The epidemic first stunned the Chinese economy at the beginning of the year; then, the authorities’ liquidity injections came to the rescue. The analysts scrutinize the real estate market, one of the barometers of economic health, to see the result over the year. The astronomical monetary easing in 2009 in response to the subprime crisis had propelled the Chinese economy for a few years by fuelling an influx of investment. This time, the best-equipped cities took advantage of it. Beijing, which in two years 2017-2019 had seen a fall in prices of more than 20%, recorded a rebound of 6.3% last year (as did Shanghai +6.3), and Shenzhen soared by 14.1%. The government created in 2005 a list of 70 cities to monitor the fluctuations in the largest ones. Forty-three show an increase, one stagnates, and 26 show a decrease. Shenzhen took the lead, while Mudanjiang, a city on the Russian border in Heilongjiang, recorded the largest decline, -10%.
Increases and decreases
Shenyang (Liaoning) is the only provincial capital in the Northeast to show an increase, +7.8%, while Harbin (Heilongjiang) lost 3% and Changchun (Jilin) 0.2%. Dalian, in the same province as Shenyang, gained 6.1%. The higher you go up in the North, the harder it is!
The large cities in the North “near” Beijing, like most of those in the Northeast, have not bounced back. Tianjin, Shijiazhuang (Hebei), Jinan (Shangdong), Taiyuan (Shanxi), and Hohhot (Inner Mongolia) drop. Chengdu, the Sichuan capital, is up 8.2%, while its large neighbor, Chongqing, is down 0.3%. Zhejiang, with Ningbo (+8.5%), Wuxi (+7.4%), and Hangzhou (+6.9%), is the province with the most cities in the largest increases; Wenzhou, also in Zhejiang, which is not in the top 15, gains more than 5%.
Note that the largest increase is in a city in one of the country’s southernmost parts, Shenzhen, while the largest decrease is in Mudanjiang in one of the northernmost cities. We can’t summarize China like this, but we have the trend.
Peak and fall
2017-2018 saw the last peak in real estate prices. All cities are far from having returned to the levels of that time. The most significant gap is in Langfang (in Hebei, 60 km from Beijing), which is still 46.9% below the peak in April 2017, Qingdao 22.8% (Shangdong), Tianjin 21.8%, Zhaoqing 19.3% (Guangdong), Shijiazhuang 18% (capital of Hebei), Beijing 15.8%. Another Hebei city, Baoding, is lagging, 13.8%.
The real estate sector can boost the economy while filling local government coffers, but the banking and financial systems’ deficiencies encourage massive indebtedness, which remains a significant risk. Since the housing reform in 1998, three waves of price hikes, 2004-2007, 2009-2010, 2016-mid 2018. The government has various levers to turn the market around or slow the rise in dynamic cities, purchase limits, credit regulations (debt ratio, down payment amount, and interest rates). It certainly has the power to contain the market down or up even if creativity to get around the laws still thrives!
Is it always easy to know precisely what is happening in the Chinese economy? You have to be careful with the official figures. The estimates of economists of influential organizations are based on these figures – you don’t contradict the number two, almost one, of the world economy. The Western media brushes over the subject and generally prefer to repeat the same speech over and over again about Hong Kong, Xinjiang, Taiwan, and human rights. The few Western-language media that deviate from the mainstream can be a refuge for those disappointed in social-communism who think they have found the last salvation of their ideology on Chinese soil. One looks at China with one’s own reading grid without seeing reality. Living in China does not guarantee objectivity, sometimes the opposite. One sometimes thinks according to one’s interests or ideology and efficiently manages to put a veil in front of one’s eyes. I know a little bit about what I’m talking about; I spent two decades there and met all kinds of sub/surrealists. The best solution is to be in touch with the ground, or rather the grounds. The economic geography is very varied, and the sectors have different, sometimes contrasting fortunes. As much as new technologies and the Internet have the wind in their sails, specific industries of the last century are struggling, as are particular sectors in distribution. To stand back, it is good to find observers who don’t just talk about trains arriving on time, have the freedom to say so, and have the knowledge, which is rare. Wang Jian is my best critical source to better approach the economy. He acknowledges that it is not easy to gauge one’s state of health. In one of his latest analyses, he takes an indicator on office rents and the vacancy rate (空置率), which reflects the state of businesses and demand, looks at the strong and weak points of the economy.
Office rents fall over two years
Data on the three leading cities has just been released. In Beijing, office rents fell in the last quarter of 2020 for the eighth time in a row, i.e., for two years. The vacancy rate reached an all-time high of 19.4%. The production sector is virtually non-existent in the capital. The decline in rents mainly affects the service sector. As for Shanghai, prices are down for the ninth consecutive quarter with a higher rate at 21.85%. Shenzhen, with a ninth successive quarter also in decline, recorded a vacancy rate of 27.9%. The average selling price per square meter of office space was 47,900 yuan in the last quarter, a 9.1% year-on-year decrease. For renting, the square meter went from 232 in 2018 to 192 yuan in 2020. Shenzhen is the city of business creation and is a good barometer of the vitality of the economy. The developer sector is not doing better. Businesses are continually looking for financing, as the regulatory authorities fearing too dangerous debt ratios have further tightened borrowing limits.
Export is doing well, until when?
Besides this not very enthusiastic picture, the export sector has distinguished itself this year with an increase thanks mainly to two factors: 1. the replacement of production from other countries that could not produce, production has been transferred to China (see here ) 2. the transfer of production to China. The export of articles against the epidemic (including masks and gloves). These items will disappear once the epidemic is under control. The Chinese economy has prospered through exports and investment. Now that normalcy has returned, we will have to rely less on this sector. One term is essential now: home economics -宅经济, we stay at home, we work there, and we consume there. The phenomenon has benefited China’s digital economy, which is undoubtedly the most developed in the world. Is it enough?
Consumption, the weak link
Chinese consumption is still lagging. The weight of numbers masks the reality. The luxury sector indeed benefits from the thirst for the consumption of high-end items, but when we look at the averages, we are far from it. Disposable income figures 可配置收入 for 2019 speak for themselves; they still show the same disparities and inequalities that have existed for decades. Shanghai and Beijing lead the way with 69,442 and 67,756 yuan per person while the average is 30,733 – median income 28,228.
Only nine city provinces are above it. The Shanghainese’s disposable income is almost double that of a resident of Fujian （7e rang）, 69442-35616 and 3.5 times that of the three least provinces, Guizhou, Tibet, and Gansu. To look at the glass half full, one must add that disposable income has increased from 21,966 to 30,733 over 2015-2019.
Average disposable income from 2015 to 2019 and growth (green line) :
Of course, it is crucial to listen to the official discourse and see how the economy is described and, above all, how the future is envisioned. Besides, it is essential to seek enlightened and critical information to have a balanced view. Generally, in our Manichean world, one rejects the other. Some call the slightest criticism Chinese bashing. Such Chinese chroniclers as Wang Jian have been worried for years about Jack Ma’s fate amid political factions and sharks who want to appropriate his assets. On more than one occasion, the rumor has spread that he had taken refuge in the United States, especially since the announcement of his forced retirement from Alibaba in 2018. If a non-Chinese writer had published such information, what would have been said? In any case, not all signals are green for the Chinese economy. But the rigor with Chinese characteristics in the fight against the epidemic has been able to erase the initial fiasco, and China, despite its structural problems, is doing better than anyone else. Nevertheless, it must change its development model, become less dependent on exports, investment, and the printing press while generating a real middle class that can support the economy. The thorny issue of the distribution of wealth and its capture by a tiny minority makes China a country with significant inequalities that will undoubtedly have to be addressed.
The capital of Jiangsu, Nanjing, 300 km west of Shanghai, has a dynamic economy. Its GDP per capita has even taken the number one position in China. The Trigger Trend Research Bureau describes the strengths and weaknesses of this former capital of China.
GDP per capita, first
After years of low profile, Nanjing has taken the lead in the growth of China’s major cities. In the first three quarters of this year, its GDP grew by 3.3% year-on-year. Only one other city exceeds 3% among the leading cities, Hangzhou, with 3.2%. In the first quarter, growth reached 1.6%; Nanjing is the only major city to post positive growth in this quarter. Thus, Jiangsu’s capital enters the club of the ten largest economic cities in the country at 9th place. By 2019, it had already become the number one in terms of GDP per capita among the 31 provincial capitals with 165,700 yuan (= $25,350). Beijing and Shanghai remain behind with 164,200 and 155,700. The other significant capitals Guangzhou, Hangzhou, Wuhan, Changsha, and Chengdu, reached 156,400, 152,500, 145,500, 137,900, and 103,400.
GDP per capita growth: X 10
In 2000, GDP per capita reached only 16,400 yuan, which was only 68% of Canton (23,900) and 81% of that of Hangzhou (20,100). In 2010, it was only 75% of Canton and 92% of that of Hangzhou. In 2019, however, it surpassed the last two, and although these two figures do not reflect the whole reality, they show the city’s rapid growth. In the previous two decades, its growth rate has been the fastest compared to Canton, Hangzhou, Chengdu, Wuhan, and Suzhou. The graph below shows the multiples of GDP in 2019 for the five cities and Suzhou compared to 2000 and 2010 :
In 2019, Nanjing’s GDP was 13.74 times higher than in 2000, with a much higher multiple than the others. From 2010 to 2019, it is significantly higher than that of Guangzhou, Hangzhou, and Suzhou, but lower than that of Chengdu and Wuhan, which benefited from massive industrial transfers.
