Yao Yang's blockbuster speech: What will happen to China's economy next?

Zhenghe Island

2024-06-27 14:38Zhenghe Island official account

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01 Yao Yang, Boya Distinguished Professor of Peking University, said at the Zhenghe Island 2024 Case Study Conference that the resilience of China's economy lies in the fact that the competition between China and the United States is not economic competition at all, but ideological competition.

02 He believes that the world has not decoupled and broken the chain, China is not isolated in the world, and the next Third Plenary Session of the 20th Central Committee will focus on consolidating the achievements of the reform in the 90s and correcting the problems arising in the second 20 years of reform and opening up.

03To this end, Yao Yang suggested that entrepreneurs should understand China's economic and political logic, pay attention to common prosperity, high-level opening up and other goals, so as to realize the construction of Chinese socialism.

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On June 23, the Zhenghe Island 2024 Case Study Conference was held in the Lingang Area of Pudong, Shanghai, with the theme of "New Links, New Markets, and New Variables" to discuss economic development and business future.

At the opening meeting, Yao Yang, Boya Distinguished Professor of Peking University and Director of the China Center for Economic Research, gave a wonderful speech on the topic of "The Resilience of China's Economy".

In his speech, Mr. Yao profoundly explained that the most fundamental competition between China and the United States is not economic competition, but ideological competition. The world has not decoupled and broken the chain, and China is not isolated in the world.

For the upcoming Third Plenary Session of the 20th Central Committee, many people are concerned about "where is China's reform and opening up"? Yao Yang believes that what China should focus on today is not to carry out reform, but to consolidate the achievements of reform in the 90 s and correct the problems arising in the second 20 years of reform and opening up.

The following is a condensed version of Yao Yang's speech, with exquisite views and accurate interpretations, I hope it will inspire you.

Narrator: Yao Yang, Boya Distinguished Professor of Peking University, Director of the China Center for Economic Research

Editor: Mi Liping Xingchen

Source: zhenghedao (ID: zhenghedao)

Good morning! Today, I would like to share two aspects, on the one hand, the international situation, and on the other hand, the domestic trend.

First, China will not be isolated in the world

I just mentioned the great changes unseen in a century, how to understand this sentence? My understanding is that the last round of globalization is over, and this judgment is very important. Because the era in which we are accustomed to living is still the last round of globalization, like the post-60s generation, many people are still living in the context of the 80s, that is, the beginning of the last round of globalization.

What were the characteristics of the last round of globalization? Convergence and convergence.

What is the concept of convergence? The whole world is integrated, we know that the last round of globalization was led by the United States, the United States can be said to be standing at the top of the biological chain, the order is created by it, and it is the most powerful country, which can look at world integration with a relatively peaceful mind.

In the 90s, we went to study in the United States with the idea that free trade is sacrosanct because free trade is a manifesto written on the banner of the victors. The United States was the victor of World War II and the Cold War, and it wants to write free trade on its banner. It is precisely for this reason that the United States demands that the whole world converge with the United States, not only economically, but also socially and politically.

At that time, China seemed to be in a transitional period, and we would eventually have to transition from this shore to the other shore, who was on the other side? It's the United States. This is the concept we accept.

After the 2008 financial crisis, especially after 2010, the world has changed, and the biggest change is that China suddenly realized that it has its own way to go, what is this path? The socialist road under the leadership of the Communist Party of China is a real thing.

This has led to the so-called disappointment of the United States with China, and in the past fifty or sixty years, the United States has failed in its attempt to integrate China into the world dominated by the United States, hoping that China will converge with them. In fact, after the defeat of the Korean War, the United States reviewed it once and asked who had lost China.

In the past decade, the United States has once again reviewed why it lost China again, and they regret it indescribably. In April, I went to the U.S. State Department to meet with U.S. Deputy Secretary of State Campbell, and he said please remember that no country in the world has helped China as much as the United States has in the past 40 years. Campbell has been relatively friendly to China in the past, and I can hear his disappointment.

In terms of competition between China and the United States, we see that a lot of so-called economic competition is superficial, because in the economic field, rationality is still dominant, and if you are not rational, you will fail, and if you mix too much emotion, the company will not do well. For a country, the country's economy is also not good.

