China, delivered a speech titled “High-Quality Development in China and Global Economic Rebalancing” at the 2026 China Development Forum. He discussed the causes of global economic imbalances, China’s industrial competitiveness, and inherent flaws in the international monetary system, clarifying China’s role and contributions in the process of global economic rebalancing.

Pan emphasized that currently, stable, rational, and predictable cooperation is especially valuable. Trade fragmentation is undermining the foundation of free trade. There is a need to more firmly oppose all forms of trade protectionism, strengthen and develop a multilateral framework and international economic and trade order centered around the World Trade Organization and based on rules, and promote inclusive and equitable economic globalization.

How to understand the sources of China’s industrial international competitiveness?

Currently, frequent geopolitical and trade conflicts have increased discussions about global economic imbalances and rebalancing, making it an important topic for this year’s G20.

Pan stated that since this century, the global economy has undergone three major dynamic balancing processes, in which China has been deeply involved and has made positive contributions. China’s economy has also experienced profound structural adjustments and dynamic balancing. The contribution of consumption to economic growth has risen from 37% in 2010 to 52% in 2025. The surplus in current account as a percentage of GDP has decreased from about 10% in 2007 to an average below 2% over the past decade, within a reasonable range.

Regarding the sources of China’s industrial competitiveness, some international perceptions still attribute it to unreasonable government subsidies. How should we understand the sources of China’s industrial competitiveness?

“China’s industrial competitiveness has been enhanced thanks to over 40 years of reform and opening up,” Pan believes. Four factors have played a crucial role: a huge domestic market; a complete industrial and supply chain system; abundant, high-quality, skilled, and hardworking labor resources, especially technical talents; and continuous R&D investment driving technological innovation.

Pan suggested that people should visit China more to gain a more accurate and comprehensive understanding of Chinese industries. He also noted that the central government has taken measures to regulate local government investment promotion behaviors, prohibit unreasonable tax and land use incentives, and build a unified national market. Strictly implementing industrial, environmental, and technical standards to curb low-level competition is also underway. Meanwhile, the People’s Bank of China guides financial institutions to assess risks scientifically and to restrain financing for industries engaged in “involution” competition. These efforts have already yielded positive results.

How to view and analyze global economic imbalances?

The issue of global economic imbalance is also a hot topic in current international discussions.

Pan believes that analyzing global economic imbalances should consider not only goods trade but also services trade; not only current accounts but also financial accounts. China is the largest surplus country in goods trade and the largest deficit country in services trade. China’s accumulated current account surplus is invested abroad through enterprises and banks, allocating funds across different regions and industries worldwide, injecting liquidity into global financial markets, and strongly supporting global economic development and financial stability.

Analyzing global imbalances requires both static and dynamic perspectives. Pan pointed out that, over time, supply and demand balance is a relative concept. Whether globally or within individual economies, the expansion and contraction of supply-demand gaps are influenced by many factors. However, over longer cycles, market forces tend to self-regulate and achieve dynamic supply-demand balance. Economic development, income growth, changes in consumer preferences, and technological progress create new supply and demand patterns and new markets.

From a spatial perspective, Pan believes that whether between countries or within different regions of a country, building a unified large market and engaging in division of labor and trade based on comparative advantages can maximize overall welfare. International trade is not coercive; it results from the voluntary choices of hundreds of millions of enterprises and households.

Additionally, economic factors are not the only concern; non-economic factors also matter. Pan pointed out that last year’s tariff and trade wars triggered “export rushes,” and the broadening concept of national security led to increased export controls, which disrupted corporate and household expectations and caused significant disturbances to global economic balance.

He also emphasized that analysis should include not only the international trade and economic system but also the international monetary system. Trade surpluses are the result of evolving global industrial division patterns. Over the past forty years, major surplus countries have generally been those with strong manufacturing competitiveness, but the main deficit countries have remained unchanged, which is related to the inherent flaws in the international monetary system.

Pan noted that in a global system dominated by a single sovereign currency, the issuing country of the main reserve currency can finance deficits at relatively low costs, running persistent fiscal deficits and exporting currency through large current account deficits. Due to continuous capital inflows, this can lead to overvaluation of the main reserve currency, which in turn can weaken the manufacturing competitiveness of that country.

(This article is from Yicai)