GDP per capita and population structure
GDP per capita is not a comprehensive measure of a city’s development level, mainly due to China’s cyclical characteristics, development, and construction. The numerator of GDP per capita is total GDP, and the denominator is the resident population of a city. The resident population includes the elderly, children, and other unemployed people. The GDP per capita level depends mostly on the proportion of the labor force in the resident population. Since most industry workers are migrant workers, there are considerable differences between the types of cities in terms of the share of the labor force in the resident population. Migrant workers often work alone. Cities with a high proportion of industry and a large number of migrant workers will have a much higher labor force share than other cities because the elderly, children, and other unemployed people are few, the denominator is low, so GDP per capita will be significantly higher than in other cities with roughly comparable levels of development. For this reason, Shenzhen and Suzhou have a higher GDP per capita than any municipality and provincial capital, even Beijing, Shanghai, and Nanjing. The ratio of primary, secondary, and tertiary sectors in Nanjing is 2.1/35.9/62.0. The manufacturing industry’s share is roughly comparable to that of other provincial capitals at similar levels of development. It does not have a massive number of workers, making it closer to other provincial capitals in GDP per capita.
How could Nanking take the lead?
Compared to Canton, Wuhan, Chengdu, and Hangzhou, the city had fewer assets in the past. Guangzhou, the regional center of South China, a natural transportation hub, a commercial hub, a benchmark for opening in the 1970s and 1980s, attracted leading foreign companies such as Procter & Gamble. Wuhan and Chengdu are the leaders in Central and Southwest China, respectively. Wuhan is Hubei’s capital, with a population of 60 million, and Chengdu of Sichuan, with 90 million. The two provinces have only one high-level city and a densely populated hinterland. Both towns have become winners by absorbing migrant workers and handling the industrial transfer. Hangzhou has many assets. Very active, it ranks fourth in the country for the number of companies. Zhejiang’s capital brings together traditional industries such as mechanical engineering and chemicals represented by Wanxiang, consumer brands such as Wahaha, Nongfu, and influential groups. Alibaba is the most famous.
The assets of Nanking Compared to these four cities, Nanking has no clear “label.” It is recognized as the “third city” of education, with very prestigious universities. They cover various fields such as arts, sciences, engineering, agriculture, and medicine; the completeness of its coverage of disciplines is strong. Jiangsu province is the first in the number of universities, see here. These institutions give the city great resources. At the junction of the Beijing-Shanghai and Beijing-Hangzhou railway lines and the Yangtze waterway, it is well-positioned for transportation. The capital is located almost at the northwestern top of the narrow Yangtze River Delta, which means that traffic from the Yangtze River Delta to the north and upriver must pass through this crucial node. The per capita consumption in 2019 was 72,100 yuan, much more than Wuhan (66,400) and Guangzhou (65,100), it ranks second among the top ten cities, and it is the only city in China with a per capita consumption of more than 70,000 yuan. Nanjing has emphasized scientific and technological innovation and on industry and services. From 2014 to 2016, industrial investments in major cities have generally decreased due to the changing pattern of economic growth. Nanjing has become the city with the highest value of the industrial investment in Jiangsu and Zhejiang provinces since 2018. The growth rate of industrial investment became positive again from 2017, with year-on-year growth of 8.9% and 10.2% in 2018 and 2019, respectively. In 2019, industrial investment increased to 178.376 billion yuan +10.2%, maintaining a lead over Suzhou (119.92 billion) and Wuxi (153.176 billion). Those in high-tech manufacturing climbed 48.2% over the previous year. During the year, industrial robots, complete electronic computer machines, integrated circuits, and optoelectronic devices recorded growth rates of 8.9%, 13.5%, 36.5%, and 26.3%, respectively, showing Nanjing’s sudden advance in high-end manufacturing. The distance to Shanghai (302 km) is a brake. Suzhou, 100 km away, benefits more from the industrial spin-offs of its large neighbor. Simultaneously, for the service sector, Nanking is too close; it has no choice but to develop a robust local economy. The number of listed companies in Nanjing – 118 – is higher than in Chengdu – 110, Chongqing – 66 – and Wuhan – 75, but lower than in Suzhou 156 – and Hangzhou – 209. Among the 500 largest market capitalizations (China, Hong Kong, and the United States), eight are from Nanjing, four from Chengdu, and six from Wuhan. The eight listed companies’ total value is 586 billion, compared to 284 billion for Chengdu and 239 billion for Wuhan. The 2020 Unicorn Ranking – unlisted companies worth more than one billion Chinese dollars – with eleven unicorns places it in 5th place in China, after Beijing, Shanghai, Hangzhou, and Shenzhen.
High consumption, sustained industrial investment, and a relatively strong local economy are Nanjing’s competitive strengths among the provincial capitals, but what are the weaknesses?
Population growth lagging behind
It is easy to see that population growth has been slow not only in Nanjing but throughout Jiangsu Province. Apart from Suzhou and Wuxi, Nanjing, compared to comparable provincial capitals, lags in population growth. Between 2010 and 2019, it reaches 6.19% while Canton, Chengdu, Hangzhou, Wuhan, and Hefei show much higher figures, 20.51%, 18.3%, 19.07%, 14.58%, and 43.66%. Neighboring Hangzhou shows growth of 1.659 million inhabitants, more than three times that of Nanjing, 0.495, or 19.07% against 6.19%. From 2014 to 2019, the increase is less strong. It has decreased from 19.07% to 14.88% in Hangzhou, while it is almost halved in Nanjing, from 6.19% to 3.21%. Nanjing is the least populated and smallest provincial capital in the South.
The ceiling and the pursuers
Both Jiangsu Province and Nanjing City are facing the threat of “上有天花板、后有追兵, The ceiling above and the chasers behind.” This “ceiling” is due to Jiangsu’s lack of resources and weak national outreach, especially in the service sector. The attraction of talent is not up to the level of China’s vast cities. The “hunt” for pursuers is due to urbanization in the province and high labor costs. It is challenging to attract and retain workers. Regional competition remains strong ahead of Sichuan, Chongqing, Chengdu, and Anhui. Tianjin’s and Shandong’s once-brilliant economic performance has slowed in recent years in the face of such a phenomenon. Nanjing and Jiangsu must avoid such a trap.
Image and attractiveness
Another point lies in the inadequacies of the city’s image and marketing. It lacks a “presence” in recent years. Hangzhou, Chongqing, Chengdu, Xi’an, and even Changsha and Hefei have become very popular “cities” on social networks.
With its assets and strong local economy, the capital of Jiangsu is growing strongly. It must remain on its guard against being overtaken by its local competitors. The province’s advanced urbanization and relatively high labor costs make the city less attractive. Despite its strengths, it must strengthen its national influence and raise its attractiveness to avoid the slowdown of cities like Tianjin.
Chinese cities are divided into various categories reflecting their importance and management style. There are four central government cities 直辖市, Beijing, Shanghai, Tianjin, and Chongqing. A circle of fifteen cities includes strategic cities whose top leaders are appointed by Beijing. They are referred to as sub-provincial cities 副省级市, although all of them have provincial capitals. The Diyicai website 第一财经 has carried out a study on the average real estate prices of the cities in this group.
Price in yuan per square meter ( 10 000 yuan = 1520 USD on 25/11/2020) per city:
Shenzhen is in the lead
Shenzhen, unsurprisingly, leads with a square meter at 78,722 yuan (12,000 USD) in October 2020, 1.6 times higher than the second city, Xiamen, in Fujian province, facing Taiwan and 7.6 times higher than Changchun in Jilin province in the northeast. Shenzhen recorded an increase of 15.5% year-on-year and 83.6% in five years. Despite the measures taken to stem the price surge, the market is not calming down. It must be said that there is a whole panoply of parries to respond to government measures, and some financial institutions are not lacking in creativity to use the king of leverage in China, credit. One wonders whether there is a real willingness to contain prices on the part of the central government. Steps are being taken, but on the other hand, the floodgates of credit are opening steadily. On the other hand, the construction and real estate sector is a significant contributor to public finances, and some municipalities are highly dependent on it. Supply and demand are quite unbalanced. Shenzhen has a positive net migration of 370,000 people, while new construction has reached an annual average of 81,000 housing units over the last three years.
.Xiamen comes after Shenzhen in this ranking and fourth place nationally, after Shenzhen, Beijing, and Shanghai. It has the third-largest GDP in its province, Fujian, behind Quanzhou and Fuzhou, and ranks 33rd nationally with a population that is 27th in size. Because of its advantages in education and urban development, Fujian’s capital has attracted people from neighboring cities with high purchasing power. As a result, the housing supply is not keeping pace with population growth. Guangzhou, the capital of Guangdong and a leading city, ranks third with an average price of 38,351 yuan, less than half that of neighboring Shenzhen in the same province. Map of Fujian :
Nanjing and Hangzhou, the two capitals of the Yangtze Delta’s economic provinces (Jiangsu and Zhejiang), exceed 30,000 yuan. On the other hand, Ningbo, and Qingdao, on the east coast, ranking sixth and seventh with more than 20,000 yuan. Map of Zhejiang :
After Qingdao, Wuhan in the center is eighth with 19,021 yuan per square meter and Chengdu ninth. They overtake Jinan, the capital of Shandong, the third economic province. It is noteworthy that Wuhan and Chengdu not only have the highest housing price levels in the mid-west, but they also contain the two most critical high-tech hubs in the region. The level of industrial development is an essential basis for house prices. Overall, house prices in this group of 15 cities show a north-south division, with the leading pack in the Southeast and the northeast’s trailing pack. South China is followed by the Yangtze Delta, Shandong, and the Central West. Changchun, at 10,303 yuan per square meter, and Harbin, at 10,990 yuan, show lower price levels than many small and medium-sized cities in Jiangsu, Zhejiang, and Fujian. The difference in house prices between the northern and southern cities is related to recent years’ economic development, especially the development of emerging industries and population flow and the financial structure and topography. The northeast region consists mainly of plains, while the South, especially the southeast coast of Zhejiang, Fujian, and Guangdong, is more mountainous and less flat. The supply of many cities is limited. On the other hand, the regional differentiation of real estate dynamics is evident as the Pearl River Delta and the Yangtze River Delta are advancing, while Shandong, the Northeast, and other places are retreating. According to the data, in October, Jinan’s housing prices were down 0.3 percent and 2.7 percent year-on-year, in Qingdao down 0.4 percent and 2.8 percent year-on-year, in Changchun down 0.5 percent and in Harbin down 0.4 percent year-on-year. The development of new industries and population mobility plays a significant role in these fluctuations.
