China’s four challenges?

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.

Related articles :

The three challenges of exporting to China

Decoupling and protection

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Sources: 姚洋:中国走向世界经济强国的四个严峻挑战

8 November 2020

Ant, Jack Ma and the Battle for control

When will the Ant Group be able to enter the stock market? Estimates have continuously been pushed back for the past year. Investigation and battle are on the way.

Investigation and convocation

Even though the company of the founder of the Alibaba Group enjoys a lot of support in the highest spheres of government, it disturbs big interests. In mid-October, an investigation had been launched to assess investors’ conflicts of interest. Yesterday, a laconic communiqué from the regulatory authorities announced four bodies, the People’s Bank of China, the Banking and Insurance Regulatory Commission of China, the Securities Regulatory Commission of China, and the Administration of Foreign Exchange Management convened, 约谈, the three top executives of the group. No details emerged from the exchanges’ content, other than broad general statements indicating that the discussions addressed the health and stability of financial markets. What could be the reasons for this meeting?


Checks may have revealed irregularities or practices that crossed the red line. But, as they are not severe, they trigger a simple summons to find a solution. Jack Ma had already received a summons in 2015 to ask him to be stricter and more active in the fight against copying on the group’s platforms.

The help for the big banks

Other hypotheses concern the aversion of the large banks to the Ant Group, which has taken a large share of the highly profitable online finance sector serving as intermediaries for small and medium financial institutions in the sector. The authorities need to protect these large public institutions.
Ali Pay markets a lot of financial products without going through the dinosaurs of the banking world. Ali Pay has a 21% market share in consumer credit. It is an intermediary that works with small banks, which do not have an extensive network to capture a large clientele. The company receives a commission. Besides, thanks to its various services and companies, including Taobao, the group collects a lot of information on these customers, both individuals and SMEs, and can quickly assess customer risk.
The central banks are also interested in attracting young people. The vast majority of their customers who visit the branches are older. But young people prefer online service, where Ant is strong. A piece of the cake escapes the big traditional banks.
The six big banks are public. It’s the State. The regulatory authorities have, according to Wang, the task of protecting them. With the money from the IPO, Ant will develop further, go into other niches, and occupy a more important position.

Interest groups 利益集团

The agreement that Jack Ma would have made with the interest groups of several political factions is essential to this point. He would have accepted to take a step back from Alibaba by taking a so-called retirement last year and by letting them have some capital; in exchange, he was allowed to put the part of the financial and technological service of Ant on the stock exchange. But the story gets more complicated when they discover later on that it is not Alibaba who controls Ant, but Jack Ma, through the companies he owns. Some observers, such as Wang Jian, think that the setbacks encountered by Ant come from this battle over control of the company, bathed in the perfume of go and chess (Chinese) strategy.

As usual

There is nothing new in the battle over China’s high-tech flagships, which must be in the nails and participate in the country’s rebirth while sharing the dividends of growth with power-related interest groups. Any irregularities serve as a pretext to tighten the screws.

Related articles :

To buy Ant is to buy the China of tomorrow!To buy Ant is to buy the China of tomorrow!

Is it time to invest in the Chinese stock market?

Articles on finance

Sources :


3 November 20202

Is it time to invest in the Chinese stock market?

A pendulum effect has often existed between the stock exchanges and the Chinese real estate market. Money moved from one market to the other. Are we going to see a return to Chinese equities? This is what several observers think.

Who makes the market?

State-owned companies and interest groups are often in an excellent position to know which direction the market will take. More than once, they have used their privileged position to enter a market before the crowd. Thanks to their position, they were able to borrow easily and fuel speculation. One of the best moves occurred before the 2008 Beijing Olympics when the Shanghai stock exchange index saw its value multiplied sevenfold from 2005 to 2007. From its peak of 6124 points on 16 October 2007, it plunged 65% in one year. Currently, it is around 3200 points.

speculation China stock marketIs

From real estate to the stock market

The authorities are “officially” trying to control the rise in property prices to avoid being too expensive for low incomes. They have put in place measures to limit purchases and introduced new taxes, with very relative success. They would like to see more capital flows into the real economy. The Bank of China has recognized.

Ant, symbol?

