荷兰央行原行长：中国经济政策之我见

导读

中国是世界第二大经济体，但中国的人均GDP却排在世界第73位。这使一些研究者陷入窘境，他们更应该关注经济的规模还是普通人的生活水平？中国当局的目标则是在未来几十年内大幅提高人民生活水平，若不存在经济冲击，那么中国将成为一个比美国大得多的经济体。将中国这样如此庞大的经济体顺利融入全球经济是一个十分艰巨的任务。一些西方学者不理解、不支持中国特色的经济模式，但当两种价值观在世界舞台上相遇时，给予平等的尊重是很重要的。平稳、渐进的经济融合符合每个人的利益。经济动荡不但会给中国带来沉重的打击，而且会严重影响全球经济。现在，中国占全球经济增长的三分之一。自金融危机开始以来，中国不仅成为了亚洲的领头羊，也成为了世界其他地区的领头羊。如果没有中国的经济贡献，世界其他地区的金融危机将更加严重。但中国仍面临一些问题，如经常账户赤字、人口老龄化等。若将中国经济视为一艘巨大的油轮，试图在世界经济中靠岸，则任何事故都会产生高昂的代价。在现有的情况下，中国应采取循序渐进的方法，以一种可控的方式，逐步融入世界经济。但这种循序渐进的做法掩盖了近年来中国采取的一系列重要的经济措施，例如利率自由化、汇率政策、应对产能过剩、保护知识产权、保护外国投资者等。从宏观上看，中国的经济增长正经历再平衡阶段。中国已不再是一个增长率达两位数的经济体，现在，中国更看重增长的质量而不是数量。医疗、扶贫、社会保障、养老金、环境保护、反腐败斗争日益受到重视。产业结构更加优化，服务业占GDP比重不断升高，带动人民工资份额上升。同时，私营企业发展，为中国经济注入更多活力。在当前的转型过程中，中国经济政策的两个先锋是“一带一路倡议”和“中国制造2025计划”。这两个项目都旨在防止中国陷入所谓的“中等收入陷阱”。在这样一个陷阱中，由于工资上涨，大规模生产的成本过高，国家将进入经济停滞期，无法与发达国家竞争。为了防止这种情况的发生，一个国家必须重新创造自己，这就是中国在这两个项目中所做的。经济发展始终伴随着风险。房地产行业、工业、批发业、零售业都存在着一定的风险。从银行业的角度看，中小银行面临的风险最大。它们是本地或区域的经济参与者，对经济环境有着重要的影响。局外人很难掌握银行资产负债表上的资产质量。除此之外，中国当前最严重的短期风险来自于与美国的贸易战，这场贸易战是未来几年世界经济发展方向的关键，紧张局势持续下去，必然造成两败俱伤的局面。消除绝对贫困，建设小康社会，中国正在向着这个目标不断迈进。中国正以自己的方式向市场经济转型，在许多领域取得成果比我们意识到的还要大。然而，为了确保可持续增长，中国仍需进一步的经济再平衡。对于所采取方法的不同观点以及内外部需求的平衡，应通过讨论，而不是贸易战去解决。

作者 | Nout Wellink，IMI国际顾问委员、荷兰央行原行长

英文原文如下：

My take of China’s economic policy

Introduction

The Chinese economy is the second largest in the world. At the same time it ranks 73rd on a GDP per capita basis (IMF, 2018). This results in kind of a quandry: some observers focus on the size, others on the living standard of ordinary people. The legitimate ambition of the Chinese Authorities is to substantially raise these living standards in the next decades. The result will, absent shocks, be an economy that is in absolute terms larger (in the long run much larger) than today’s number 1, the US-economy. As to the long run, if the per capita gdp would be at the level of, e.g., my country (the Netherlands), the Chinese economy would have outgrown the US with a multiple of more than 3. This perspective explains to some extent the fast growing tensions between the US and China, the two most powerful countries in the world.The daunting task in front of us is how to smoothly integrate an economy of the size of China into the global economy. Not only the present and future size of the Chinese economy makes this integration process without precedent in economic history, but also the economic, cultural and political differences that still exist. China is creating a market economy that fully participates in the global economy, but with Chinese characteristics and under the strong leadership of the Party. This sounds anathema to Western observers, but I think that it is important to try and understand this model that is indeed different from the model existing in the Western part of the world. “It makes”, as Andrew Sheng and Xiao Geng wrote, “little sense to view Chinese political developments through a Western lens, especially at a time when the world is shifting from a unipolar to a multipolar system” (1). I agree with this, but that is not to say that there should not be mutual respect for each other’s values and approaches when the two worlds meet in the international arena. Living up by all countries to the internationally agreed-upon trade rules is of paramount importance.