These figures allow us to perceive the dynamics of the economy and the crucial differences between the prosperous regions of the South, particularly those of the Northeast, which have not been able to change their mode of development, while the central-west has emerged. You can read related articles to measure the factors of regional dynamics.
China’s aging is one of the main challenges the country is facing (see article here). Debates on liberalization and the authorization to have a third child are multiplying. On October 25, the economist Ren Zeping 任泽平 published an annual report on demographics which proposes to give back the autonomy to the couple in terms of birth and to have a third child. Without change, the country faces a population decline that could bring it down to 750 million people by the end of the century. The study began as follows: “The number of births in China continues to decline, the desire to have children has decreased considerably, and aging is accelerating 中国出生人口持续下降，生育意愿大幅降低，老龄化加速到来. “He divided his analysis into three parts: 1. China’s aging is accelerating as it approaches population peak, 2. Three widely held misconceptions about China’s population 3. Policy recommendation: Encourage births as soon as possible and actively address population aging. It analyzes the causes of this aging at all levels, economic, natural, and political. It shows the decision-makers’ misdiagnosis and indicates the concrete measures that should accompany births’ liberalization. The rest of this article is a summary of his work, rich in information.
China’s aging is accelerating as the demographic peak approaches
1.1 China’s birth rate continues to decline
Baby-boom then drop in births. The People’s Republic of China has experienced three waves of baby boomers, with an average birth of 21 million per year in 1950-1958, 26.28 million in 1962-1975, and 22.46 million in 1981-1994, before gradually declining to about 16 million in 2003-2012, including 16.35 million in 2012. The birth rate fell from 6 before the 1970s to 2 in 1990 and back 1.5-1.65 after 2010. The fourth cycle of the baby boom was due to arrive after 2010, but the long period of strict family planning has won the day. In this context, the one-child policy was finally relaxed at the end of 2012, but the results were less than expected, with 16.4, 16.87, and 16.55 million births in 2013-2015. At the end of 2015, the complete liberalization of the two-child policy led to an increase in childbirth in 2016 with 17.86 million, marking a peak since 2000; but the trend was not confirmed in 2017, and the decline resumed: 2017, 17.25; 15.23, 2018 and 14.65, 2019.
The decline in births is accelerating : Births per 10,000 people Estimate
The causes The significant reduction in the decrease in the number of births in 2019 is mainly due to a decline in the number of women of childbearing age (15 to 49 years) in 2018. The data show this: 4.91, 3.98, 7.15, and 5.02 million from 2016 to 2019. The number of women aged 20 to 35, who accounted for more than 85% of births, decreased by 1.94, 2.64, 3.98, and 3.31 million. The birth rate jumped to 1.7 in 2016, a significant increase from 2015, slightly reduced in 2017, decreased significantly to about 1.5 in 2018, and remained virtually unchanged in 2019. The direct costs of high housing, education and health care, and retirement to prepare inhibit “reproductive behaviour.” First, housing prices are rising rapidly, with the ratio of the population’s real estate borrowing to available income 居民房贷余额/可支配收入est rising from 16.2% to 47.6% from 2004 to 2018, pushing the debt ratio from 28.6% to 88.4%. The cost of education has increased significantly, especially since the supply of public kindergartens is very insufficient, forcing families to choose more expensive private kindergartens, and some schools have turned “homework” into parental duties, making it very difficult to educate children; the number of children attending public kindergartens in China increased from 95% to 43% between 1997 and 2018. Medical costs continue to rise, with health care spending increasing 27-fold between 1995 and 2018, far more than the 9.2-fold increase in disposable income. Fourth, the “4-2-1” family structure of single-child couples requiring grandparental care is a barrier to the desire to have children. The gap between female and male labor force participation rates in China widened from 11.6 to 14.8 percentage points between 1990 and 2019, reversing developed countries such as the United States, the European Union, and Japan. 1.2 China’s population is aging rapidly and will enter a profoundly aging society in 2022.
Too old, too fast In 2019, China’s population aged 65 and over will account for 12.6%. In the United States, Japan, and Korea, where the proportion of the population aged 65 and over has reached 12.6 percent, GDP per capita is around $24,000, while China comes to the 10,000 thresholds. China’s level of aging increased on average by 0.2% per year from 2001 to 2010 and by about 0.4% from 2011 to 2018., Globally, in 2019, China ranked 61st among economies in terms of the degree of aging, 2.2 points higher than upper-middle-income economies. In 2019, the proportion of the world’s population aged 65 and over approached 9.1 percent, 18.0 percent, and 10.4 percent in high-income and upper-middle-income economies; the top three economies in terms of the degree of global aging are Japan, Italy, and Portugal, with proportions of 28.0 percent, 23.0 percent, and 22.4 percent, respectively. In terms of international comparison between the degree of aging and the level of economic development, the United States, Japan, Korea, and China achieved a GDP per capita of $10,000 in 1978, 1981, 1994, and 2019 respectively, while the proportion of the population aged 65 and over was 11.2%, 9.2%, 5.8%, and 12.6%, respectively. The United States, Japan, South Korea, and China reached 12.6% of the population aged 65 and over in 1990, 1992, 2015, and 2019, while GDP per capita was $24,000, $30,000, $27,000 $10,000. In terms of development trends, China’s population is aging at an unprecedented speed and scale. It will enter a profoundly aging society accounting for more than 14 percent in 2022 and a super-aging society accounting for more than 20 percent by 2033, after which it will continue to grow rapidly to reach about 35 percent in 2060. With declining birth rates and increasing longevity, aging is a global phenomenon, but China is aging unprecedented because of its extended family planning history. Compared to the situation in developed countries, it took 126 years for France, 46 years for the United Kingdom, 40 years for Germany, and 24 years for Japan (1971-1995) to move from deep aging, with 7% of the population aged 65 and over, to super-aging, with more than 14%; it took 28 years for France (1990-2018) and 24 years for Germany (1971-1995) to move from deep aging to super-aging, with more than 20% of the elderly population. China’s population aged 65 and over exceeded 7% in 2001 and has entered an aging society. China is expected to become a profoundly aging society in 2022 and then a super-aging society in 11 years, around 2033. Moreover, because of its large population base, China’s elderly population is also unprecedented: in 2019, China’s population aged 65 and overreached 176 million and is expected to exceed 376 million by 2050, peaking at 414 million in 2058, by which time about one in three Chinese will be 65 or older. By 2019, China will have more than 32 million people aged 80 and over, or 2.3% of the population. It is projected that there will be about 53 million in 2030, or 3.8% of the people, 130 million in 2050, or 10.3% of the population; a peak of 174 million in 2073, or 17.1% of the population, and 156 million in 2100, or 20.8% of the population.
Acceleration of the proportion of older people:
The elderly population (from 65 years of age) in hundreds of millions, left Proportion, right
Limitation of competitiveness The Chinese population’s median age increased from 21.9 to 36.5 years between 1980 and 2015 and is projected to reach 43.0 and 50.7 years in 2030 and 2050, respectively. Internationally, the median age of the population in the United States, Europe, Japan, and India was 37.6, 41.4, 46.4, and 26.8 years in 2015, and will be 42.7, 47.1, 54.7, and 38.1 years in 2050, respectively. By 2050, China’s population’s median age will be significantly higher than that of the United States, Europe, and India, limiting international competitiveness. The hole of the retreats The aging of the population makes the difficulty of social security revenues and expenditures increasingly evident; the pension hole will widen. The balance of income and cost of the Social Insurance Fund in mid-2018 was 1,162.2 billion yuan. The actual surplus after excluding financial subsidies was -603.3 billion yuan, a sixth consecutive negative year. Pension insurance accounts for 70 percent of the social security system’s budget, and the actual surplus of the pension fund in 2018 was -450.4 billion yuan, also harmful for six years. The current social security deficit is mainly due to state-owned enterprises’ historical debts from the planned economy era. A part of the population did not contribute but received pensions. In November 2017, the State Council implemented a plan to transfer 10 percent of state-owned enterprises’ capital by the end of 2020 to help fill the gap. However, as the population continues to age, the problem of financing pensions will become more acute. In cities, the dependency ratio (number of active/retired workers) has fallen to 2.55 in 2018. Four provinces were unable to make ends meet, 18 provinces had a payment term of fewer than 12 months for the accumulated balance, and in eight provinces, the dependency ratio had fallen to less than 2. of these, the Heilongjiang Pension Fund has been struggling since 2013. Besides, as the aging process intensifies, pressure on medical expenses will also increase. According to a survey by the National Health Service, from 2003 to 2013, the two-week patient/surveyed population ratio of residents in China’s survey areas increased from 14.3 percent to 24.1 percent; among them, the prevalence rate of people aged 65 and over increased from 33.8 percent to 62.2 percent, and the rate of the elderly population in 2013 was 2.58 times higher than the average. 1.3 China’s population has surpassed 1.4 billion, but the downward trend is about to begin
Overestimation of data In 1949, China’s population (excluding Hong Kong, Macao, Taiwan, and overseas Chinese) was 540 million. It exceeded one billion in 1981 and 1.4 billion in 2019. The Chinese population took 12 years to rise from 800 million to 1 billion, 14 years from 1 billion to 1.2 billion, and 24 years from 1.2 billion to 1.4 billion. The 2016 national population development plan (2016-2030) targets 1.42 billion people in 2020, and to reach this projected target would require an increase in China’s population of about 20 million in 2020, which is not possible. The National Population Development Plan (2016-2030) is mistaken in its projections because it overestimates the overall two-child policy’s impact on fertility growth. Indeed, it forecasts that the birth rate will be around 1.8 in 2020 and 2030, which would result in a population peak of 1.45 billion around 2030. The United Nations has also overestimated China’s population growth, with the Chinese scenario projecting a peak of 1.46 billion people in 2031. The United Nations World Population Prospects (2019) presents nine scenarios for projecting China’s population, with the medium scenario assuming a total fertility rate of 1.70, 1.72, and 1.73 for 2015-2020, 2020-2025, and 2025-2030, respectively, peaking at 1.46 billion people in 2031. On the other hand, its low scenario assumes a total fertility rate of 1.45, 1.32, and 1.23 for 2015-2020, 2020-2025, and 2025-2030, respectively, with a population of 1.45 billion in 2024.