The IPO of Ant is an important symbol. In a way, it represents the direction that China’s economy wants to take: digital, high-end, far from cheap Made in China, and a critical opening to individual shareholders. And, of course, the beginning of the transfer of investments to the stock market. The funds dedicated to individuals are overwhelmed. Interest for the investor is the support of the government behind this operation. When the government is present, the risk decreases as many public funds, such as social protection or large public insurances, are also among the shareholders. Everyone has an interest in the increase!

Easier IPO

Other figures indicate a benevolent eye for the financial markets. The IPO approval rate is back to the highest levels of the last ten years. Nearly 96% of companies that applied in 2020 are approved. The rate is well above the lows of 2017, 82%, and 2018, 77%. Besides, the time required for the procedure is being shortened.

The return from the American dream

Investors should see many opportunities. Indeed, companies that will withdraw from the US market will return to the local stock exchange. The current cash flow difficulties and an uncertain future on cash inflows encourage companies to seek financing on the financial markets.

And the buyback

Investors should take advantage of the new share buyback scheme 股票回购. Columnist Sun believes that China has done an excellent job of emulating the United States to boost the share price. In the last two years, the amount of buybacks has soared, see graph :

So, it’s time to invest in the Chinese stock market?

Related articles :

Buying Ant is buying tomorrow’s China!

Wall Street prefers China

Will the yuan continue to rise against the dollar?

Financial articles

Source :

收益下滑 破发增多 市场化发行机制成效显现

1rst October 2020

Wall Street prefers China

Wall Street does not follow Trump in its policy toward China. Like the big groups, the financial institutions like globalization, even if it means letting de-industrialization impose itself in their own country. What has happened recently?

Finance is settling in

China continues to open its market; American Express and Master Card have taken advantage of this to enter the market.
The State Administration of Foreign Exchange (SAFE) reported in June that foreign companies had invested $ 200 billion over the past 12 months.
At the end of September, the FTSE Russel indicated that Chinese treasury bills would integrate their indices. Beijing estimates a capital flow of 1200/1500 billion dollars.
U.S. financial institutions how to set up. JP Morgan has just signed a lease for 10,000 sq. m. premises in Shanghai’s business district, Lujiazui. Morgan Stanley is expanding its offices and large management funds are following.
Wall Street prefers to bet on the still young Chinese market’s size, rather than on American politics. Has Trump lost a battle – before the elections?

in ftse Russell chinese treasury bills

The American government has long bet on the Chinese market, thinking that economic opening would be accompanied by political liberalization. While some parts of the economy resembled more unbridled capitalism, politics made small concessions. China was the big winner, and there is more to come. The Chinese government has been able to maneuver while we can talk about the United States’ lost bet.

Let’s not dream! The most exciting and remunerative sectors are still reserved for Chinese companies (see the article)? When will there be a real opening?

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Yuan exchange rate, what can China afford?

China: The failed bet of the United States

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Finance, China is opening up a little!

Sources :



27 October 2020

Digital currency (4) : Internationally?

I am closely following the gradual introduction of the Chinese digital currency. Moreover, my curiosity is sharpened by the country’s authorities’ very great discretion around this project. The Trigger Trend site even talks about secrecy. In China, silence and the unspoken have significant meanings; certainly, major projects are at work.
What’s new, according to the Tiger research bureau?

First outing from China

He reports that the new Xiongan area south of Beijing is preparing to encourage cross-border e-commerce while exploring its possibility. Is this the first series of tests ?

Internet giants are being brought in to help.

Ali Baba and Tencent have already worked on this currency with the central bank, Bilibili, Meituan, and Didi. All these companies have remained rather discreet about this cooperation.

An undeniable potential

Individual investors are very attentive to companies that could be part of the movement. HyUnion Holding 海联金汇, a company in Fintech and artificial intelligence, had to deny its participation in the project.
If 82.39% of adults practice payment on the Internet, only 4% use Fintech to manage their asset. The potential is undeniable. When asked about the money held in these digital wallets, the government does not answer.


The Central Bank does not want to let go of Fintech’s domain and leave the management to private companies. Even if it is claimed that the flows are anonymous, it is elementary for the Central Bank to have all the information on the issuers and recipients of a money transfer.
According to the Singaporean Bank DBS chief economist, Neilin Zhou, the central bank, will effectively fight a debt crisis. For example, to stop the worsening of the construction of these ghost towns 鬼城, the Ministry of Finance will interrupt investors’ money transfers very quickly.