The necessity of a smooth, gradual transition and integration process

A smooth transition and integration process is in everybody’s interest. An economic disruption would not only hit China hard, but also heavily affect the global economy. Let’s not forget that China nowadays accounts forone-third of global growth. Especially since the beginning of the financial crisis this country has become the locomotive not only for Asia but also for the rest of the world. An important figure in this context: China succeeded inreducing its current account surplus, after an all time high of 11,1% of GDP in December 2006, to lessthan 2% in2011, thereby substantially contributing to the growth in other countries. In the subsequent years the surplus hovered around that figure. Without China the financial crisis in the rest of the world wouldhave been much deeper. But it came at a price. China is still suffering fromsome legacy problems due to its mind-boggling crisis program.

For 2019 and 2020 a basically balanced current account is expected. Larry Summers, former US Treasury Secretary, rightly stressed last April in TheFinancial Times that “today China’s global surpluses are far below past negotiations targets of a few years ago” (2). However, in the coming years current account deficits cannot be excluded. Chinais aging, young people save less and old people will draw from their savings. The savings ratio already declined from the peak of 52% of GDP in 2008 to 46%in 2017 but is still one of the world’s highest, thereby distorting (or mirroring a distortion of) the economic structure. It seems reasonable to assume that in the years aheadthe savings rate will further decline. After all, in a richer country thespending appetite of consumers also increases. This could lead to a current account deficit. On the other hand, the foreseen lowergrowth rate requires less investment. In addition, if the Chinese government would be successful in reducing what is called by the IMF the “augmented” deficit, the current account might nethertheless end up in positive territory.On balance – barring unforeseen developments – I am rather relaxed about China’s current account perspectives.  The same holds for the onshore exchange rate, which has been allowed (since 2015) to move in either direction of adaily trading bandmidpoint set by the central bank. In real terms, on a weighted basis, the rmb (real broad effective exchange rate; REER) has appreciated substantially since 2007 (index 2010=100; February 2007: 89,65, February 2019: 124,51 (3)). In its 2018 Art.4 Consultation the IMF (4) came to the following conclusion: “While the external position wasmoderately stronger (with the level consistent with medium - term fundamentals and desirable policies) the rmb in 2017 was broadly in line with fundamentals and desirable policies”. Since then the figures have changed a bit (also due to the US pressure on China). From a level of 130 in 2015 the REER depreciated to around 125 in 2019. But I think it is fair to draw the conclusion that China succeeded in realizing reasonably balanced overall results for its exchange rate and current account. The outlook for thecapital account seems to me less certain. There is always the risk of sudden outflows, in spite of capital controls. On the other hand, the gradual furtheropening of its financial markets (recently China extended for example its Renminbi Qualified Foreign Institutional Investers - RQII - program to the Netherlands) will most certainly attract additional capital from foreign sources. This measure was very much welcomed by investors in my country. Therefore, externally China is contributing to a smooth integration process. However, internally the re-balancing process has not been completed yet.President Trump has a different view with respect to the exchange rate. Asto the rmb Trump repeated in June 2019 his now well known song: the Chinese “devalue their currency, they have for years; it’s put them at a tremendous competitive advantage”. His own ministry of finance came in the autumn of 2018 to the conclusion that there was no exchange rate manipulation on the Chinese side. The reasons: the current account surplus of China amounted toless than 3% of GDP and the scale of interventions in the exchange markets, co-determining whether a country is manipulating its currency, were clearly not fulfilled.  Compared to the peak in 2015 the real effective exchange rate has indeed declined with 4%, but was still substantially higher than on the eve of the financial crisis and broadly in line with the external position. Therefore it would be more logic for the US to focus on the domestic causes of its persistently high current account deficit than blaming other countries. The reserve currency character of the dollar has made it possible for the Americans to live beyond their means for many years in arow.The Chinese economy: a mammoth tankerSee the Chinese economy for a moment as a mammoth tanker, trying to harbour in the world economy, Changing the course of such a tanker into the right direction takestime, but making mistakes during this potentiallyaccident prone change of course could turn out to be very costly. I belong to those who are strongly in favour of a step-by-step approach, thus minimizing the risks involved in this harbouring process. After the fall of the wall in 1989 Russia was ill -advised by those (amongst them prominent US economists) who suggested to liberalize the Russian economy more or less overnight. This is a dangerous approach when the country is large and an adequate institutional, supervisory and legal framework islacking. As we all know, in Russia it initially ended up in economic and political chaos. Inthe Russian case, two lines of thinking were behind the suggested approach. A dogmatic one, based on the idea that in a liberalized economy all problems would besolved more or less automattically. The other line of thinking was that only quick and drastic measures would create an irreversible situation. The best approach in the Chinese circumstances is to my mind a step-by-stepapproach, a controlled, gradual integration in the world economy.The real issue is: what does a step-by-step approach mean. How big should these steps in practice be. And how credible is such an approach. Isn’t a step-by-step policy kind of a trick to hide that you do not really want to change. This credibility issueis at the heart of many discussions between Western countries and China. A lot of people inthe Western world unfortunately simply don’t believe the Chinese Authorities when they say, as they do, that structural reforms are high on their priority list. Following closely the economic developments in China, I am convinced that the government wants to live up to its promises, realizing that it is in the country’s best interest to deliver. After all, its own credibility is at stake. Admittedly, the process is sometimes a bit slower than outsiders expect, but this reminds me of a famous fairy tale from my childhood. It is about a running competition between a hare and a turtle. Everybody expects the hare to win the race, but it is the turtle. The hare is always distracted during the race, the turtle is very focussed and, although a much slower runner, the first at the finish.