750-800 million in 2100 We expect China’s population to experience negative growth during the 14th Five-Year Plan period, then decline sharply from 2050 onwards and bottom out at 800 million by 2100. China’s share of the world’s population will fall from about 19% to 7%. With an estimated birth rate of 1.4, China’s population will reach a peak around 2022. The decline is slower in the first 25 to 30 years after peak population, but it will become much faster when the population born during the high fertility period of 1962-1975 reaches the end of its life. The decline will be 9% from 2022 to 2050, 22% from 2050 to 2075, and 25% from 2075 to 2100. China’s share of the world population was 22% in 1950. It has decreased slightly to about 19% in 2019. It will drop to about 7% in 2100. As this decline continues, China will lose its advantage, and its overall strength will be affected.
Forecasts on evolution : The three colors represent low, medium, and upward assumptions with no change in measures : Unit (left): 100 million
1.4 Disappearance of the demographic “dividend” and decline in China’s potential economic growth rate
In terms of economic growth, the proportion of the working-age population peaked in 2010 and is expected to decline by 23% between 2019 and 2050; China’s economic growth rate has increased from 10.6% to 6.1% between 2010 and 2018 and is about to enter the “5″ era. The demographic dividend has been an important factor in sustaining China’s strong economic growth in the past; after the reform and opening of 1978. China grew rapidly to become the world’s second largest economy, relying on a large and young workforce and the huge unified market that resulted. The second wave of baby boomers, from 1962 to 1975, was the main building force during the 40 years of reform and opening, producing and saving more and consuming less, resulting in a soaring savings and investment rate. Savings surpassed investment and partly generated a trade surplus, while excess liquidity and rising per capita income boosted consumption and the economy’s potential growth rate. However, in the context of a long-term low birth rate, the proportion and size of China’s working-age population (15-64 years) peaked in 2010 and 2013, respectively, and the demographic dividend disappeared, leading to a decline in the potential growth rate of the Chinese economy and prompting a shift in gears. In absolute terms, the total dependency ratio of China’s current population is about 40 percent. The future period is still in the “demographic window of opportunity” (less than 50 percent) when the demographic burden is relatively light. According to the 2010 Chinese census, the population born in the 1980s, 1990s, and 2000 is 219 million, 188 million, and 147 million, respectively. The 1990s generation is 31 million fewer than the 1980s generation, and the 2000s generation is 41 million fewer than the 1990s generation. This trend will continue. With labor supply declining and costs rising, some manufacturing production has begun to migrate to Southeast Asia, India, and other countries.
Structural change in consumption In terms of consumption, aging brings about structural changes in consumption, such as the share of health care that will gradually increase. According to the life-cycle theory of consumption, older people have an average propensity to consume. Aging will increase the rate of consumption but will reduce the rate of consumption growth. In China, consumption as a percentage of GDP reached its lowest level in 2010 and increased from 35.6 percent to 39.0 percent between 2010 and 2018, while the growth rate of consumer spending dropped from 15.3 percent to 9.5 percent. There are also differences in consumption preferences between the different generations, e.g., the post-80s prefer maternity and automobiles, the post-60s and 70s prefer alcohol, and the pre-60s prefer pharmaceuticals and health care so that changes in the age structure of the population have different impacts on different industries. For example, the 25-54 age group peaked in 2017, and the rate of growth in tobacco and alcohol sales will slow after that; the 20-50 age group, the major homebuyers, peaked in 2013, as the amount of new residential construction reached 1.4 billion square meters in 2011 and 2013; the growth rate of consumption of appliances, furniture, building decoration, and other real estate-related industries peaked in 2010; the 25-45 age group of significant car buyers peaked in 2003. Car sales growth is declining in a volatile environment, with negative growth for the first time in 2018, but new energy-efficient vehicles have enormous potential; aging boosted health care consumption from 6.2% to 7.8% in 2013-2018.
2. Three widely held misconceptions about the Chinese population
For a long time, the Chinese population has been the subject of endless debate, focusing on three main aspects: 1) What is the Chinese population’s appropriate size? 2) Is the number of people less important than the quality of the population? 3) Should the Chinese population be liberated and encouraged to have children immediately?
2.1 What is the appropriate population size for China?
The “appropriate population theory” is the theoretical cornerstone of the family planning policy, and many support this view, which is the source of all controversy. Opposing views: Hu Baosheng, Song Jian, Tian Xueyuan, and others estimated in the early 1980s that China’s appropriate population would be about 700 million people in a century; if no population control is carried out, China’s population could reach 4.3 billion by 2080, arguing the need for the one-child policy. We believe that, first, an “appropriate population” is an abstract concept that requires many long-term assumptions that are difficult to measure from a historical perspective. Second, the population’s carrying capacity improves with technological progress, and there is no static, appropriate population in absolute terms. In the middle and end of the twentieth century, the idea of a “population explosion” prevailed, and in 1948 the British researcher Wiliam Voget indicated that the maximum carrying capacity of land and natural resources is 2.2 billion people and that human beings are threatened with extinction. In “The Bomb P,” Paul Ehrlich of Stanford University said that the world’s population, then estimated at 3.5 billion people, had exceeded the carrying capacity of the planet’s ecology and predicted uncontrollable famines and unrest in the 1970s and 1980s. Today, the world population is close to 7.6 billion, without experiencing resource depletion or environmental collapse. The carrying capacity of resources and the environment for the population has increased significantly with technological progress. For example, while humans continue to explore for crude oil and natural gas, the global ratio of crude oil storage and recovery (remaining reserves to the production of the year) from 1980 to 2017 increased from about 30 years to 50.2 years than decreasing. The natural gas storage and recovery ratio also fluctuated from 49.9 years to 53.6 years. According to the World Bank, between 1960 and 2015, the share of global fossil fuel consumption decreased from 94.1% to 79.7%, and the percentage of nuclear and alternative energy consumption increased from 2.7% to 13.4%.
2.2 The key is to improve the population’s quality; is the population’s size less critical?
In today’s society, the importance of human capital is more and more important. More and more artificial intelligence will replace manual labor in large numbers. Is the size of the population still so significant? Three hundred million people in the United States are more potent than 1.4 billion people in China! Counter-argument 1: National power is mainly determined by the population’s quality, not by its quantity, and scholars like Li Xiaoping and Cheng Enfu argue that fewer people can generate a higher GDP per capita. Quantity and quality are important We believe that, firstly, the quantity and quality of the population jointly affect national power. On the one hand, a large population is an advantage and not a disadvantage for a country; the ratio of China’s GDP to that of the United States increased from 6% to 63% from 1978 to 2018, and on current trends, China’s total economic output will exceed that of the United States by 2028. If China’s population were currently only 300 to 700 million, the gap with the U.S. would be much larger, and the path to national rebirth even further away. On the other hand, a significant reduction in population would lead to the removal or even disappearance of a large number of cities and industries. For example, in 1960-2015, the population of Yubari, Japan’s coal capital, fell from 108,000 to 8,843, and the number of people over 65 years of age rose from 9.1% to 48.6% in 1980-2015. The city went bankrupt in 2006. According to current trends, China’s population will fall from 1.4 billion to 750 million in 2019-2100, and its global share will fall from 19% to 7%. The U.S. has long encouraged the birth and introduction of quality immigrants, especially during the two World Wars, with a stable environment to attract large numbers and talent. From 1900 to 2018, the U.S. population grew from 76.21 million to over 330 million. The United Nations estimates that by 2100 it will reach 430 million, which plays an essential role in shaping and consolidating the United States’ position as a great power.