The application for digital money :

Internationalization of the yuan

Is the purpose of this currency to challenge the United States? Initially, it was intended mainly for the local market. Still, the turn of Sino-American relations in recent years has prompted the authorities to take a more global and international view. The digital currency could help the yuan’s internationalization, which is increasingly in demand in the financial spheres. We have moved from the position summarized by the Standard Chartered Bank strategist as follows: “The internationalization of the renminbi, originally a good have; now it is slowly becoming a “must-have” 人民币国际化,原来是一个good to have 的东西,现在可能慢慢的变成一个must have. »

To be continued

Source :

To learn a little more about the subject, other articles here :

China’s digital currency

Digital currency in China (2)

Digital currency (3) and the Ming dynasty

8 September 2020

Will the Yuan continue to rise against the dollar?

Rising Yuan vs. the Dollar

The renminbi has been on the rise since the end of May, especially in recent days. When the Yuan is said to rise or fall in China, it is often against the US dollar. Indeed, the US currency was worth more than 7.15 yuan at the end of May. It is currently trading at 6.82/6.83 after breaking 6.9 on August 25. This Chinese progression is instead a fall of the dollar :

USD renminbi 美金 人民币

The US currency is also falling against other currencies. The euro fell from 1.07 at the end of March to 1.19 today. Forecasters and hedge funds didn’t even see it coming.

Yuan Down against the Euro

On the other hand, against other currencies, especially the euro, the Yuan did not rise; it lost ground :

What do economists think? Columnist Wang Jian takes stock.

What is causing this rise of the Yuan against the dollar?

1. The fall of the dollar.
2. The interest rate differential (利差), 250 points, between the two countries.
3.The policy of Federal Reserve (FED): it has sharply lowered its base rates, it has clearly stated that they will remain low, even if inflation exceeds the target of 2%.
4. The FED wants a low dollar to stimulate the economy. According to journalist Wang Jian, the Chinese central bank is not intervening and is getting used to the situation.

Appreciation of the dollar in the medium term?

Goldman Sachs thinks that the Yuan will continue to rise over the next 12 months, that its level is very dependent on the trade war. Negotiations on trade agreements are not interrupted; it is a factor of rising. On the other hand, according to other financial analysts, a worsening of Western countries’ epidemic could change the situation.

For the Beijing economist Gao Shenwan, the cycle of the renminbi’s decline over the last five years is over, beginning its long-term rise. The world market share of Chinese exports has been steadily increasing until 2015. From 2005 to 2015, the renminbi was overvalued. On August 8, 2015, China lowered the reference rate by 2% against the dollar, which was equivalent to a devaluation.
In 2019, the market share increased over 2018 because, according to Gao, the Yuan was undervalued. The current and future increases have several causes: Sino-US trade agreements, an easing of credit conditions, and an undervaluation of the Yuan.

Exporting is doing better

Wang Jian adds that the improvement in exports should also be mentioned. The sector is doing better for several reasons. The factories resumed early enough despite the epidemic, from March-April. Difficulties caused some companies to go out of business, but on the bright side, the best ones have stayed and have regained some market share, and are even making better profits. The global demand for medical equipment is robust, and China is well placed in this field.


According to the journalist, the risks lie in the turn of the Sino-American relations and the situation in Hong Kong. Another crucial point is the ability of the authorities to avoid capital flight. The measures for currency outflows are already strict, but there are still many countermeasures to be taken.

So the consensus is for the Yuan to rise – but the consensus is not always right! The Chinese Central Bank could live with this, provided it is gradual. The trend is not expected to change until the US elections. And after that?

Main source:

Articles on finance here

5 September 2020

Digital currency (3) and the Ming dynasty

A Chinese reader told me the parallel drawn by Wen Zhao between Chinese digital currency and banknotes’ issuance under the Ming dynasty. The Taiwanese chronicler considers this innovation similar to the printing of paper money with all its consequences. Let us return to these Ming banknotes.

Zhu Yuanzhang fought the Mongolian Yuan dynasty and founded the Ming dynasty in 1368. Hong Wu – his emperor’s name – tried to create a self-sufficient society.