Re-balancing measures

The step-by-step approach obscures that in recent years in China important economic measures havebeen taken. Perhaps these measures haven’t been “sold” sufficiently enough. Far reaching measures were, for example, taken in the following area’s: the liberalization of interest rates, the granting of foreign majority interests in financial institutions, the exchange rate policy, the approach to overcapacity and the protection of intellectual property rights. Let me dwell a bit further on three set of these areas, so as to clarify my case for a step-by-step approach. It is of course outside the scope of this contribution to deal with all the structural reforms.Interest ratesDuring my term as a Board member of BoC, China has liberalized to a very high extent interestrates for deposits and loans, but - admittedly - under certain circumstances the authorities still provide so-called “window guidance”. That happened for example when the Chinese SME’s got into financing problems. I see this kind of guidance asa positive element of the Chinese system, but too much pressure on the banks, resulting in loss-making loans, is of course not a good idea. What is needed, is a balance between the social and financial responsibilities of banks.The liberalization of interest rates took several years. Rightly so, because such an approach almost by definition implies a shrinking of the interest margin and a huge pressure on the profitability of banks. Banks will, therefore, engage in new activities, such as the introduction of (complex) wealth management products. But this introduction requires sufficient knowledge of these new products, clear accounting rules, adequate risk management, strong supervision, etc. Continuing with financial repression wasn’t an option either, because then clients of the bank would move to risky products in the shadow banking sector (as they did). The point I want to make is that decisions on certain steps or on refraining from these steps only can be taken if you have thought through all the implications and have sufficiently prepared yourselve to cope with these implications. Sequencing, patience and endurance are crucial in the context of structural reforms. That takes time, but disregarding the seaspects is a recipe for disaster.Intellectual property rightsAs to intellectual property rights, this issue is now hotly debated, especially between China and the USA. My perception is that China started late, too late, with addressing this issue, but it nowadays has a vested interest in protecting intellectual property rights. The country is in the midst of an innovation boom. It is not surprising thatPrime Minister Li Keqiang in 2018 stressed that “enhancing the protection of intellectual property rights is a matter of overall strategic significance, and it is vital for the development of the socialist market economy”.The authorities have indeed taken action. It required new legislation, specialized courts, trained judges, etc. A recent article of William Weidman (5) illustrates convincingly that China is seriously addressing local judicialprotection, small damage awards, the process of discovery, and the bias against foreign companies. He quotes an earlier study that found that between 2006 and 2011 foreign companies brought over 10% of infringement cases in China and won over 70% of these cases. According to Weightman, today’s win rates average around 80%. A few months ago Imyself spoke to a Dutch entrepeneur who has been working in China for several decades. Hehad won 3 of the 4 intellectual property infringement cases. The fourth went wrong, but in his view rightly so, because he said he had provided insufficient evidence.That said, there is stillroom for further improvement. The Chinese Authorities themselves have launched a nationwide campaign in April 2019 to tackle the infringement of intellectualproperty rights. I am not enough an expert to conclude that the situation is perfect, but itseems to me that much more has been done than is often understood by observers in the West.Protection of foreign investorsThe same holds for the protection of foreign investors. In addition to measures already taken, a new “Foreign Investment Law” will enter into force on 1 January 2020. This is an importantlaw that offers protection to foreign investors in a number of areas: expropriation rules, transfer of profits to foreign countries, equal treatment of domestic and foreign companies, etc. It is a mystery to me why the progress with respect to these topics is not acknowledged, especially because meanwhile several foreign financial institutions, including Germany and Korea, have been allowed to set up local subsidiairies in China. A few onther examples. A bank of myown country, ING, was allowed to take a majority stake in a joint venture with the Bank of Beijing, and J.P. Morgan has since taken a majority stake in a Chinese asset manager.All of this, of course, does not mean that suddenly it has become very easy for foreign financial institutions to penetrate deep into the Chinese economy. There are all kinds of obstacles, such as the lack of a branch network, the actual monopoly position of the existing banks, costs, etc. As a result, it remains difficult for foreign parties to compete with domestic counterparts. My feeling is that the Chinese government would like to see this happen. Indeed, these measures not only serve the interests of Western investors, but are also in China’s interest. They are needed to channel savings towards more efficient uses and to slowdown the growth of the shadow banking sector. As said before, in the context of this article I cannot deal with all the structural reforms that already have been taken or are in the pipeline, but my conclusion is that quite a lot has happened already and is still happening.