The bottom layer of Sino-US competition is actually dominated by emotion, don't think that the exchanges between countries are governed by reason, I read history and see that the most important exchanges between countries are still emotions.

What is this emotion? The United States does not want China to dominate world affairs, including regional affairs, so there is so-called geopolitical competition. Is this rational? This is actually emotion, I was originally here, you want to squeeze me out of here, I won't do it, this is the territorial principle of animals, and it has nothing to do with human reason.

The most fundamental competition between China and the United States is ideological competition. We all live in our own stories, we make up our own stories, what is this story for? Create meaning in our lives. Why do we live? How do we live as a group? We need meaning.

The West is more rigorous and persistent than the Chinese in making up stories, Western religion is monotheistic, relatively xenophobic, only my own story is the best, only my own God is the best, your story and your God are the objects of conquest. The Americans, who consider themselves a country on a hilltop, cannot tolerate China taking another path. The ultimate competition is a competition of ideologies.

I would like to tell you that the road of socialism under the leadership of the Communist Party of China is irreversible in China, and against this background, the competition between China and the United States may be a matter of several generations. Is the world okay?

At the economic level, rationality will still prevail, and the so-called decoupling and breaking of the chain that we see the whole world is decoupling and breaking the chain, and the world is leaving China, this thing has not happened, and the basic economic logic is still the mainstream.

The so-called restructuring of the global industrial chain is nothing more than the re-layout of Chinese enterprises in the world, for example, if the United States wants to fight a trade war with us and engage in technological decoupling with us, has it succeeded? On the surface, it seems to have succeeded.

Direct trade between China and the United States has been declining, with direct trade between China and the United States falling by 17 percent last year alone. If you look at U.S. imports, China has gone from being the No. 1 exporter to No. 3 in the U.S. A lot of people started saying that China is no longer good.

I was saying the other day that we sell things to Africa and sell to the United States in the same way, and I think that's right, but they're scolding me on the Internet. In fact, we sell computers to Africa, which is more valuable, and the Americans have a computer in their hands and sell an extra computer for nothing, while Africa is more effective because they don't have a computer per person.

Why is China reluctant to accept this statement? We still look up to the United States, and it is good to sell this product to developed countries, but it is not good to sell it to countries that are less developed than us. Chinese we want to change this kind of thinking, the general secretary said that we are already standing in the center of the world stage, we must look at the world in a flat light, and our mentality has not yet changed.

While direct trade between China and the United States is declining, the fact is that the United States is becoming more dependent on Chinese products. According to the principle of origin, the share of Chinese products imported by the United States has risen from about 20% in 2018 to 25% now. Why? Because Chinese companies have begun to deploy globally, many of our exports are not directly exported from China, but from other countries.

Now that the United States has figured this out, can it succeed in launching an anti-dumping investigation against Southeast Asia? We'll see, but I think it's going to be a big one. Why did China win? The basic economic logic is that China's comprehensive cost advantage is getting bigger and bigger, not smaller and smaller.

Europe wants to impose a 21% countervailing duty on our new energy vehicles, will this have an impact on China's new energy vehicles? I estimate that the impact is almost zero.

Why? Because our cost advantage is too great, the cost advantage for Europe is 50%-100%. The price of Chinese new energy vehicles sold to Europe is twice the price of domestic prices, and the 21% tax is almost not felt by European consumers, which is a huge advantage for China.

The U.S. still raises tariffs on China, and Trump has said that if he is elected, he will raise tariffs on China to 60 percent and impose 10 percent tariffs on the world. It is estimated that Europe will follow suit, and the total volume of world trade will be reduced as a result.

What does such a world mean for China? It may be a good thing for China. Why? Because China's cost advantage is too high, after the tariffs are levied the first to die are those enterprises with relatively low efficiency in other countries, China's share of the world will only rise and will not fall, this is the principle of economics, I believe that the principle of economics will prevail over irrational predictions, and my judgment in the past few years has been basically correct.

