restricted access A Conversation with Alan Greenspan, Chairman of the U.S. Federal Reserve
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391 49 A Conversation with Alan Greenspan, Chairman of the U.S. Federal Reserve1 May 5, 1997 ZRJ: I’m delighted that you’re visiting China again. Our central bank has an excellent cooperative relationship with the Federal Reserve. I remember clearly my first meeting with Mr. [Wayne] Angell2 in 1993. I then met Mr. [William] McDonough3 twice, after which I invited you to China in 1994. At that time China’s economy was encountering difficulties, and the inflation rate had reached 24%. After we adopted a series of fiscal and financial reform measures, things improved noticeably. I also learned a great deal from that meeting. After 1994 China was worried that economic overheating would occur and we took [appropriate] measures. Last year’s growth rate was 9.7% while prices rose by 6.1%, which was the first time in the past few years that the inflation rate was lower than the growth rate. The growth rate for the first four months of this year was 9.4%. China’s money supply is normal right now, and last year we achieved free convertibility of the renminbi for current accounts. Because China is implementing a policy of focusing on agriculture, we had a bumper harvest last year, and agricultural production was the highest in history. This has been very helpful for stabilizing prices. I therefore have ample basis for saying that this year’s growth rate can stay at 10% while inflation will stay below 5%, and this trend will continue into the next century. We’ve also noted that the American economy has sustained its growth since 1994, and this of course is inseparable from your leadership. The United States has already entered its seventh year of growth this year, and the unemployment rate is relatively low. I remember that in 1994 you raised interest rates seven times, each time by 0.25% except once by 0.5%. I was very concerned each time you raised the interest rate. The Federal Reserve lowered interest rates three 1. This conversation between Zhu Rongji and Alan Greenspan took place at the Hall of Purple Light in Zhongnanhai, Beijing. 2. Wayne Angell was Governor of the U.S. Federal Reserve Board from 1986 to 1994. 3. William J. McDonough was President of the Federal Reserve Bank of New York from 1993 to 2003. 392 A Conversation with Alan Greenspan, Chairman of the U.S. Federal Reserve times from 1995 to 1996, and this year’s rise from 5.25% to 5.5% was especially noteworthy. I read in the papers that you said the latest rate increase was harder than previous ones. In general, I’m saying all this because we’ve learned a great deal from you, and your experience is very important to us. We hope to learn [from] still more experiences. The Federal Reserve Bank of New York has also been very helpful to us. I have a set of their materials and am reading these volume by volume, and I’ve also asked the people concerned to translate them. AG: I’m very impressed by what you said just now. I’m amazed by how detailed your discussion of the Federal Reserve was. When I visited in 1994, the inflation rate in China was very high, yet everything that has happened since has shown that you were correct. Because you’ve had such great success in controlling inflation , and also because you understand the American economy so well, perhaps you should tell the United States what to do. I’m very grateful for your warm hospitality. This time, there are two questions I’m interested in, and these questions are mutually related. One is the issue of privatizing SOEs after the reforms are successful, and the other is how the rationalization of enterprise ownership can promote the steady growth of the Chinese economy. Under these conditions, it’s very important to adjust the ownership structure of SOEs. This is the only way to achieve steady economic Meeting with Alan Greenspan, then chairman of the U.S. Federal Reserve, in the Hall of Purple Light, Zhongnanhai, on May 14, 1997. A Conversation with Alan Greenspan, Chairman of the U.S. Federal Reserve 393 growth relatively easily. Through your efforts, you and your colleagues have made China the world’s most dynamic economy. On the basis of what we’ve seen, it’s not appropriate to tell China what to do, because you’ve done so very well in this...