Results at the macro level

A more balanced growth

Where have all these developments led to? Is China successful in transforming its economy. China is no longer an economy with double digit growth figures. The focus nowadays is on the quality of growth. Healthcare, poverty alleviation, social security, pensions, the fight against polution and corruption are getting more attention. This policy change was necessary for socialreasons but also because growthrates of 10% or more could only be achieved through a combination of exuberant exportgrowth and financial government incentives that for budgetary reasons could not besustained. Although the official budget deficit was around 3%, theso-called “augmented” deficit (a broader notion used by the IMF) is in the order of 10%. My feelingis that the IMF is overdoing the “augmentation” a bit, because the government is not responsible for the whole gap between the two figures. On the contrary, it has taken action to escape from that responsibility. To the extent the gap (the deficit of other sectors than the central government) would disappear, this would have the same impact on the economy as a reduction of the official budget deficit.Also for environmental reasons a double-digit growth rate could not be kept up.The present growth figure of around 6.5% is more sustainable and healthy than the previous double digit growth rates. I interpret this figure as something between a target and a best guess. It is more than just a forecast, because the actual growth figures should fit into the ambition of a doubling of gdp in the period till 2020.The consequences of the slowdown in the growth rate are in absolute terms less dramatic than a lot of people think. Since 2007 a doubling of China’s real GDP has taken place. A growth rate of 6.5% now is in absolute terms comparable with, say, 13% in 2007.The growth rate is not only lower, but in terms of composition also more balanced than in the past: a smaller share of exports, more consumption, less public investment. In 2017 the agricultural sector contributed 7,2% to gdp, the industry 40,7% and services 52,2%, to be compared with 10,73%, 47,5% and 41,82% respectively in 2008. All in all remarkable shifts. The figure for the service sector might even be too low, according to an OECD study, the reasonbeing that in the Chinese statistics companies are assigned to their main activity. If a secondactivity of a company is in the service sector, it is not reflected in the statistics. The objective of the Chinese government is a service sector of 60% of GDP in 2025. This seems to me a realistic goal and implies a further re-balancing of the Chinese economy.State owned versus private sector companiesPrime Minister Liu recently summarized (6) in another way how much the structure of the Chinese economy has changed in recent years and has also come to rely on the private sector:50% of the tax revenues now stems from the private sector, 60% of GDP, 70% fromtechnological innovation, 80% from urban employment, and 90% from new jobs and newbusinesses.At first glance Prime Minister Liu’s remarks seem at odds with those of PresidentXi who has repeatedly emphasized the importance of state-owned companies, but Liu’s remarks arenot necessarily contradictory to Xi’s. State-owned companies are in President Xi’s view instrumental in theeconomic development in China. They are important for vital sectors in the economy. Criticsin the Western world of this approach often forget that in the past their countries have followed the samekind of policies. I myself have been – on behalf of the government – in the 70s of the last century a member of the supervisory Board of several state-owned companiesI also remember vividly the discussions we had, for example, during those days about the abolishment of subsidiesfor shipbuilding yards. A government being involved in vital industries seems to me acharacteristic of a certain phase in the economic development of a country.That does not mean that state-ownership should be forever or that there are no risks involved. One of them is poorefficiency, showing up for example in low