The population consumes, produces, and creates Second, the population is not only a consumer, but it is also a producer, and a large population creates a large demand market and provides sufficient labor and more talent on the supply side. The view that fewer people have a higher GDP per capita sees only the population’s consumption in the economy, ignoring the creative value of the economy’s population. For GDP per capita, the population is the denominator and acts on the molecule, and the role is more fundamental, more sustainable. No historical experience proves that the total population and GDP per capita are negatively correlated. In fact, no country or region can achieve rapid economic development with a declining population. In his State of the Union address to the Federal Assembly at the beginning of 2020, Russian President Vladimir Putin stated that Russia’s destiny and history are at stake. Prospects depend on the population. The birth rate of 1.5 is too low. Russia needs to establish a clear, broad, and systematic family support program, with access to a “maternal fund” for families with one child from 2020.
The advantages of a large market On the demand side, profit margins in major markets allow companies to invest more in research and development; more companies can refine the division of labor and improve production efficiency. Competition between companies is more intense, and the motivation for innovation stronger. A large population promotes innovation. Even small demands can form a market in a large market, and small technological innovations can survive. People always think that more people lead to crowded subways, but the truth is that cities with fewer people may not even build subways. Because of its large population, China has the world’s largest high-speed rail network, with 35,000 kilometers by the end of 2019. At the same time, China is also the third region after the United States and Europe to develop its own sizeable civil wide-body aircraft. Currently, only the United States, Europe, and China have a large enough market to meet the wide-body industry scale. Due to the vast consumer market, China’s Internet economy is growing irresistibly, with sectors such as e-commerce, mobile payments, the sharing economy, and artificial intelligence developing rapidly. According to CB Insight, at the end of 2018, the number and value of unicorns in China represented 38% and 42% of the world total, respectively, and the number of new unicorns in China increased from 1 to 32 per year from 2013 to 2018, and in the United States from 15 to 53. The gap between China and the United States is narrowing rapidly.
A large talent pool On the supply side, the population is the foundation of talent, and a large population is the only way to have more talent and a more substantial capacity for innovation. China’s population with a university degree or higher is close to 200 million, the world’s largest. A large population means a considerable talent pool. From 1982 to 2015, the size of China’s higher education population grew from 6.04 million to 171 million, or 0.6% of the total population to 12.4%, making China the largest talent pool in the world. According to World Bank data, China’s gross enrolment ratio (the number of people receiving higher education relative to the corresponding age population) rose from 12.9 percent to 50.6 percent in 1970-2018, while the gap gradually narrowed as the U.S. increased from 47.3 percent to 88.2 percent in 1971-2017. The number of higher education graduates in China from 1.04 million in 2001 to nearly 7.53 million in 2018 increased by 627%. High-level talent has become the backbone of China’s industries, and thanks to a large and highly qualified team of engineers, China is gradually gaining leadership in several fields.
As we approach the age of artificial intelligence, do we still need so many people? Counter-argument 2: AI will displace many jobs, and a large population will become a burden. While AI will replace some traditional jobs in the industry, it will also create increased demand for jobs in the new economy and new industries. All technological advances in history have led to a reduction in the workforce per unit of production in traditional sectors without a decline in total employment, resulting in the simultaneous creation of new and additional jobs. The advent of the automobile, for example, has resulted in unemployment for forklift drivers but has created jobs such as bus and truck driving, automobile development, manufacturing, and repair. Historical experience shows that as agricultural productivity increases and the farm labor force declines, “unemployed” farmers enter factory-based manufacturing; as industrial productivity increases and the number of workers declines, “unemployed” workers enter the service sector. The period 1989-1999 saw the emergence of the automobile. Employment in the U.S. manufacturing sector fell from 18.06 million to 12.81 million in 2018, or 29%. Still, work in the service sector rose from 18.83 million to 129.31 million, 587%, and total employment increased rather than decreased. IA could replace 26% of employment over the next 20 years and generate 38% more employment. The study “The Net Impact of Artificial Intelligence and Related Technologies on Employment in China,” published by PwC in 2018, predicts that AI will create a 12% net increase in employment in China over the next 20 years, equivalent to an increase of about 90 million jobs. Not only does AI have a substitution effect on work, but it also has an impact on income, i.e., AI is more profitable, which leads to lower prices for the company’s products and higher real incomes for consumers, which in turn encourages companies to expand production, hire more workers and create more jobs. Moreover, AI cannot replace the function of human consumption, and the decrease in demand due to population reduction would be a hindrance to economic development.
2.3 Should full liberalization and encouragement of procreation be immediate?
In recent years, the question of full liberalization of the birth control system has been the subject of lively debate. Counter-argument 1: Total liberalization of the birth rate will lead to an increase in the number of births among the rich and the poor and a decrease in the number of births among the middle class, which is not conducive to social justice; the birth rate in rural areas could increase explosively, and the quality of the population would decline. We believe that childbirth is the fundamental right of everyone and that the right to have children must return to the autonomy of the family; total liberalization of fertility is equitable respect for all families without discrimination; the current rural fertility rate is still low so that it is impossible for the population born in rural areas to increase dramatically. Rural population does not mean low quality population. When one considers the conditional and differentiated fertility policy previously adopted for different ethnic groups and urban and rural areas, total liberalization is more equitable. (2) Should the adjustment of fertility policy be cautious or accelerated? Counter-argument 2: The policy should be adjusted cautiously, either by encouraging more vigorously the birth of two children or by liberalizing the birth of three or four children with conditions. We believe that the birth policy has been artificially delayed for too long and that it should not be further delayed but should be fully liberalized and encouraged immediately. The reason for the immediate liberalization and encouragement of birth is that the current demographic situation is urgent because we are now in the window of opportunity for the delivery of children in the middle and end of the third wave of the baby boom, and the later the adjustment is, the weaker the results will be with more effort.
However, Zhai Zhenwu and others have estimated that the “one-child policy” will result in a peak birth rate of 49.95 million and a peak fertility rate of 4.5, which has repeatedly delayed policy adjustment. At the beginning of the twenty-first century, during the heated discussions on population policy, the conservative camp prevailed, and the adjustment of fertility policy was repeatedly delayed. Song Jian and others in 2007 argued that the birth rate index has remained stable at about 1.8 since 1990 and recommended that measures should not change during the 11th five-year plan. Then the central government issued a document calling for all efforts to stabilize the low birth rate. Zhai Zhenwu in 2014 estimated that if the “two-child policy” had been fully launched in 2012, the total birth rate would peak at 4.5 and the number of births at 49.95 million, suggesting that the “two-child policy” should be postponed. Zhai Zhenwu (2015) estimated that the one-two child policy would result in an annual increase of 1.3 to 1.6 million births over the next 4-5 years, for a total of 6.6 million new births. Births in 2014 increased by only 470,000 compared to 2013, and in 2015 they even decreased by 320,000 compared to 2014. Zhai Zhenwu in 2016 also believed that the “one-child policy” would result in 1.6 to 4.7 million new births per year for the next five years. In 2015, the central government implemented the comprehensive two-child policy, but the number of births in 2016 was only 0.47 million more than in 2015. The following years showed failure: an increase of 1.31 million in 2016, a decline of 630,000 in 2017, and even a drop of 2 million in 2018. Although Zhai Zhenwu’s projections are significantly lower than before, they are not realistic. Conservatives have always had more influence on politics. In 2016, even after implementing the less effective two-child policy, some family planning officials still claimed that “the comprehensive two-child approach has met the needs of most people: Encourage births as soon as possible and actively address the aging population.
Population “is” not only the fundamental objective of economic and social development but also the basic building block of economic and social development. Adjustment of birth policy is the most essential and crucial structural reform on the supply side. Unlike other crises, the demographic crisis triggered by a chronically low birth rate is long-lasting, and its effects are slow to appear, but once it erupts, it is difficult to contain.
