On July 24, 2024, the "CCG Masters Dialogue Luncheon" hosted by the Center for Globalization (CCG) was successfully held in the Xianhe Hall of Beijing International Club, which has a long history of foreign exchanges. The event was presided over by Gao Zhikai, Deputy Director of CCG, and invited more than 40 Chinese and foreign guests, including foreign ambassadors to China, commercial counselors, heads of international organizations, Chinese and foreign business executives, and internationally renowned media personalities, to conduct in-depth analysis and judgment on China's economic development policies and the direction of the new round of reforms, China's interaction with other countries in the world, and China's multilateral trading system under the WTO framework after the Third Plenary Session.
Luncheon in Chinese
Gao Zhikai, Deputy Director of CCG
Gao Zhikai
First of all, on behalf of CCG Chairman Wang Huiyao and CCG Secretary-General Miao Lu, who are visiting United States, I would like to extend a sincere welcome and greetings to all the distinguished guests. Among the guests here today are 11 ambassadors to China, including H.E. Ambonin, Ambassador of Belgium to China. Bruno Angelet), H.E. Paik, Ambassador of Malta to China. John Busuttil), H.E. Ghisd, Ambassador of Australia to China. Scott Dewar), H.E. Han Shuo, Ambassador of Estonia to China. Hannes Hanso), H.E. H.E., Ambassador of Barbados to China. Hallam Henry, H.E. Ibre, Ambassador of Iceland to China Thorir Ibsen), H.E. Brown of Rwanda to China. James Kimonyo, H.E. Ma Yan, Ambassador of Grenada to China Ian Marshall), H.E. Brown of Croatia to China Dario Mihelin, H.E. Brown, Ambassador of Turkey to China İsmail Hakkı Musa), H.E. Ma Zhiyuan, Ambassador of Argentina to China. Marcelo Suárez Salvia）； Li Wen, Representative of the International Organization for Migration (IOM) in China; and 13 senior diplomats from the embassies of United States, Pakistan, Croatia, Germany, Ireland, Canada, India, New Zealand, Indonesia, Switzerland and the European Union Representative Office in China; Amit Sevak, President and CEO of ETS, who traveled from Washington, D.C., to Beijing for the CCG luncheon; 11 representatives from IBM, Mars China, Zoom China, CICC Capital, Kuaishou, ETS, Microsoft, Serafund, Mastercard, S&P Global Commodities, Nike, Standard Chartered Bank, multinational companies; Representatives of international organizations of UNICEF and UN Women; Journalist for international media from Germany Business Daily, Financial Times, and Bloomberg.
The recent Third Plenary Session of the 20th Central Committee of the Communist Party of China (CPC) has sparked in-depth discussions on the future development of China's economy. Participants are welcome to actively participate during the conference to discuss China's strategic initiatives in the economic field and its role in international affairs, so as to lay the foundation for future cooperation and development.
Huang Yiping, Boya Distinguished Professor of Peking University, Dean of the National School of Development of Peking University, and Director of the Center for Digital Finance of Peking University
Huang Yiping
Thank you Zhikai, thank you very much for the introduction. I don't dare to claim to be an authority on national development, but I am engaged in some financial work, and the macroeconomy is indeed an issue that we have always been concerned about. Therefore, I would like to make a few comments on the Third Plenum and start a discussion on this.
First of all, as you may have noticed, after the Third Plenum, especially after the release of the full document, the A-share market fell, and I think the market's previous expectations may have been too optimistic. In fact, if one pays attention to General Secretary Xi's own speech and the message that government officials are trying to convey to the public, it becomes clear that the Third Plenum will not be a large-scale market-oriented process, but about reform and modernization. The general secretary clearly pointed out the method of reform, "go to the problem and focus on the solution of the problem". So it's more of a pragmatic approach.
Personally, of course, if given the opportunity, I might also suggest some more positive reforms, and I have indeed suggested this on some occasions. But I think the more realistic expectations for the Third Plenum should be:
First, China's approach to reform has almost never been radical or big-bang. In fact, as economists, we spend a long time arguing whether the big-bang reforms of the former Soviet Union were better, or the gradual reforms of China. Any reform programme needs to meet one requirement, namely, social, economic and political viability. So I don't think it's realistic to expect China's reform policies to suddenly become very radical or big-bang.