productivity, overcapacity, etc. These companies should also not be used for unfair competition on international markets. Furthermore it is often costly and, therefore, subsidizing them is not always the best use of tax revenues. Overcapacity is a burden for the rest of the world in case of dumping on the international markets. But it is a heavy burden for the country itself with overcapacityindustries too. China tries to get rid of overcapacity industries but at a gradual pace. My experience with the Chinese banking system is thatthese issues are being addressed, but that there is still a long way to go.If possiblethis process should be accelerated but political and social constraints are phenomena the Western world is familiar with too. Since 2013 several million people have lost their job in the overcapacity industries in China. The privatization in China isgaining track and positively influencing the economy. Nicolas Lardi (7) who has analyzed the period since the late 1970’s, concludes that private companies have contributed significantly more to the rapid growth of the Chinese economy than State-Owned Companies/State Controlled (SOE’s) Companies. The root-cause of this is the much higher productivity- and profit increase in the private. An important role has also played that in recent decades the government gradually removed all kind of obstacles to private entrepeneurship and that the large banks, which in the past mainly focussed on financing SOE’s, have become easier to finance privatecompanies. The challenge now is to also improve further the productivity of the SOE’s.Interesting is that, according to Lardi, the share of private companies in the export of China has increased substantially from zero in the nineties of the last century to 44% in 2015. It is in his view notunlikely that this percentage has increased further in subsequent years. This means that the participation of China in international trade is considerably less government driven thanin the past, which fits in the re-balancing process.Increase in wage shareThe rebalancing of the Chinese economy is also reflected in the distribution of national income. In contrast with developments in the OECD area as a whole, the wage share of GDP has risen sharply in China since 2011. After years of decline (in the period of very unbalanced growth) this share is again at the average level of the OECD countries, but – admittedly - still much lower than in the US or Europe. One of the causes behind the increase inthe share of wages is the already mentioned structural shift from industry to the more labour-intensive service sector. An increase in labour shares affect macro-economic aggregates such as cost toenterprises and household consumption, and contributes to the further restructuring of the economy. It goes without saying that the rise in wage share in China has gone hand in hand with an increase in personal consumption.Taken together, developoments at the macro-level are clearly moving into the right direction. The necessary re-balancing of the Chinese economy is underway, but not yet completed. The world (and also China) will have to get used to the fact that the Chinese economy will become gradually more volatile. After all, a market economy is characterized by fewer government interventions.

Spearheads of Chinese economic policy

Two spearheads of the economic policies of China during the present transition process I find extremely important. These spearheads will underpin a favourable growth climate in the years to come. First of all theso-called “Belt and Road Initiative” (BRI; Silk Road Project) and, secondly, “Made in China2025” (MIC 2025). Both projects fit into an approach aimed at preventing China to end up in the so-called “middle income trap”. In such a trap a country is too expensive for mass production due to increased wages, but not advanced enough to compete with the most developed countries. To prevent such a situation (with stagnation and social unrest) a country has to re-invent itself. That is what China with these two projects is doing. Of course, there are more important projects but I can only deal with two of them.