On the one hand, full liberalization and encouragement of births should be implemented as soon as possible to restore the right to family autonomy and speed up the implementation of a birth support system. First of all, a differentiated policy of individual tax credits and financial subsidies should be implemented, covering the period from pregnancy care to the age of 18 or the end of university studies. Explore the implementation of a comprehensive incentive system, from pregnancy care to childbirth up to the age of 18 or the end of university studies. Besides, localities can further differentiate their policies according to their actual situation. Second, the supply of childcare will be increased, the rate of entry into childcare for 0-3-year-olds is to rise from the current 4% to 40%, and subsidies will be provided for care. Employers and social agencies are strongly encouraged and supported to develop child and infant care services, forming a full-time, half-time, hourly, and temporary care services network. Third, the protection of women’s employment rights and interests is further improved. Tax breaks for childbirth are offered to businesses to accelerate establishing a reasonable and effective cost-sharing mechanism for birth between the State, businesses, and families. On the one hand, further promote the implementation of maternity and breastfeeding leave, adequately address the protection of extended maternity and paternity leave for men, and impose financial or administrative sanctions on organizations that undermine women’s employment rights and interests. On the other hand, several tax breaks have been implemented to reduce the cost of childbirth borne by companies, depending on their employees’ size and their annual maternity status. The pilot merger of maternity insurance and employee medical insurance began in 2017, extending maternity insurance coverage. Fourth, equal rights protection for births outside marriage is being strengthened. Although childbirth outside of marriage is not encouraged, women and their children born out of wedlock should still enjoy all equal rights, including the right to settle in a home and enroll in school, without discrimination. Fifth, increase investment in education and health care, maintain long-term stability in housing prices, and reduce the direct costs of raising children. Investment in pre-school education will be increased, the supply of public kindergartens will be significantly increased, and the duration of compulsory schooling from nine years to twelve, while promoting educational reform and effectively eradicating the phenomenon of “homework becoming parental homework. The government will also increase investment in medical care and promote the reform of the medical and health care system to reduce medical expenses effectively. The government will adhere to the principle of “Housing, not speculation,” implement new measures in the land sector focused on the growth of the resident population, maintain stable real estate financial policies, perfect a long-term mechanism for the healthy development of the real estate market, and improve the housing market and housing security systems so that everyone can have a place to live. On the other hand, it will actively respond to the aging population, create a system of high-quality products and services for the elderly, and build an age-friendly society. First, it will accelerate the public capital transfer to bridge the social security gap and promote national coordination of social security. The transfer of central and local government capital to replenish social security funds will be completed by the end of 2020 and can be continued if necessary. At present, there is a severe imbalance between regions in social security. The move to national coordination can smooth out regional differences and ensure that the level of social security is maintained in provinces and cities where income exceeds expenditure. At present, China is too dependent on the first pillar of basic pension insurance (which accounts for 85 percent). The company’s second and third pillars and occupational pensions, private insurance, and individual pension insurance are relatively low. The second is to establish a lifelong learning system for older people, encourage companies to retain and employ a more aging workforce, and raise the statutory retirement age in due course. The legal retirement age for men is 60, lower than in Japan (65), Korea (61), Great Britain (65), and the United States (66); the legal retirement age for women is 55, lower than in Japan (65), Korea (61), Great Britain (63) and the United States (66), and India (58). Establish a system of lifelong learning for older people, raise the human capital of older people, remove barriers that prevent employers from retaining and hiring older workers, and strengthen incentives for older workers to extend their careers through pension reform and other measures. Third, a high-quality system for providing services and products to older persons will be put in place. China will promote the development of a workforce for the elderly, accelerate the construction of a multi-level, home-based, community-based, fully institutionally developed and organically integrated system of services for the elderly, improve the level of technology and computerization of services for the elderly, and increase scientific and technological support for the health of the elderly. Fourthly, the construction of an age-friendly society. We will continue the traditional Chinese culture of filial piety, promote respect for the elderly, and build a social environment of filial piety and care for the elderly. It will also compensate for the difficulties faced by the elderly in traveling and participating in public services and create conditions for them to enjoy the educational, cultural, spiritual, and recreational resources of the society. The rule of law environment to deal with the aging population will be strengthened, and the legitimate rights and interests of the elderly will be safeguarded. An environment conducive to the elderly, families, society, and government must be created.
China is about to negotiate a turning point. The new take-off of the digital economy and the upheaval in international relations prompt it to review its forecasts and direction. Yao Yang, Director of the Development Institute of Peking University, discusses the challenges to be met in the coming years: the aging population, the environment, the financial system, and its reform, and the role to be played on the international scene.
Summary of Yao Yang’s October 20, 2020 conference :
Demographically, the country faces a powerful trend, the aging of the population, which I fear will surpass our imagination. On the sustainable development front, two concrete objectives have been set at the United Nations General Assembly. Our country’s entire growth model will change radically in the future. The first ambitious goal is to ensure that China’s carbon dioxide emissions peak by 2030. China’s carbon emissions continue to rise, and coal still accounts for 60-70% of all energy in China. The question of whether we can reach a peak in emissions and then start to decrease over the next decade is a big challenge. The second challenging goal is to achieve carbon neutrality by 2060. Besides, we have not completed the reform of state-owned enterprises and the financial sector, and we need better corporate and financial structures for the next stage of economic growth. These are the challenges we face. Our think tank at Peking University Research Institute and the Brookings Institution, a U.S. think tank, have jointly produced a report entitled “China 2049,” resulting from two years of collaboration. We believe that the next 30 years’ challenges will mostly come from changes in the international context. This academic exchange between the Brookings Institution and us also proves that, despite the deterioration of relations between China and the United States, cooperation between the two countries has not ceased. The fact that two very prestigious think tanks in China and the United States are still able to meet now and research China’s vision is significant in itself.
In this strategically forward-looking research project, we begin by reviewing seven decades of growth. From this base, we envision the challenges that will arise over the next three decades. The last seventy years can essentially be divided into two parts, the first three decades and the previous four. It is relevant to our understanding of the new China’s history to take stock of a developing country’s experience of catching up and how we will move to the next stage. Our study suggests that the two parts should be considered whole, rather than two separate pieces. The first three decades set the stage for economic take-off. We made a lot of mistakes, but the groundwork has been laid. Economically, at least two achievements played a crucial role in the next four decades’ economic take-off. On the one hand, a solid industrial base was put in place. To take a simple example, about 80 percent of the world’s shipbuilding tonnage is now built in China, and our 10,000-ton giants were launched in the 1960s. Without the foundations of that time, we would not be in the position we hold today in the global shipbuilding industry. On the other hand, the first period also performed relatively well in terms of the Human Development Index. If we compare with India, we can see the achievements more clearly. For example, our life expectancy had reached 66 years in 1978, and India was about ten years behind us. Our literacy rate was close to 70% in 1978, 20 points above India. All of this has had a positive impact on our economic take-off over the last four decades.
Forty Years of Reform and Openness: The Flexible Application of Neoclassical Growth Theory
What has been the success of the last forty years? A country cannot develop without savings and investment. The increase in the level of human resources, including the quantity and quality of the workforce. The third is the progression of the level of technology. Many people say that our economy has developed without technological progress, mainly through capital accumulation and the increase in the supply of labor. This is false because the data shows that the contribution of technological progress (in this case, the improvement in total factor productivity efficiency that remains after eliminating labor and capital growth) to the Chinese economy over the last four decades has been about 40 percent, which is already at the level of developed countries. In this respect, one could attribute China’s rapid growth over the last four decades to a more judicious application of neoclassical economics’s economic policy guidelines. Still, China 2049 does not deal with the political economy. The next 30 years will see the peak of China’s renaissance cycle. Four major challenges
The challenges we will face over the next three decades are daunting. 1. Will the social system be able to support/finance the aging of hundreds of millions of people? This is the central issue raised by the aging of the population. The “baby boom” period from 1962 to 1976, during which approximately 300 to 400 million people were born, will pose unprecedented challenges for the country as it ages. The China 2049 report notes that this challenge is not primarily on the supply side of the labor force, as labour is likely to be replaced by artificial intelligence and automation; nor is it on the demand side, as China’s level of urbanization is still relatively low, and the increase in the level of urbanization may offset to some extent the decline in consumption caused by aging. 2.Can industrial restructuring contribute to the ambitious goals of emissions reduction and sustainable development? In the next 5 to 10 years, the direction of China’s economic development will undergo significant changes, with many industries likely to disappear. 3. State-owned enterprises and financial reform have a long way to go. The gap is even more significant in the financial sector, where reforms are the most needed. Measures were taken after 2010 have not been significant enough, especially in shadow banking, so a new cycle of “deleveraging” has been launched in the last two years. So can a new regulatory balance be found after the “deleveraging”? How can we maintain financial sustainability without creating risks similar to those of 2010-2017? 4 . Making a difference in the international environment and changing roles. In the past, the strategy was to bide our time, but now that our country’s weight has become so great that “it’s hard for an elephant to hide behind a tree,” we no longer have the space to bide our time. The environment has completely changed and the international community has long since stopped allowing China to continue biding its time. We must, therefore focus on improving the situation. The key to the next step is how to make a difference, especially in a rapidly changing international environment. In the international arena of the future, the challenge of moving from being a follower to being a legislator is enormous and involves many changes, even philosophical ones. I don’t think our country is quite ready for that. It also means that I fear that the next 30 years’ biggest challenge will come from the international environment’s uncertainty. In a very uncertain international environment, what position should China take to participate in the reconstruction of the global climate? After the trade war between China and the United States and the many frictions and changes in recent years associated with the massive “withdrawal” of the United States, China has objectively had the opportunity to participate in the formulation and maintenance of the new international order. Still, at the same time, it has also tested our determination and wisdom to integrate openly with the different countries of the world. “
Yao placed China in a 100-year cycle of rebirth: the period 1949-1979 laid the foundations on which the country was able to develop during the next four decades of the era of reform and opening up. The three decades 2020-2050 will see the culmination of China’s renaissance cycle, not only over a hundred years but also over a millennium. One could smile in the face of such confidence. Some would call it propaganda, but the achievements and results of the past 70 years speak for themselves. The future is not a long quiet river, as it describes four significant challenges: the aging population, the industry’s alignment with sustainable development objectives, the reform of state-owned enterprises and the financial system, and the adjustment of China’s place in the new international order. This speech by a researcher is to be classified in the songs that must be officially sung. When talking about social protection and aging, it would also have been relevant to raise the difference between urban and rural protection systems, civil servants, and the private sector. Yao proclaims that saving is a strength of China. It also shows weakness. Indeed, the exceptionally high savings (more than 30%) are made mainly to make up for the lack of comprehensive social protection for part of the population. The paradox of a government that calls itself socialist! Inequalities that do not diminish are not addressed. The structural problems of the economy, long fueled by investment and indebtedness, need to be addressed. Consumption is still lagging. Despite all these difficulties, the population’s dynamism, economy, and government can be counted on. This summer in China, we weren’t thinking about vacations (if we could take a vacation with the virus factor, like in France). We wondered how to work harder to make up for the delay at the beginning of the year! Another world.
The repatriation of Indian orders to China mentioned in the last article should not hide the reality. The research bureau Trigger Trend recalls the three significant challenges facing exports, the rise of the yuan against the dollar, offshoring, and the structure of the Chinese economy too dependent on investment.
The rise of the yuan
With China’s economic recovery and the widening interest rate differential between the United States and China, the yuan against the U.S. dollar achieved its best quarterly performance in the past 12 years in the third quarter, with a high of 6.69 to the dollar, its highest level since April 2019.