Metal crisis

Soon, bronze, gold, and silver used for the exchanges began to run out. The Chinese Empire had already resorted to the issue of banknotes in previous dynasties. To ensure trade, the government in 1375 decided to create a paper currency, called Da Ming Baochao (大明宝钞). The population was obliged to change the metal in their possession to get banknotes.

Lousy time for arrangements between friends

The emperor came from a poor peasant family and harbored a hatred for corrupt officials. The process was aimed, among other things, at this caste and the drying up of their resources. Of course, with this episode, one thinks of the tons of red banknotes piling up in civil servants’ houses’ recesses in our time. China’s economic opening has generated colossal corruption that affects many society levels up to the highest levels. The Chinese press, even if selective, has widely covered these cases. The introduction of digital money also targets so-called dirty money.

Inflation is not far away

Very quickly, galloping inflation followed, and in 1400, two years after the disappearance of Hong Wu, banknotes were worth only 3% of their value. A huge black market had taken place where old metal coins from previous dynasties were exchanged.
A new bubble is coming?

What are the motivations?

The arrival of this digital currency raises many questions. What is the real objective? As is often the case, depending on where one stands on the political or ideological chessboard, or according to one’s interests, the answer varies. I read all sorts of hypotheses. Control of society and capital, protection, modernization, sanitation, difficult times. And why wouldn’t it be a cocktail of all these motivations?

More articles on digital currency here

Sources, video by Wen Zhao:

30 August 2020

Digital currency in China (2)

I had presented the main features of the digital currency -数字货币 – Chinese here, according to the available data. Today, the Chinese press has recently released some information.

No planning?

On August 14, the government announced the test areas’ extension to 28 provinces and cities managed directly by the government. The Beijing-Tianjin-Hebei zone (京津冀), the Pearl and Yangtze deltas, and the central-western region are concerned. Questions are being asked about these developments. The Chinese newspapers echo rumors : Shenzhen apartments will only be sold with this currency and that it will not be used to buy gold or foreign currency. Nothing has been officially denied. A Central Bank official only stated that there was no definite schedule for this. Hard to believe!
Since the end of April, in the new Xiongan economic zone south of Beijing, many retailers, Starbucks, McDonald’s, and Subway, are already using tomorrow’s currency. Didi Chuxing, the Chinese Uber, has already conducted tests with its half-billion customers.

The winners?

Ant Financial and Tencent would be associated with certain projects in the field. Companies in the financial services industry that could benefit from this innovation include: Westone Information Industry 卫士通, Client Service International Inc 科蓝软件,Shenzhen Forms Syntron 四方精创,Koal Software Co 格尔软件, HyUnion Holding 海联金汇 and Hengbao Co Ltd 恒宝股份.

The likely adoption of digital currency is linked to many prospects. China has long sought ways out of the dictatorship of the dollar god. This is one path. Digital currency is, of course, part of the digitization of society stimulated by the two leading groups Alibaba and Tencent, and covered by the central government. Dirty money will have more difficulty evaporating. It will allow better control of the capital.
On the other hand, Big Brother will know more about everyone. It’s clear, a different world, a different model is needed. On the whole, the Chinese accept it as long as growth is there and shared – in part!

Articles on finance here

28 August 2020

Chinese economy: just the beginning!

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

Huang Qifan chinse economist


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

New infrastructures

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

villes intelligentes en chine


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


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


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

Distribution of wealth

Several measures to improve distribution :

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

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

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

Related articles :
Science and Innovation in China

To buy Ant is to buy the China of tomorrow!

Sources: Program with Huang Qifan

18 August 2020

China’s Economic Structure

Debates on the new economic structure that China should adopt are increasing. The government has indicated that the internal market must become more critical. Cao Dewang, Chairman of the Fu Yao Glass Group, and Yu Yongding, Member of the Academy of Social Sciences, spoke on August 12 at the Summer Online Summit on “China’s New Economic Structure.” Their discussion focused on the Sino-American problem. They believe that decoupling is challenging to achieve. Indeed, the restoration of the manufacturing industry in the United States faces many obstacles. In the face of the developing financial war, China must make the necessary adjustments while strengthening the domestic market.
A summary of their discussion appeared in the Chinese press:

Decoupling, impossible?