The Silk and Road projectThe significance of the Silk Road Project for China but also for the countries through whichthis route is being constructed is, in my opinion, still underestimated. The project covers anarea with 4.6 bln people (60% of the world population). Pakistan’s central bank governor, Yaseen Answar, compared the importance of this project with the importance of the New Deal for the US in the 1930’s. And rightly so. It is indeed a gigantic project that will become agrowth engine for a number of countries that untill now, for a variety of reasons, were unable to raise sufficient foreign capital. For example, the port of Piraeus in Greece has developed explosively since the Chinese involvement, numerous new companies have been set up in Africa that can use the Silk Road infrastructure, roads have been built in Pakistan and Kazakhstan, etc. But also China itself will be further openedthrough this project. Until now most Belt-related loans are for projects in China. Theseloans focus on electricity, gas, heating, water. I’ve visited bank branches along the Silk Road and was pleasantly surprised by the enthousiastic approach of the bank managers.The US authorities took a shortsighted viewpoint and opposed the establishment of the Asian Infrastructure Investment Bank (AIIB) which is instrumental in the financing of the BRI. China is said to have started this project not only for economic reasons, but also onpowerpolitical grounds. In this respect today’s world does not differ much from yesterday’s. But let’s not forget that huge investments inpublic infrastructure are a prerequisite for the development of many of the Silk Road countries, amongst them the countries on the African continent with a rapidly growing population. A positive development of this continentis of paramount importance for many reasons, including the containment of potential future migration flows. I welcome the participation of the Netherlands in the AIIB and I deeply regret that the US stubbornly refused to participate.All this does not mean that the Silk Road Project is without problems. We have seen this, for example, in Malaysia, Pakistan and Sri Lanka. Some of the projects are toolarge for a country and the same holds for some of the loans. Many, amongst them the World Bank, have expressed concerns about a possible future African debt crisis. Unfortunately, there is sometimes a lot of uncertainty about the size and the conditions under which Chinese loans have been granted. Moretransparancy is indeed required. If receiving countries run into problems and recourse to the IMF is inevitable, the Fund must first determine the so-called “debt sustainability position” before it can come to the rescue of the country. That is difficult if there is alack of transparancy about the debt position. China is not a member of the Paris restructuring club, although it has participated on an ad hoc basis. It would be helpful if China would becomea full member of this club, taking into account that China is financially involved in an increasing number of countries.Positive developmentsDuring a symposium in Beijing at the end of April 2019 Christine Lagarde, Managing Director of the IMF, quoted an old proverb regarding the Silk Road Project: “It’s easy to start a venture, the more difficult challenge is what comes next”. Madame Lagarde is positive about the second Phase of the project, the reason being that the Chinese authorities have committedthemselves to more transparancy and enhanced cooperation with the international community –the official as well as the private sector. Furthermore the Chinese Authorities have put high on their agenda watermanagement, the circular economy, the fight against corruption, debt sustainability and green sustainability (the importance of the environment). The communique issued after the Second Silk Road Conference at the end of April 2019 contains many encouraging sentences. There is no reason to doubt the intentions expressed. In the words of President Xi: “Chinese people value a promise as much as gold”. If the intentions and expectations of the Silk Route Project come true, this project will be seen in the future as one of the most important economic endeavours of our time.

Made in China 2025

Technology is also a priority on the Chinese policy agenda. Since the future is highly technology dependent the logic of this choice is compelling. China is aiming at a leadership rolein, amongst others, robotica, transport, information technology, etc. The country is of course fully entitled to have this ambition. Unlike many other countries China has a clearly defined long-term strategy, and wants to become less dependent on other countries. Whatever the outcome of the Huawei discussions with the USA, the mere fact that overnight one of its most important industries can be put on a black list, will only strengthen the self-reliance tendencies. Therefore, even if the Presidents Trump and Xi succeed in finding a compromise, irreversable damage has already been done.