After the national vacations, the foreign exchange markets began to bet on the possibility of a Biden victory, the yuan soared 1.4% in a single day, its largest one-day gain in 15 years. The central bank reacted by limiting risk measures-taking on futures contracts, to no avail. Uncertainty over the short-term U.S. elections will also continue to fuel yuan’s volatility. The government wants to avoid the Japanese trap with the Plaza Agreement in 1985: a rapid appreciation of the yen against the dollar, which fueled the stock market bubble and the real estate bubble before it collapsed. For Chinese exporters, the exchange rate hurt their profits. The more orders come in, the more fear there is of selling at a loss. The prices given when orders were placed did not include the exchange rate risk. Companies work on cycles of one to three months between order and payment on delivery.
Indian textile orders in part have been repatriated to China, but this is not the underlying trend, as the cell phone manufacturing industry is looking outward, especially to India. To attract foreign investment, the Indian government this year launched a $6.6 billion incentive program and a major $1.4 trillion infrastructure plan to turn India into a new production center for smartphones. In early August, Apple moved six production lines from China to India and has now “relocated” eight factories from China to India. In July, India’s Ministry of Communication Technology announced that the iPhone 11 went into production at the Foxconn factory in Chennai. Foxconn planned to invest $1 billion to expand the plant to provide one-fifth of the Chinese factory’s iPhone production capacity. Reports from the Guangxi region indicate that nine hundred Chinese technicians were crossing the Vietnamese border to take up their posts. The employers are companies with Chinese and Taiwanese capital, such as the famous Foxconn. Besides, several hundred workers who entered the country illegally were sent back to China. These kinds of events do not appear in the official Chinese media for the moment! The deterioration of relations between the United States and China has reinforced American and European companies’ concerns about their excessive dependence on Chinese supply chains. The epidemic has only temporarily disrupted the global industrial chain’s adjustment, which had already begun before the health crisis.
The difficult structural transformation of the Chinese economy
China announced its GDP results for the third quarter. The good news is that the Chinese economy has gone green, with a 4.9% growth in the third quarter and 0.7% in the first three quarters. But a closer look at the three main components of GDP shows that the economy is still dependent on the past model. In the first three quarters, consumption lagged behind investment and exports. Investment in assets increased by 0.8 percent year-on-year: manufacturing industry declined by 6.5 percent, infrastructure grew by 0.2 percent, and real estate development by 5.6 percent. Total imports and exports grew by 0.7 percent, exports by 1.8 percent, but imports slipped by 0.6 percent. Retail sales of consumer goods declined by 7.2% year-over-year. China’s economic dependence on the real estate did not decline. These are the realities that the “dual-cycle” strategy must face.
Economist Liu Yuhui compares China’s economy to an overloaded truck on a downhill slope that is trying to be braked – 中国经济是踩着刹车下坡的超载重卡. The risks and challenges are even more significant, and it is essential to shift to a reallocation of resources and get out of the real estate “kidnapping.” The structure of the economy has to change; otherwise, everyone will suffer, even exports.
“First in, first out”, from the epidemic. China reverses the trend after a difficult start to the year.
From India to China
The episode of the orders from India is an example. Since September, many textile export companies in India cannot guarantee delivery due to the epidemic. Many orders have been transferred to China to be produced there. India has more than seven million confirmed cases and more than 100,000 deaths. Several large Chinese factories have their order books full until May 2021.
The price of cotton soars
Since the recovery after the national holiday, cotton futures have increased by 16 percent in just seven days. The price of the 2101 main contract reached 15,305 yuan, a new year-to-date high:
The bull market is explained by a sudden increase in demand and a likely cold winter this year. Shen Wan’s Textile and Clothing Index shows a gain of 11.55% since the end of the national holidays. The increase is also fueled by usual year-end orders placed early to prevent the epidemic’s possible difficulties. During these vacations, the textile mills worked overtime to record and process orders. Some mills even worked on October 1, a holiday. Henggang Company in Zhejiang received an order for tablecloths from Zara, representing 60% of its annual sales, which was to be produced in India. Other companies in various provinces, from Shandong to Canton, Jiangsu to Zhejiang, are experiencing the same phenomenon.
Alibaba Research Center shows that from May, the number of orders for fabrics and textile raw materials in China doubled and those in the clothing industry tripled compared to the same time last year. The catching-up effect of the previous months worked.
A “harmonious” performance?
In August, clothing exports reached $16.21 billion, an increase of 3.2% over the previous year, representing the year’s first positive monthly growth. According to official data, textile, clothing, and the seven other labor-intensive product categories exported 2.59 trillion yuan during the first three quarters in China, an increase of 5.4%, which represents 20.4% of total exports. 828.78 billion yuan of masks were exported, an increase of 37.5%. The field testimonies and comments collected by journalists on the 第一财经 website do not sound exactly like the official data. This type of figure is sometimes questionable. With the slowdown and halt in certain regions at the beginning of the year, the textile industry, over the year as a whole, the situation is not yet positive. Companies that recorded volumes equivalent to 60-70% of last year’s orders consider themselves happy, but overall, the figures are around 50%.
As for India, the sector is essential. In 2019, the Indian textile and clothing market was worth about $250 billion. It is the world’s largest jute cotton producer and the second-largest producer of silk, with 22% of the world’s yarn production capacity. The textile and clothing industry is also one of the significant foreign exchange sources, accounting for 15% of India’s total export earnings. The drastic management of the epidemic from January 23 onwards has enabled China to come out of it better and faster. Currently, it is reaping orders from countries in difficulty, such as India. It will undoubtedly continue to benefit from returning to normalcy within the country, while many countries can not the end of the tunnel. How much longer?
The Chinese economy’s transformation reshuffles some of the cards, with cities that remain on old development models “watching the train pass,” while others grasp modernity. Faced with the widening gap between North and South and East and West, one region breaks the categories and stands out from the crowd: the urban pole of Chengdu-Chongqing. The Meituan Group’s research center, in a study on “new industries and professions within the life services sector,” ranks the top thirty cities between three levels: 1. the first level 2. high-potential group 3. Cities with potential. Sichuan’s capital, Chengdu, and Chongqing have broken the usual classifications by moving to the forefront with the top tier cities, Beijing, Shanghai, Shenzhen, and Guangzhou.
Meituan specializes in online sales related to the restaurant industry. The term “life services industry 生活服务业” includes services related to food, restaurants, housing, beauty care, aesthetic medicine, hairdressing, wellness, repairs, apartment management, recycling, photography, personal styling. What are the new occupations in this industry?
Chengdu and Chongqing at the forefront?
A city’s ability to be a leader in new trends is inevitably linked to a dynamic economy and an open environment. Moreover, Chengdu and Chongqing also display unique competitiveness, the former being nicknamed the capital of cosmetic medicine. The life service industry has formed a group of new initiatives. The epidemic has accelerated the penetration of digitization in life services, such as take-out, group purchasing, flash sales, online car booking, and other services to form a “new digital infrastructure” serving residents’ lives. Chengdu and Chongqing residents have always been more adventurous consumers, and they are looking for new experiences in food, drink, and entertainment. The market felt the wind, capital, and talent quickly flowed in, and service became the main battleground. New business formats began to emerge.
The attraction of the region
Chengdu and Chongqing are ranked third and fifth in China regarding the number of employees in new occupations in the life services sector. The Chengdu-Chongqing cluster, thanks to targeted measures and a suitable living environment, has attracted a large number of young employees. Over the past five years, Chengdu and Chongqing have recorded a positive net migration of nearly 500,000 people each year. It is no coincidence that Chengdu and Chongqing are in the lead.
China’s GDP per capita must exceed the $10,000 threshold to avoid falling into the middle-income trap. The first trend is to replace dependence on investment and resources by relying on consumption and scientific and technological innovation; the second is to keep up with the wave of digital transformation and seize new momentum. The second is to embrace the wave of digital transformation and take new momentum. The epidemic has brought about revolutionary changes in the consumer services sector: online retailing, online education, and online entertainment are growing rapidly. New models, such as contactless services, are emerging, showing remarkable economic resilience. Policymakers have realized that the service industry should rely on digital platforms. In the last two months, the central government has issued two documents on accelerating society’s digitization and support. Chengdu-Chongqing has a prominent place. As part of the development of West 2.0, they are at the heart of the national strategy to promote Chinese cities’ fourth circle. Within the framework of the dual-cycle process, local and international, the two cities are the few cities in the interior that record a takeoff of its economy.
The new forerunner of urban competition
Among the cities in the new format, Chengdu and Chongqing are typical examples of experience-based cities. Another category is the cities of new technology-based industries. Shenzhen, the city of the digital economy, is the technological innovation capital of China. These two types of cities have one thing in common: they are more attractive to new professionals. Shenzhen ranks third on the list, second in terms of the number of new employees. Competition between cities for new professions is bound to intensify.
Most new jobs are created through a combination of the Internet and offline. On the Meituan platform alone, there are more than 70 types of new professions. During the epidemic, the “neighborhood group purchasing manager” came into being. The niches generate rare jobs: takagist decorator (live game), traditional Chinese style costume designer, wildlife photographer, digital operations manager, meal planner in theme restaurants, adviser and salesman of country products, organizer for tailor-made business or tourist trips. The new professions require essential digital skills. Staff in the sector are better educated and have higher incomes than in the last decade. 26.7% of Meituan’s merchants have a bachelor’s degree or higher, 40.7% have a monthly income of more than 9,000 yuan (US$1,350), and 24.7% have a monthly income of more than 12,000 yuan (US$1,350).