Cao: The dispute between China and the United States is a political issue. However, the real decoupling of the Chinese and US economy is not easy. The establishment of diplomatic relations between China and the US has been difficult. Still, decoupling is even more difficult – China and the US are very dependent on each other, decoupling is a very irrational and costly choice.
But it is not impossible, for political reasons, especially in the high-tech sector, that the United States will contain China and decouple from China.

American Flag

In addition to the possible decoupling in science and technology, Yu also pointed out that China faces a series of threats from the US in the financial field. However, judging by the current situation, the US should not demand China’s expulsion from the two international financial trading systems, swift and chips. The Chinese government should allow the exchange rate to float freely, insist on the management of cross-border capital flows, increase efforts to establish a settlement system for the renminbi, and promote the renminbi’s internationalization.
China should have no illusions that the United States will fight to maintain the technology gap with China for as long as possible, which does not prevent China and the United States from cooperating more in general trade.

The problematic restoration of the manufacturing industry in the United States

Yong: The United States is gradually reducing its dependence on China in the area of general trade. Over the years, US entrepreneurs have moved from China to India, Vietnam, Cambodia, Eastern Europe, and other countries.
Trump said that the Chinese were taking American jobs and repeatedly called for American manufacturing companies to return from China to the United States. The “Revitalizing American Manufacturing Power” movement was invented by Barack Obama in 2013 when he was president. The two presidents’ style is different, but they both have the same goal: they both want to restore and reinvigorate the American manufacturing industry.
It is the right thing to do to restore manufacturing in the United States, but it is not that easy: First, after the 1970s, the United States introduced labor laws, labor laws, and many other policies. To restore US production now, do we have to revise so many policy documents that were put in place before? Second, it’s been almost 50 years since the United States de-industrialized, it’s been two generations, there’s a shortage of bosses investing in manufacturing. Very few small business owners in the United States are investing in production. The country is facing a shortage of workers. University graduates prefer Silicon Valley, Wall Street, or Hollywood, and few young people are willing to go into the factories.
It will be tough for the United States to revive the manufacturing industry within a few years. The traces left by the process of deindustrialization must be addressed, such as labor relations, distribution methods, the development of investor teams, the shortage of skilled workers. Remembering that this is a national strategic transformation, involving human, economic, lifestyle, and distribution change and a slogan is certainly not enough.
Economist Huang Qifan, on the difficulty of decoupling the global industrial chain from China, mentions several points: first of all, he believes that the investments needed to rebuild the industrial chain are difficult to obtain and that for China and the United States to decouple, the United States would have to spend a lot of money to reinvest in a lot of infrastructures. It is not easy to set up activities to support industrial reconstruction. In Dongguan, China, an industrial cluster exists, and the parts needed to make a particular product are readily available. But the United States has long-neglected manufacturing, making it difficult to recover without a cluster. The economic structure of the United States hinders the development of production. Finally, the infrastructure for manufacturing development is challenging to sustain. In summary, according to Huang Qifan, the reshaping of the global industrial chain will not be the result of some Western politicians’ hope to decouple from China. Still, the law of the market will prevail, with vertical integration in a more diversified direction.

Political factors

Cao: Huang Qifan talks mainly about direct investments, American companies in China are reluctant and have difficulty to go back. But the issue of decoupling the industrial chain is not quite the same as that of disinvestment and relocation of American companies.
First of all, political factors must be taken into account when discussing the decoupling between China and the United States. The United States fears that China will catch up with or even overtake them. Declining economic growth in China is the political objective of the US political elite. In international politics, it is always the political objective that takes precedence over the economic goal. To achieve the political aim of restricting China, American politicians are allowed to consider sacrificing particular economic interests. Although it is difficult and costly to decouple industrial chains, decoupling is not impossible, especially in the high-tech sector.