Second, even if you consider moving to a more radical approach, now may not be the best time. Given the domestic problems we face – such as inequality, financial risks, etc. – we need to be cautious about economic liberalization. As pointed out in the "Decision", in addition to the problem of government failure, there are also many problems of market failure, which is why reform should also be cautious and cautious, and we must seriously guard against risks and chaos. The second reason, as I'm sure you all know, is that geopolitical tensions will certainly make liberalization more difficult, and national security considerations more important than ever. This does not mean that liberalization will not take place, but that extra caution is required.
I can share a little observation and personal experience of the financial industry. The National Financial Work Conference held in 2017 mentioned that the opening up of the capital account will be steadily promoted. As you all know, this means that capital will be free to come in and out.
Last year's Central Financial Work Conference did not mention the opening of the capital account. While the meeting still referred to a high level of openness, it also mentioned the importance of national security issues in the economic and financial spheres. The resolution places greater emphasis on attracting foreign financial institutions to China and attracting long-term capital to China.
Why is there such a shift? I think. The advantage of capital account liberalization is that it may improve the efficiency of financial resource allocation, but it will also bring about very volatile capital inflows and outflows. Such drastic capital flows can only be withstood if you have a strong financial system. In fact, many developing countries do not have such capacity. As a result, many developing countries will soon fall into financial crises after implementing capital account reforms. This was the case in many countries during the Asian financial crisis almost 25 years ago.
In 2018, I was appointed by Christine · Lagarde, then Managing Director of the International Monetary Fund (IMF), as a member of the External Advisory Panel for Oversight. I'm not sure you've heard of this advisory group. The IMF sends personnel to member countries each year to review their economic and financial policy frameworks and then make recommendations, which is Article Four.
The IMF usually advises developing countries to open up their capital accounts, but I don't think such policy recommendations are necessarily appropriate. Whether or not you can open up really depends on whether you are ready or not. If you're not prepared, you probably shouldn't be doing the liberalization of the capital project.
Thus, one of the main recommendations I made during my tenure as an external adviser to the IMF was not to force developing countries to implement capital account liberalization prematurely. In fact, if developing countries face significant financial risks or the risk of a financial crisis, they should be allowed to introduce some restrictions on their capital accounts and capital flows. To a certain extent, the IMF has embraced such an approach.
So I would say that reform needs to be pushed forward, there is no doubt about that, but it must be done with caution. I think that the resolution of the Third Plenum of the CPC Central Committee is, first, basically in line with my expectations, and second, it is a more realistic approach. That's the first overarching idea I'd like to make.
So, when people say that market participants are disappointed, it may be true, but the reasons can be multifaceted, either because the previous expectations were too high, or because investors perceived the macroeconomic performance as poor. So there is a lack of confidence. As you can see, the GDP growth rate in the first quarter was 5.3%, and in the second quarter it fell to 4.7%. This is a problem. What I think the government should do, and I suggest the government can do, is to adopt a more aggressive stimulus package to boost economic activity and boost market sentiment. That's my first point.
The second point is, in my opinion, what's the key focus? I think we should look at what the general secretary said, "go to the problem and focus on the solution". But the question is, what are the key issues we face? If you read the Decision, you will see that there are 300 policies to implement, so it's a very complicated thing.
But as economists, what are the two most important economic challenges we face? First, how do you sustain economic growth? When our (labor) cost base was low, we achieved very desirable economic growth by exporting large quantities of labor-intensive manufactured products. But since we started the economic reforms, labor costs, or GDP per capita, have increased from about $200 to where they are now. Now we are close to the threshold of a high-income economy. Another aspect of the significant increase in income levels is that our cost base has also become very high. So, we can't just repeat what we did in the past, we need to do something new to stay competitive and sustain growth.
From an economic point of view, the key indicator is the so-called total factor productivity. We need to be more efficient, so how can we improve it? The government has come up with a new term called "New Qualitative Productivity". I don't know exactly how to define it, but it may involve some new R&D breakthroughs and new economic activities, business models and products driven by innovation. At the same time, if we can do better in traditional industries, such as industry and even agriculture, we will also increase total factor productivity. That's the key. But the driving force behind the increase in total factor productivity is innovation. Innovation can be the world's most cutting-edge technology, but it can also mean doing what we're doing better. Even if it's cutting someone's hair, it's good that you can do it more efficiently and with high-quality service. It's also an improvement.