In this sense, we don't have to worry about China being isolated in the world, China being excluded from the world's industrial chain, and China's pace will not stop.

Second, to understand China's economy, we must understand the political logic behind it

To understand the situation in China's economy, it is necessary to understand the political logic of the Chinese government's decision-making.

We are a socialist country under the leadership of the Communist Party of China, and if you can't understand how the Chinese Communist Party system works and what its goals are, you can't understand China's economy, and you can't discuss China's economy in terms of economy, otherwise you will take it for granted instead of what it is.

History is not linear, 40 years of reform and opening up, a lot of our wealth has been created in these 40 years, especially in the last 20 years, we are accustomed to that era, thinking that we still want to go along that era.

The trajectory of history is not linear, and looking back on the course of the 75th anniversary of the founding of the People's Republic of China, I divide it into four periods.

The first period, the Mao Zedong era, is also called the planned economy era. It was an era of collectivism, and our fathers tightened their belts to lay a good foundation for us, and I very much agree with General Secretary Xi Jinping's judgment that the first 30 years and the next 30 years cannot be separated, which is what he said on the 30th anniversary of reform and opening up.

We ate three loaves and ate to our full, we can't say oops, we shouldn't eat the first two loaves, it's okay to eat the last loaf, that's a fool, how can you be full if you don't eat the first two loaves?

We made a lot of mistakes in the first 30 years, and we have to review them, but we can't say that we will go back to the Cultural Revolution 30 years in advance, because it is disrespectful to history to have such thoughts. There were many positive things in the first 30 years, not least the completion of a social revolution and the laying of a solid foundation for our economy.

Reform and opening up is actually a reaction against the first 30 years, what is this reaction? Individualism. The essence of reform and opening up is to open up to the outside world and invigorate the interior.

What does it mean to open up to the outside world? Take-it-or-leave-it. For people in the 80s of the last century, our best era was of course the 80s - the fiery 80s, the 80s of learning, we got things abroad, and we learned everything.

What does it mean to invigorate internally? To invigorate is to do anything, and it is a burst of individualism. In the first 20 years of China, we were prosperous, why are we prosperous? Because of the social revolution, this class distinction and interest group was broken.

I study development economics, and I make international comparisons, and if developing countries do not develop, a very big problem is that interest groups control politics and kidnap the government, and this problem did not exist in the first 20 years of reform and opening up, so we can complete the reform. Which developing country can get the reform done? It can't be done.

What we are doing today is not to carry out any reforms, but to consolidate the gains of the reforms of the 90s. But there are two sides to everything, in the first 20 years we opened up to the outside world and invigorated the interior, but in the 20 years after the reform and opening up, there were big problems, and these problems are the problems that we need to solve after the new era.

For me, reform and opening up is 40 years, and after 2018, we call it a new era, and the main task of the new era is to correct the problems arising from the second 20 years of reform and opening up.

The 40 years of reform and opening up have been the burst of individualism, but if we go to the extreme right, what should we do in the new era? Pull it back and go to the far right in the first 40 years, especially the last 20 years. Of course we have to pull back, to the left, in a sense, we have to add an element of collectivism, which is our reality today.

What exactly? It is necessary to correct the problems that have arisen in the second 20 years of reform and opening up. What's the problem?

The biggest problem is corruption. The Han Dynasty began to have corruption, which is again an economic logic, as long as you have a principal-agent relationship, there will be corruption, and the official is the emperor's agent, he will be corrupt. However, in the new era, we must read General Secretary Xi's speech, and the fight against corruption is still on the way.

There is also collusion between officials and businessmen, and alliances between officials and businessmen. General Secretary Xi Jinping said in 2014 that officials and businessmen should establish a pro-Qing (cordial, honest) relationship, many entrepreneurs do not understand this sentence at all, the vast majority of entrepreneurs are good, and they are conscientious and conscientious, but there are always some entrepreneurs who have Hu Xueyan complex, and want to play politics when they have money, which is actually the worst arrangement in the world. This one doesn't work.

There are also some aspects that are overly commercialized, more than 20 years ago, we proposed the industrialization of education, at that time I thought it was wrong, but people are soft-spoken, and it is useless to say it. No country has commercialized nine-year compulsory education, and nine-year compulsory education is of a public nature, as is the case all over the world.