The high-tech sector

Secondly, to study industrial decoupling between China and the United States, we need a specific analysis of each industry. For some sectors for the United States, it does not matter whether they are decoupled or not. But there are some sectors, especially in high-tech industries, where decoupling is not an insurmountable obstacle. For example, China is the biggest buyer of chips, and US high-tech companies, like Qualcomm, are going to suffer if they don’t sell chips to China. But for political considerations, to attack China, Qualcomm’s losses are not enough to induce the US government to lift the ban on Qualcomm’s chip sales to China. At the request of the US administration, Qualcomm and TSMC no longer sell products to Huawei. In the semiconductor field, the United States is in a position to drive China out of the global industrial chain that it controls. For example, China also manufactures large aircraft that are very much involved in the global industrial chain. China is a massive aviation market with a potential unmatched in the world. Although the United States appreciates the Chinese aviation market, the US government could have prevented US suppliers from working with China for political reasons. For US politicians, expelling China from the large aircraft manufacturing supply chain is a price they can afford.

The cost of decoupling China from the United States is indeed very high, and it would indeed be detrimental to both sides. For political reasons, the United States wants to beat China; in many areas of high technology, the United States has to contain China, with the decoupling of China, which is not impossible to do. In this respect, we still have to rely on our strength to achieve independent innovation and form a robust industrial system, which takes a long time and requires capital investment in research and development. Still, I fear that we have no better way.

Financial War

Yong: Since 2018, the economic conflict between the United States and China has evolved more intensely in five areas: tariff wars, investment wars to drive US capital out of China while keeping a closer eye on Chinese companies investing in the United States, technological conflicts such as the 5G war, currency wars, and financial wars.
Sanctions and extortion
In terms of financial warfare, there are several areas of concern: first of all, the United States could impose some form of financial sanctions on China. Economic sanctions can be used in many ways, for example, against a bank or particular sectors—secondly, financial extortion. Many Chinese financial institutions, such as the Bank of China and the Agricultural Bank of China, have already been subjected to economic blackmail, under the guise of a fraction or issue of some kind. US financial extortion is not only aimed at China, but many European banks have also been extorted on a large scale. Since the financial crisis of 2008, the big banks around the world have been fined $243 billion by the United States, which is a way for the United States to get rich! Thirdly, it promotes massive capital flight. Capital flight can take many forms, it is often associated with corruption, and large amounts of capital have moved to the United States. In 2014 and 2015, China experienced severe capital flight. Of course, outflows and outflows were mainly China’s domestic problems. Fourth, China holds a large amount of US dollars, and the US was able to pass on the US debt crisis by devaluing the dollar and causing losses in Chinese assets abroad. Fifth, the seizure of Chinese assets abroad when the conflict between the United States and China escalated. Martin Wolf, the Financial Times deputy editor, warned in late 2013 that the United States could seize a significant portion of China’s assets in the event of a conflict between China and the United States. Such a possibility cannot be ruled out, and many of the current US practices. It is difficult to predict what the Trump administration will not do.
Overall, China faces a range of threats from the United States on the financial front, although so far, there have not been many so-called US sanctions. For example, China’s Kunlun Bank had an oil deal with Iran, and the United States has sanctioned the Kunlun Bank. The US sanctions have mainly excluded it from the dollar settlement system, and it cannot use the dollar or do business with a dollar-linked settlement system. Once a company cannot use the US dollar and the US dollar settlement system, its foreign trade is difficult. This sanction has been applied in the past and will be asked again in the future. We have to be very careful about that.

financial war china usa chips swift

Swift and Chips

The majority of international financial transactions go through two systems, Swif, and Chips. Thus, the United States must use these systems to serve its geopolitical interests. We hope that we will be able to build a messaging system and a settlement system that can be freed from US control in the future, but there is a long way to go to achieve this goal. Some Chinese academics have also talked about solving this problem by promoting the renminbi’s internationalization, but it is a very long process. As things stand, I think the United States is not going to expel China from both systems. However, China must act and prepare for the unexpected.
More than two decades ago, when China’s foreign exchange reserves and foreign assets were small, we considered these possibilities but took no action. As things stand now, many things can no longer be corrected simply by thinking about them, and we can only accommodate ourselves and slowly find ways to get out of them. The proactive measures we can take are limited. To a large extent, we can only pin our hopes on the idea of “killing a thousand enemies and losing eight hundred (or more),” which may make Trump do less foolishness.