These are all things that the government is trying to focus on. That's why there are governments that have introduced so many measures. The government is trying to focus on what we can do to promote R&D, and there's a long list. How to promote the growth of talents? This is also an important task, as well as for universities. It's a big project.
It's also important to note that I think the Decision could mean that there will be a or at least a relatively clear division of labour between SOEs and private enterprises. Because in terms of innovation, the private economy contributes more than 70% of China's patents. So in the end, innovation depends on the performance of the private economy. One hope I see in the Decision is that the government has indicated that it will provide opportunities for the private sector, including equal access criteria, including the opportunity for private companies to participate in and even lead key research projects, among many others.
So I think that's very good. At the same time, the "Decision" also points out that, of course, state-owned enterprises will play a more important role in China's economy. I must mention that the foreign media has only paid attention to one phrase – that the Chinese government has said that they will push for state-owned enterprises to become stronger, better and bigger. But more importantly, the Decision mentions that state-owned capital should be concentrated in three key areas:
First, important industries and key areas related to national security and the lifeline of the national economy. Second, public services, emergency response capabilities, and public welfare areas related to the national economy and people's livelihood are more like public services. Third, forward-looking strategic emerging industries.
I'm not sure that the state-owned economy can do well in the area of forward-looking strategic emerging industries, especially in terms of innovation and the development of new products. But for maintaining economic stability and providing public services such as transportation, railways, buses, etc., these are areas that state-owned capital should focus on. This is not much different from other market economy countries either. This relatively clear division of labor actually identifies the areas that SOEs should focus on in the future. At the same time, the "Decision" also identifies areas in which private enterprises can play a greater role, especially in scientific and technological research and economic innovation. I think that's very important.
The second issue, which is also a very important economic issue, is consumption. Compared to the world average, China's consumption is very weak. China's consumption is 55% of GDP, which means that just over half of GDP is spent on consumption. This is 20 percentage points lower than the global average. So we always say that consumption in China is very weak.
Weak consumption leads to two problems. First, it's clear that you're prone to domestic overcapacity. There is a lot of production, a lot of investment, but the final consumer demand is very weak, which means that some of the products produced cannot find buyers domestically, which is called excess capacity. That's why, over the past 46 years of reform, we have had the problem of overcapacity almost all the time.
The National Development and Reform Commission (NDRC) no longer tells people which areas to avoid because of the risk of overcapacity, but it used to publish them every year. These areas include, but are not limited to, labor-intensive manufactured products, home appliances, steel, cement, aluminum, and more.
I think the macroeconomic problem is that there is a macro imbalance, that is, an imbalance between consumption and supply and demand. So that's a big question. When China's economy is relatively small, it can solve the problem of overcapacity through exports. When we have overcapacity, we just export the goods, and then the problem is solved. Now this is a big problem because China is already a big economy. If you want to repeat the same strategy, there will be big problems in the future.
In fact, we exported 1.2 million EVs to the global market before we started exporting EVs in large quantities to the United States. Last year, we exported 10,000 electric vehicles to the United States. But when United States Treasury Secretary Janet · Yellen visited the National Development Institute in April, the first thing she said was that the overcapacity in your electric vehicle industry will destroy our auto industry and affect our employment situation.
This statement may be true in terms of long-term expectations, if China continues to export trams on a large scale and tram exports continue to grow substantially. But when I say that China has only exported 10,000 electric vehicles to the United States, do you really think that has a big impact on the United States market and industry? That's another question. But I would say that the reaction mechanism of the world market is not what it used to be, so we need to be cautious.
But another issue that policymakers are also very concerned about is that if consumption is weak, then development is not benefiting ordinary people. You've saved a lot of money, but their standard of living hasn't improved quickly, right? There are a lot of problems or obstacles in terms of the reasons for the weak consumption. I can give you four important reasons:
First, it is clear that the share of household income in gross national income is still too low. In other words, state-owned enterprises and the government still occupy too much of the revenue. For example, I think you may have heard that one of the main sources of revenue for local governments is the sale of land. This is the biggest distortion in the Chinese economy, where local governments can sell land for revenue and do whatever they want. But this is not fair, because the land does not belong to the local government, it should belong to the whole Chinese people. If the local government sells the land, then the revenue should be distributed. But that's not the case. So that's just one example. I think we need to redistribute income so that residents can get more income. I'll be over soon.