With the development of new industries and new professions in service to local life, Meituan’s data is quite convincing. For example, in the first half of 2020, the number of delivery personnel on the Meituan platform reached 2,952,000, a 16.4% year-on-year increase, which is very important for stability and employment. In 2019, the life services industry’s transaction volume on the platform reached 483.74 billion yuan. From 2016 to 2019, the transaction volume grew at an average annual growth rate of 55.1%.
Training needs to improve
Today, vocational schools’ training system is often lagging behind market developments, and the slow updating of teaching materials and equipment is penalizing. Macroeconomic monitoring is also necessary to adapt to changes. For example, it is essential to speed up recognizing new professions to encourage the renewal of vocational school courses and increase practitioners’ training of new occupations.
Thanks to digital technology, the life service industry is gradually breathing new vitality into the Chinese economy by forming a more efficient industrial chain. Changes have already begun to appear. Chongqing and Chengdu have taken the lead.
The American administration wants to achieve decoupling with China. We listen to various points of view, some seeing China as the loser, others the opposite. Chinese economist Huang Qifan gives a somewhat official point of view. He describes the current American difficulties, the ten aspects of decoupling. He says that both countries will lose out while thinking that American companies would instead continue to benefit from globalization than follow Trump. In the last part, Huang shows that China is not easy prey, that it cannot succumb to financial attacks, unlike other countries in the past.
黄奇帆, Huang Qifan :
Summary of Huang Qifan’s lecture:
The Three Main American Difficulties
The biggest event of the year is the Black Swan, the coronavirus epidemic, which is expected to affect at least 10 million people worldwide by the end of the year. The United States, the region where the virus is the most developed globally, is currently experiencing several serious problems: 1. severe economic stagnation.2. a highly populist society.3. Politicians are running away. Inflation and economic contraction are striking. The US government has issued $3 trillion in bonds in the last three months, another $3 trillion in quantitative easing super-loans, which is in addition to $6 trillion in monetary easing, so much so that the US government’s national debt balance has reached $27 trillion. With monetary hyperinflation of this magnitude, substantial inflation follows, and in the event of an epidemic, products, the economy, businesses will not experience inflation, but the opposite. So, where does this monetary bubble go? Three places: 1. the stock market, the Dow Jones fell to 18,000 in February to rise to 28,000 .2. Real estate. 3. Precious metals, for example, gold from the United States. Its price has increased by 80% since the beginning of the year. Another aspect is the devaluation of the dollar against the euro and the depreciation of the yuan. The other end is economic contraction. The United States is experiencing the worst economic contraction in decades. It now has a record number of unemployed people. Inflation is a disaster, causing the devaluation of the currency. Now that the currency is devaluing, the economy is contracting, life is hopeless, and the future is uncertain. We are rushing to extremes. The left is going further left, the right is going further right. America is torn between the Democratic and Republican parties, between blacks and whites; even the federal and state governments are clashing. The third characteristic is, of course, the evasiveness of politicians, who do not face reality by blaming the Chinese, the cause of all evil, for the proliferation of the virus. Tens of millions of people have been laid off because of the Chinese economy, Chinese companies, and the Chinese government, which have stolen Americans’ jobs.
Ten aspects of the decoupling of the US and China
Decoupling of exchanges, then no deals. The concept of trade decoupling is more severe than tariffs. Adding tariffs is still trade. It’s just increasing the cost of trade, but it’s not yet decoupling. But if the business is decoupled, I don’t buy your products, I don’t sell them to you, and mutual trade and economic exchange stop.
Decoupling of capital markets A bill is expected to be introduced that will affect more than 200 Chinese companies, and if passed by the US legislature, this law is a straitjacket for Chinese companies. The companies listed in the United States today are all listed with the help of US investment banks, US law, and accounting firms, all in full compliance with US law. But with the new straitjacket and new regulations, this is unlikely to be legal.
Financial decoupling. US insurance banks do not make loans or insurance for Chinese companies.
Technological decoupling. Recently, we saw with Huawei that the US is blocking chips or high-tech equipment.
Investment decoupling. This is called a lender. American companies disinvest in China or don’t invest in China.
Decoupling of education. All kinds of measures are taken to expel Chinese students. After graduation, students are not allowed to find jobs in the United States.
Decoupling of the Internet. A month and a half ago, US Secretary of State Mike Pompeo proposed five aspects of Internet decoupling.
Decoupling with the Swift network could lead to extreme inconvenience in trade between China and the world.
The alleged decoupling of currency and exchange rate
Long arm skill. US domestic law is used as a substitute for international law to find various Chinese companies’ faults in different countries, freeze assets, or impose hefty fines. Example: the arrest of Ren Zhengfei’s daughter from Huawei, Canada.
The American government has not yet declared war. We are on a dangerous slope at the moment: US trade decoupling, technology decoupling, and investment decoupling all lead to the problem of market loss. The United States has more than 10,000 companies in China, created in the last 20 years, with a total investment of $500 billion, which translates into $700 billion in production and $50 billion in profits. Its return on investment is therefore 10%, and its sales margin of 7%. US$700 billion in China is equivalent to 5 trillion yuan in production value, 1,500 billion yuan in GDP. Decoupling would lead to paralysis in this area; China would lose 1.5% of GDP and 2.5 million jobs. In this sense, of course, it will affect us in some areas of China, in certain circles, but China has room for maneuver. It can fill the void; it is capable of balancing; it will only have local difficulties. But for the United States, if those 10,000 or so companies really listen to Trump and disinvest completely, the number one loses $50 billion in profits. They can’t recapture that market anywhere else in the world.
The entrepreneur’s emperor is the market, efficiency; the board of directors wants profit, it wants a minimum ten-year base, it will not follow a politician in office for four years and eight years. General Motors founded a mixed capital company in Shanghai in 1994 and today sells three million cars a year in China. The parent company sells more than eight million vehicles a year. Once GM leaves China, three million vehicles will be gone, and only five million will be left, making it a second-rate auto plant. How can GM bosses listen to Trump? Apple is dead if it leaves China. Trump told Apple to divest. Why can’t Apple manufacture in the United States? Cook explained that Apple had one factory in the United States and one in Brazil. The company was losing money. But in China, the company produced more than 100 million cell phones, which generated 75% of the world’s profits from the cell phone part. The boss of the company also explained something exciting. China cannot leave Apple, and Apple cannot leave China; leaving China means death. Companies are not very inclined to follow Trump, just like Wall Street. The Chinese government in June opened access to foreign financial services central government. August data already showed $30 billion in investment. Investors follow the market, not the president. Trump instead disrupts the markets.
The chip market
China will be affected, whether it’s trade decoupling, technological decoupling, or investment decoupling, or so-called education decoupling, Internet decoupling, it will have an impact on China, but the effect is tolerable, it can be adjusted, and over time it can force China to move up a level. Of course, decoupling from the United States will not destroy the United States, but specific American companies may find themselves in difficult situations. A study by the Boston Consulting Group estimates that restrictions on chip sales to China could cost US suppliers as much as $83 billion, or 37% of their revenues. They could lose the Chinese market.
Finance: China has some defences
We can discuss decoupling capital markets, decoupling insurance and banking finance, decoupling the Swift network, decoupling currency, and decoupling long-arm jurisdiction. These decouplings are all financial instruments, and by using these instruments, the Americans sunk the former Soviet Union, causing an 80% drop in GDP in dollar terms. Today, Russia’s GDP is lower than that of one of our provinces, Guangdong, and the reason is the scourge that was sown in 1990. In 1998, these financial attacks also brought down South Korea in 1998, Thailand, and Southeast Asia, and in the early 1980s, Japan was also hit hard. The blows are significant. Would China be in an unbearable situation if financial instruments were to hit it? If we decouple from the United States in the financial sector, we would all lose, the United States more so. What is the reason for this? Why can’t they beat China when they’ve been successful against Russia, Southeast Asia, South Korea, and Japan? Whether it is the Asian financial crisis or the 2008 crisis, we have never seen American financial methods attack the Chinese financial system, and above all, we have in China three defenses that can be described as our nuclear umbrella, our shield. First, we do not have free convertibility of capital. Prudence has always accompanied the decisions of the State Council. 2. Until today, even though we are said to be open to foreign financing, at the end of last year, foreign financial institutions accounted for only 1.8% of China’s financial assets. 3. Financial operations in China must be governed by the Chinese constitution, Chinese law, and the central bank, under penalty of punishment. We are a sovereign country. Why are the five cases we have just mentioned cited everywhere? The Russian economy had barely begun to develop when the currency was fully convertible with no defense for capital as a result of the so-called reforms. Secondly, the Russian reforms changed all their financial regulations to the liking of the American IMF. Finally, American companies entered Russia and controlled more than 30 percent of financial assets. As long as South Korea, Southeast Asia, and Japan, these three regions and countries are open and controlled by Americans. Security is not assured. China has limited openness and is much more protected. At this stage, this is the fundamental reason why Chinese finance is immune to international shocks from the financial crises of the late 1980s, late 1990s, or 2008. End of the summary
It is essential to recognize that the Chinese government has been able to defend national interests since the opening of the late 1970s by moving forward cautiously, particularly in the opening of financial markets. There has always been an intense fear of being the plaything of the financial markets like weaker countries. The protection of its currency has allowed it to advance in its deep waters. One of the strengths of the United States is innovation, which is China’s weak point. Will China be able to move from copying and improving existing innovations to being a leader in innovation? For the moment, the answer cannot be yes. Will the future show the opposite?