Ambitious goals”Made in China 2025” is inspired by Germany’s “Industry-4-Plan”, but it is more encompassing. The Germans have “the internet of things” in mind, the Chinese government is targeting a total upgrade of the quality of the production capacity, with an emphasis on technological innovation. At the same time - and that seems in the eyes of Western countries a bit contradictory - MIC 2025 calls for the useof market institutions, the strengthening of intellectual property rights, the introduction of international standards, etc. It seems a dual-track policy with build-in fields of tensionsdue to a lack of understanding of the progress made by China in these areas.Scale and central management have proven to be successful keywords in the past and again form the core of the policy approach. The targets pursued, in particular with respect to the percentage of Chinese companies and production components in high-tech industries, are aimed at a high self-sufficiency rate. The Chinese plans have led to much nervousness, especially in the USA, partly because they would be accompanied by a forced transfer of technology by companies operating in China or wishing to operate in this country. From the Chinese side this is always denied resp. trivialized. Yet the Americans have suddenly been shot in a kind of cramp. That cramp is now spreading across the Western world. Increasingly, current developments are seen as a serious threat to the economic and political power of the West. It is true, the ambitions are high and the Chinese commitment is unprecedented.The US Administration is trying to slow down technological developments (including artificial intelligence) in China, using “national security” as an argument. To what extent it will besuccessful I don’t know, but it seems clear to me that China will and cannot change its ambitions and willeventually overcome the hurdles.A game changerKai-Fu Lee (8) makes convincingly clear that China’s leading role in artificial intelligence is linked to deeply rooted characteristics of the Chinese economy: Chinese entrepreneurship that is the fruit of tremendous hard work, killing domestic competition, the unimaginable amount of data and the high priority given by the government to AI. Lee quotes an estimate of PwC with regard to the contribution of AI to the world wide GDP. This estimate amounts to 15.7 trillion dollar, of which 7 trillion comes from China and 3.7 from the US. Whatever the accuracy of the figures, it is clear that in PwC’s opinion China is going to take the lead. Let me quote again Lee: “The dawn of AI in China will be like the harnessing of electricity: a game changer that supercharges industries across the board”, and: “If AI is thenew electricity, big data is the oil that powers the generators”. I think Lee is right.

Risks

The present and future is selfevidently not risk free. I see actual risks in the real estate sector, the industry, the wholesale and retail sector. Eventually, I think, China cancope with theseproblems. The problems in the industry are by no means negigible, especially in the overcapacity industry. The writing off of non-performing loans and the restructuring and sometimes closing of the companies involved will continue in the years to come, but seem manageable to me. The major banks can gradually absorb their losses, also according to the IMF. My observation is that the banks address the bad assets problems in avery structured way, using different instruments. To my mind the greatest risks are in the inevitable liberalization process, the many interdependencies in the Chinese economy (a.o. formal and informal guarantee chains) and the high and difficult to control debt level of the corporate sector and the local governments.