The industrialization of education can only be industrialized in some parts, and I think the only part is actually in those non-research universities, and the research universities cannot engage in industrialization, which will destroy a school. What we saw at the time, when individualism bursts out, you find that it's going to go too far, to be over-commercialized.

There was also excessive financialization, and for a period of time, P2P was flying all over the sky, and all the wealth of ordinary people was looted.

The scale of real estate is so large, and all our resources are sucked in. What is one lesson that contemporary policymakers have drawn from the American experience? The most important reason for the hollowing out of American industry is that the United States has become overly financialized, and the financial sector is too big, and no one is engaged in industry.

If China wants to compete with the United States, if we want to develop manufacturing, if we want to develop high-tech industries, then we have to reduce the financial industry, including the real estate industry. The rectification of real estate and the rectification of the financial industry all come from such a reason.

There is also anti-excessive Westernization, including the field of economics, humanities and social sciences, General Secretary Xi proposed to build an independent knowledge system, I raise my hands in agreement, I am very dissatisfied with China's economics (research), if we go on like this, China's economic society will become a colony of American economics, because we have lost the ability to formulate our own research topics, we can only follow behind the Americans, what others have done, we quickly pick up the omissions and do some small research.

We must have our own confidence and ability to build our own knowledge system. Americans expect more from us than we do from ourselves. Yesterday, I attended a launch event at Princeton University Press at the Beijing Book Fair, and they wanted to organize a group of scholars like me to do research of global significance based on China's experience.

Many of our scholars don't see it, and they don't have that kind of vision, to do something world-wide, to give the world ideas, so they want to quickly write some articles and publish articles, and be able to show off, that is not called learning, it is of little significance to China, and it is not meaningful to the development of economics.

The direction is right, but the method is also important, and the so-called problems that have arisen in the economy now are all problems that have arisen at the implementation level. Central documents have repeatedly emphasized the need to deeply understand Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, but many middle-level cadres have not deeply understood Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, do not know where the direction is, in fact, they are still living in the 80s.

3. The goal of the new era is a high level of socialism

What is the final goal of the new era? Everyone is concerned about the Third Plenum, what will the Third Plenum do?

Many people have great expectations for the Third Plenary Session of the CPC Central Committee, hoping that there will be another round of reform and enlargement of measures. Let me tell you, this is what you take for granted, that China's important reforms were completed in the 90s, and what we need to do now is not to make any reforms, but to consolidate the achievements of the reforms in the 90s.

What will the Third Plenum do? It is to announce the 2035 goal, that is, the goal to be achieved by our new era adjustment, this goal has actually been spoiled, but everyone does not read the document well.

The Third Plenary Session of the CPC Central Committee should build a high-level socialist market economic system, and set the key points in high-level socialism.

What is a high level of socialism? The first is full modernization, we have a 2035 revenue doubling target, and I understand that a very important factor in comprehensive modernization is the technological competition with the United States. As I said earlier, our ultimate competition is ideology, so how can we win this competition on ideology? It's all about technology.

Then it is necessary to adjust the pattern of income distribution, improve the social security system, and integrate urban and rural areas. What do these three points mean? It still boils down to one point, take the road of common prosperity. Comrade Xiaoping told us in the 80s that we should let some people get rich first, and that the new era is different, and we must achieve common prosperity, which is the goal.

There is also a high level of opening up to the outside world. But the current opening-up is China's own opening-up. China is the winner, so free trade has become a slogan written on the Chinese flag.

So, what is a high level of socialism? It is socialism of common prosperity. In a sense, high-level socialism is to realize the original intention of the Communist Party when it was founded, and to complete the construction of socialism in China.

This is the story of our Chinese, the story of the Chinese era, this is the reality of China that our entrepreneurs must recognize, and realize this reality and the grand goal of building high-level socialism, I think we can make the best adjustment, we can still make our enterprises bigger and stronger, especially in the world to compete.

Typography | Edited by Shen Wangwang | Xingchen Editor-in-Chief | Sun Yunguang

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