The internal market as a pillar

Recently, the central government has put forward the strategic idea of “accelerating the formation of a new development model with domestic circulation as a pillar and the dual national and international cycles being mutually beneficial” (see article). This strategic thinking is also the guideline for dealing with financial decoupling and US sanctions. This direction has implications for China’s future development strategy, economic structure, and balance of payments adjustment. In the long term, this adjustment will significantly strengthen China’s financial security and minimize the Chinese economy’s damage caused by the U.S.-led financial war

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Necessary Adjustments

Specific policy adjustments are needed:
First, the renminbi exchange rate should be allowed to float freely. Suppose the renminbi exchange rate can float freely. In that case, there is no need for the central bank to intervene in the foreign exchange market, buy dollars to increase foreign exchange reserves, or use foreign exchange reserves to stabilize the renminbi exchange rate.
Second, the management of cross-border capital flows must be maintained, and the firewall of capital controls cannot be removed. However, the gradual liberalization of specific items under the investment program can be continued. As many systemic problems have not been resolved, the complete removal of the firewall of capital controls may, in certain circumstances, lead to large-scale capital outflows and flight. During the Asian financial crisis of 1997-98, international capital attacked the Thai baht and the Hong Kong dollar. Without firewalls, it would be difficult for China to resist such attacks.
Third, intensify efforts to establish a yuan settlement system. Further research and attempts have been made on the issue of digital currency, and in fact, the central bank has already done a lot of work in these areas.
Fourth, to promote the internationalization of the renminbi. As long as conditions permit, we will use the RMB as much as possible to denominate, settle, and invest in RMB.
Fifth, Chinese companies should fill the gaps in compliance management. Our compliance and anti-money laundering capacity cannot keep up with the significant regulatory needs of Europe and the United States and other countries. Chinese companies still have a lot of work to do in terms of compliance culture, building systems, and talent development. Chinese companies and financial institutions abroad need to be more vigilant and strengthen their efforts to prevent the US government from using its long-term jurisdiction for extortion and blackmail.
Sixth, strengthen international cooperation to promote reform of the international monetary system and enhance the role of the SDR as an international reserve currency. Continue to explore the possibility of regional financial cooperation.
Seventh, regularly promote asset diversification abroad and reduce US dollar holdings.

Will for hegemony?

Yu Yongding: There is a real problem with the so-called Thucydides trap between China and the United States. China had grown rapidly over the last 40 years, especially after 2001, and especially after the financial crisis of 2008, when the West stagnated, and the Chinese economy went even further. As a result, the gap between China and the United States is gradually narrowing, creating fear in the United States. It is natural for the United States, as a conservative power, to have such a mentality. Although China has no grudge against the United States and does not want to compete with the United States for world hegemony, many Americans do not see it that way. Whether they are Democrats or Republicans, the US government is responsible for the United States’ national fortunes. As a contemporary hegemonic state, it believes that China has threatened its hegemonic position. It will put pressure on China even if it believes that China has no intention of threatening it. Indeed, the United States cannot be sure of that. It is, therefore, obliged to put pressure on China. That has always been the reality of international politics, and China has no reason to complain about it, let alone have any illusions about it. In short, the United States will certainly put pressure on China, especially in the high-tech sector. The United States will do its utmost to maintain the technology gap with China for 20, 30 years, or even longer. However, the United States and China can still cooperate on general trade and investment issues. Of course, China will have to make a very significant adjustment. The trade surplus with the United States is almost $200 billion a year, which is unsustainable: on the one hand, the United States will never allow China to maintain such a large trade surplus; on the other hand, China’s trade surplus with the United States means that it is lending more money to the United States, which is not good for a poor country like China. So, to reverse this situation, we must, on the one hand, firmly oppose US trade protectionism, and, on the other hand, we must also adjust our trade policy towards the United States. To improve the balance of trade between China and the United States, we must increase our imports from the United States. But what we want to buy from the United States they don’t sell to us, and what the United States can sell to us, China may not need. What can we do? We will have to reduce our exports to the United States, but the total volume of trade between China and the United States may decrease. A decrease in total trade is certainly not good for economic growth, especially since a reduction in exports will dampen overall demand. Faced with this situation, we can only replace the weight of the external market by expanding the domestic market. I think that may be why the government has proposed the “domestic round” approach.

An interview that highlights the challenges in the face of the American attacks. China must have a larger domestic market and arm itself financially to withstand the cannon fire of its adversary/enemy/former spouse (your choice). In 80 days, the game may change. Trump said that Americans should learn Chinese if Biden becomes president!



17 August 2020