Looking at the banking sector I think that the many small and medium-sized banks are themost risky. These banks are local and/or regional players and extremely important for theeconomic development in their direct environment. For an outsider it is difficult to come togrips with the quality of the assets on the balance sheets of these banks, their capital buffers, their risk management, governance, etc. In May 2019 one of these smaller banks, BaoshangBank, ran into serious problems and the Authorities immediately took action, involving China Construction Bank, an approach we also in the Netherlands followed when in the past a small bank had to be rescued. There was always a big brother that solved the problem. That was the past, but is not anymore the case.As to the 4 big banks in China, they are well capitalized, although the capital and other requirements of the regulators and supervisors sometimes look like moving targets, becoming more and more demanding. As to the Bazel III Accord, the systemically relevant Chinese bankshave implemented the new rules of the game conscientiously (sometimes under the pressure of the supervisor) and at the agreed upon speed. I think this is very important because the Chinese big four are really big. In this regard the international landscape has changed fundamentally. Before the outburst of the financial crisis, in 2007, thethree biggest banks in the world - using Tier -1 capital as a benchmark - were American banks, followed by three European banks. Nowadays 4 chinese banks are at the top of the list, followed by two American banks. The increased importance of the Chinese banks entails increased responsibilities, at home and abroad.The most serious short term riskThe most serious risk for the Chinese economy in the short run relates to the trade warwith the Americans. This trade war holds the key to the outlook for the world economy in the coming years and will, if tensions persist, raise doubts on the projected recovery path. A trade waris fighting fire with fire. If the Americans keep down that path, everyone will burn including the Americans themselves.The US is using tariffs partly as a weapon for the realization of trade-unrelated goals. It is seeking far-reaching changes in China, including an end to forced technology transfers and the theft of intellectual property secrets, seemingly disregarding the measures already taken and/or already announced. The tariff war between China and the US (and also between the US and other countries) is spreading to other areas. Afew examples. Top universities in the US are, regrettably, reconsidering their partnerships with Chinese counterparts, and in June 2018 Senator Rubio started to question the global index provider MSCI Inc. about why the company had included certain Chinese stocks in its emerging market index (“What MSCI is doing is allowing the Chinese Communist Party controlled market … to access a critical source of capital and clothe itself in a facade of legitimacy”).The trade war is not only hurting the Americans and the Chinese. The US Administration is misleading the US citizens by saying that it is only the Chinese who bear the burden of the tariffs. A tariff is a taxand its consequences are borne by providers and buyers of a product. The providers of Chinese products include foreign companies in China and all those in other countries that arepart of the supply chain. I’ve seen calculations that estimate the share of foreign content in China’s export at 40 to 50%. Relatively sophisticated sectors such as computer - and electronicproducts have a much higher foreign content. The implication is that in today’s world the directimpact of tariffs is spread over a number of (often neighbouring) countries.Probably the mainimpact of a trade war is through the damage to the confidence. Financial markets react heavily tonews about a trade war. Losses in these markets are often a multiple of the direct effects of (announced) tariffs. But (the danger of) a trade war also influences the behaviour of investors and consumers. The tensions between the US and China have already put pressure on thegrowth of consumption in China, a pressure the government tries to counteract, among other things, through tax cuts.The victims of a trade warThe question “Who will suffer most: the US of China?”, is discussed frequently. To my mind this is not very productive. That said, the potential for tariff measures is bigger on the Americanside since the Chinese exports to the US are much larger than those of America to China. Moreover, the American economy is very strong and growing fast. Mid-2019 the US-economy will have experienced the longest expansion in recorded history and unemployment is at levelsnot seen in half a century. So, this economy can take abeating, at least for the time being. On the other hand, Trump’s position is potentially fragile. Support for his policy canfade away quickly if the business cycle would change (the clouds in the sky seem to become darker). More importantly, theChinese government still has effective instruments at its disposal. During the financial crisis the government has shown that it can mobilize these instruments massively and at very short notice: monetary policy instruments (interest rates, reserve requirements), further tax reductions, public infrastructure, etc. Unfortunately, there is no such thing as a free lunch. Such a policy comes at a price: a delay in structural reforms, an end to the deleveraging process. This is in nobody’s interest. It adds to the conclusion that a trade war only has losers.

In summary

According to the “2018 Report to Congress on China’s WTO Compliance” China’s record of compliance with WTO is poor. The country is said to have failed to comply with the expectations and “has moved further away from open market oriented policies … has used the benefits of WTO membership to become WTO’s largest trader, while resisting calls for further liberalization of its trade regime by claiming to be a “developing” country”. In the beginning of this article I pointed to a quandry: being a large country and at the same time not high enough on the per capita income list. China is in several aspects indeed still a developing country, whatever the precise definition, and in spite of the “upper middle income” ranking by the Worldbank. According the the World Bank the country has lifted around 850 million people out of poverty. That is more than impressive and should be taken into account in the assessment of the policies pursued by the government. But at this very moment there are still more people in China below the “upper middle income line” than citizens in the US. It is the ambition of the government to eliminate absolute poverty and create “a moderately prosperous society” by 2020/2022. Step-by-step China is realizing its goals, trying to balance internal needs and external requirements. It is in its own way moving to a market-based economy and has made much more progress in many areas than is being realized. Nevertheless, a further re-balancing remains necessary to ensure sustainable growth. Differences of opinion about the methods used and the balance between internal needs and external requirements should be discussed and not fought through a trade war.

编译  韩子砚

编辑  蒋旭

责编  胡晓涛、金天

监制  董熙君

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