孙立坚：Sharing a bigger cake

作者：孙立坚教授，复旦发展研究院金融研究中心主任。本文发布于China Daily ，2020-12-04.

China and 14 other countries signed the Regional Comprehensive Economic Partnership in November, forming the largest trade pact in the world. The signing of the RCEP is breathing new life into the teetering global economy amid the COVID-19 pandemic. A multilateral trading system is the common aspiration of countries in the region. The RCEP signatory countries can hardly bottom out their economies by just relying on their internal circulation. They need to leverage each other's strengths and create success together. Right now, the conditions for mutually beneficial cooperation are ripe, with changes in China's economic fundamentals－which prioritize further opening-up of the enormous Chinese market－providing development opportunities for other Asian nations.

China used to embrace globalization by providing such resources as land and an abundant supply of labor to multinationals to help them expand their business globally. European and US enterprises have reaped the benefits of globalization with the help of Chinese resources, which have enabled them to break the development bottlenecks caused by the surging costs of labor in their home countries, among other things. The Chinese manufacturing sector has grown explosively during the process. This is a mutually beneficial outcome from the global division of labor.

In years to come, however, under the framework of the RCEP, China will transform from a major exporter to a major importer. China will provide brands, technologies and its enormous domestic market while other nations that have signed the RCEP will provide resources such as low-cost and skilled labor.

After four decades of reform and opening-up, the living standards of Chinese people have been greatly improved, from barely making ends meet to having a moderately well-off life with a certain amount of savings, which can encourage consumption and boost trade. This is China's new demographic dividend. Although the per capita savings is not high in China, its huge population means the country has a strong consumption market to offer.

Strong in manufacturing but weak in consumption, Southeast Asian countries' manufacturing capability has exceeded their peoples' consumption potential and is in need of a strong and powerful market. The European and US markets, due to the ongoing pandemic and self-created obstacles, have limited markets to offer. In sharp contrast, the Chinese government has reiterated on many occasions, such as at the just-concluded China International Import Expo in Shanghai, its willingness to make the Chinese market the world's market.

China's large amount of national savings could turn into orders for overseas products or services through the following three channels. The first one is household savings. With lower tariffs, Chinese consumers are more likely to purchase goods and services from the RCEP signatory countries. The second one is investment bodies. Chinese companies are more likely to build their supply chains within the RCEP region, creating new orders for the RCEP signatories. Third, foreign companies can obtain Chinese government procurement orders in a level playing field.

China's new demographic dividend is demonstrated by its increasing imports through the aforementioned three channels. Over the past 40 years of reform and opening-up and continuous integration with the global economy, China has made great contributions to global economic prosperity with its ample supply of cheap labor, this is the first demographic dividend. Now, China, is tapping the potential of its second demographic dividend, its huge market, by turning it into a market for the world and rebuilding regional economic integration models, such as by signing the RCEP.

China used to adopt a "two ends out" development model－importing raw materials and exporting final products to the world market. Under this model, Chinese foreign trade companies introduced foreign technologies and brands, and utilized low-cost domestic labor to manufacture products and then sell them to overseas markets. Now, China has entered a stage of high-quality development, wherein a new development model allows the world to share its market opportunities. For instance, Chinese companies buying products manufactured in other RCEP member states will create development opportunities for the manufacturing sector and jobs in those countries. In years to come, the proportion of "Made in China "products will drop continuously and China's trade surplus with other RCEP signatories will decrease dramatically.

China is not a resource-abundant nation and is facing problems such as its rising labor costs. If China closes its door to the outside world, surging domestic labor costs will make it difficult for Chinese companies to stay afloat. In that case, due to the thin profit margins of the real economy, the bulk of capital will flow to the financial markets, creating bubbles and systemic financial risks. But given an overseas business environment with relatively lower labor costs, more Chinese companies will choose to go global, the same way as a massive flock of European and US multinationals came to China in pursuit of a more cost-effective manufacturing base decades ago.

Under the new development model, China will create wealth not through its low-cost advantage, but rather through the exports of Chinese technologies and brands, and that is why the RCEP appeals to China. In years to come, China's service trade deficit will shrink sharply or even turn into surplus, accompanied by a continuous decline in its goods trade surplus or even a possible deficit in goods trade.

The RCEP signatory countries also see the window of opportunity to cash in on China's enormous market through mutually beneficial cooperation. China's foreign trade has not shrunk, nor has its economy been crippled by great external uncertainties. Making the cake bigger and then sharing the cake through global collaboration is much wiser than solving the problem of how to divide a shrinking cake.

(The author is the director of the Financial Research Center at Fudan Development Institute.)

来源丨China Daily

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