Chinese economy: just the beginning!

Discussions and debates abound on the way forward with the consequences of the Sino-American unrest and the epidemic. Huang Qifan, former mayor of Chongqing, an expert in the financial and economic fields, is very pedagogical in his interventions, without the artifice of the common political language. Invited to an economic program, he describes the levers available to develop the domestic market concerning innovation, new infrastructures, overproduction, the automobile, shale, the distribution of wealth, and the development of western China. A summary of these ideas is given below.

Huang Qifan chinse economist

Innovation

The government spent 2.1% of its budget on research and development. Only 5% of this part is targeted at the high-tech segment of infrastructure equipment, compared to 20% in the G20 countries. The objective is to rise to this level. Besides, a legal arsenal will be put in place to protect the innovator’s intellectual rights, development, and commercialization with the constitution of financial funds to push innovations.

New infrastructures

The old infrastructure – airports, railways, highways, ports – was mainly financed by the government, required significant investments, and paid off after twenty-three years of use. They had a substantial impact on the local economy.
The private sector can partly finance the new infrastructures; they pay off very quickly. 5G technology will enable the deployment of a digital economy that will transform society and affect all areas of the economy, allowing the modernization of old and new activities, we will have smart cities, 智慧城市. The five most important areas are Big Data, Cloud Computing, Artificial Intelligence, Blockchain, Internet of Things – 大数据, 云计算, 人工智能, 区块链, 物联网. This is only the beginning!

villes intelligentes en chine

Overproduction

Very polluting and old productions have been suppressed. Regarding the steelworks, the installations and equipment have been renewed and are less than twenty years old. Steel production last year amounted to 996 million tonnes. Requirements are 700/800 million, so overproduction is approaching 200 million. The average building in China has 40 kilograms of steel-reinforced construction per square meter, compared to 150 kilograms in advanced countries.
Last year, 1.6 billion square meters were built. If we reduce construction to just one billion square meters with 150 kg per square meter, we will use 100 million tonnes more. While reducing overproduction, we increase the life expectancy of a building. Reinforced concrete constructions used since the 1980s have a life expectancy of 30-40 years. With steel reinforcement, the life expectancy rises to 70-100 years. At the same time, the value of the population’s goods increases.

Automobile

Sales amounted to 25 million vehicles in 2019. To avoid traffic problems, registrations are limited. Consideration should be given to developing public transport, roads, and car parks while relying on renewable energy. China has 170 vehicles per 1,000 inhabitants, compared with 840 in the United States, 600 in France, Germany, and Japan, and 470 in Malaysia and the Philippines. Therefore, China has room for development by merely doubling the number of vehicles per 1,000 people; it should make the registration system more flexible while accelerating infrastructure development to improve traffic flow, which will contribute to growth.

Schist

Oil consumption is 650 million tons per year, production 200 million, so more than 400 million tons must be imported. With the growing needs, there is a danger for the security of energy sources. Today, dependence on external sources is 70% and could rise to 80 or even 90%.
China has 2500 billion m³ of shale reserves, as much as the United States, it has annual exploitation of 20 billion, it should be able to increase within ten years to 200 billion per year to meet the needs. One can hear the “internal circuit” thus. Use the old industries and develop new niches.

Distribution of wealth

Several measures to improve distribution :

  1. Lowering taxes for the 400 million urban workers to stimulate consumption.
  2. Income taxes account for only 7% of government revenue despite high rates. The average for G20 countries is 20%, in Russia, India, South East Asia, and the Philippines 15%. Why does this tax yield so little in China?
    There are two reasons: high incomes are taxed at 45% while the tax on corporate profits is 25%, which encourages bosses to find ways to avoid being taxed at 45%. For example, large companies will pay part of their salaries in countries with lower rates, Hong Kong or Singapore – 15-17%. The boss will always find a way to get money out of the company. One rule is that income tax does not exceed corporate tax. In 1980, when the 45% rate was set, it was right, companies had a 55% tax, which was lowered to 33% in the 1990s and then to 25%. Income tax, on the other hand, did not fall and remained at 45%. High-wage earners, in the end, pay little income tax.
  3. In cities, income from property (movable and immovable property) accounts for at least 30% of household income, while it does not exceed 3% in rural areas. The land ownership reform will enable farmers to transfer, rent, or mortgage collective rural land and thus have more land income.

  1. Small and medium-sized enterprises account for 80% of enterprises and provide 70% of jobs, 60% of national production, and 50% tax revenue. In 2018, fiscal measures were put in place for two years; they should be made definitive to allow for a long-term vision and strengthen companies’ and partners’ confidence.
  2. The average consumption was 23,000 yuan per person. 50% is spent on housing, education, and health. At present, in general, only “old” city dwellers can benefit from social housing. Newcomers, young people, students, or rural people who come to work in the city should be able to take advantage of it. In this way, the housing portion would weigh less on the budget, and more consumption would be possible. If spending on housing does not exceed one-sixth of total expenditures, a household’s overall consumption is assured.
  3. The development of Western China, the old strategies of replicating the East’s models, must be abandoned. It is necessary to take into account the characteristics of each region. It is required to give priority to agriculture with significant investments.

Huang Qifan presents several weapons that can stimulate the Chinese economy and rebalance the economy’s structure, which is still very dependent on the foreign market. Long-term strategies that are not rushed every four or five years have ensured the success of the last forty years. The last decade has seen modernization with the arrival of the Internet. The digital economy is still in its infancy and has enormous potential that should be a significant asset for the country.

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Sources: Program with Huang Qifan

18 August 2020

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