The second reason is that income distribution is very unequal. The rich do not increase their consumption enough, while the poor tend to spend. With such an unequal distribution of income, aggregate demand is very weak.
The third reason is the inadequacy of the social welfare system. When household income increases, they don't spend all their money, but put it in the bank. This means that social security is inadequate.
Finally, urbanization. Migrant workers have been working in the city for decades, but they still have not obtained an urban hukou. As a result, they do not enjoy the same social benefits. Their consumption will be limited because they need to go back to their hometown to build a house and support their family. I guess they will probably never live in their own village house. Let's say you've lived in the city for 40 years, will you really go back to live after you retire? You probably don't know anyone there.
So these are the problems that the government is trying to solve right now. Income distribution is a big issue and is known as primary distribution, secondary distribution, and tertiary distribution. In fact, one of the policy priorities of the Decision is the empowerment of people. Whoever lives in a city should enjoy the same social benefits.
A study was conducted by a scholar. They found that migrant workers living in cities, if you tell them that from today they will have an urban hukou, their consumption spending will increase by 36 percent, even if they are not yet enjoying social benefits. The reason is that their expectations have changed.
So those are the issues that I think policy is trying to address. The Decision itself is more in line with my expectations, although everyone may have a more ideal version in mind. Second, I think these measures are still more practical, focusing on the issues that need to be addressed. Unfortunately, the market has not become relatively optimistic. There may be macroeconomic factors, but there is another challenge, which is whether these announced measures will be strictly implemented and implemented, which I cannot answer at the moment, but time will tell. Thank you so much.
Tu Xinquan, Senior Research Fellow of CCG, Dean of the China WTO Research Institute of the University of International Business and Economics, and Director of the Research Center for International Bidding and Government Procurement
Tu Xinquan
Thank you to CCG for the invitation, which gave me the opportunity to meet friends from all over the world. Professor Huang's wonderful interpretation of the resolution of the Third Plenum of the new Central Committee benefited me a lot. Actually, Professor Huang and I are from the same province – Zhejiang Province, which is the most market-oriented and open province in China. So I think it's the right thing for the CCG to invite us to unpack China's new reform agenda.
Since Professor Huang has already said a lot, I just want to add some personal observations and understandings. My overall impression of the Decision is that it adheres to and continues the monetization and liberalization direction of economic reforms over the past four decades. So I really appreciate the continuity and coherence that it upholds.
Given the current internal and external environment, some people have expressed concerns and doubts about this, and some even say that the era of reform is over. Now, the "Decision" clearly states that reform and opening up will continue to maintain its original direction. I don't think China has any choice but to stick to the path of a market economy. The Chinese people have enjoyed the enormous benefits of a more liberal economy and society, and they will not give up these gains easily.
The emphasis on a unified national market is my third important impression of this decision. China is a vast and diverse country. The relationship between the central government and local governments is actually a thorny problem that has always existed throughout China's history. I believe that the mechanism of the market economy can be the best tool for the unification of the country. Because the market economy essentially tends to transcend boundaries and merge into a single whole, which is the law of one price. Local governments often want to create a decentralized and protected market, and the central government can use a unified national market to break down these barriers. In the context of an increasingly severe external environment, the unified national market will become a more important lever to deal with potential risks.
In addition, there are many controversies about China's industrial policy. Local governments actually play a very important role in these industrial policies. The existing controversy also includes the issue of "overcapacity" mentioned by Professor Huang. Local governments often take measures to compete with each other rather than with the rest of the world. Due to China's fragmented market, this sometimes leads to ignorance of international rules, as well as overinvestment and overproduction. As a result, the unified national market will also limit the discretion of local governments and promote fairer competition among market participants, including foreign firms. The Decision clearly states that it is necessary to regulate investment incentives for local governments and prohibit illegal preferential policies. I believe this will help limit unfair and excessive domestic and foreign competition.
The fourth key word I would like to mention is "vitality". To be honest, as an academic, I have been very dissatisfied with the constraints on Chinese society and economy, including academic practices and even the government itself, over the past decade. The government has too many rights and responsibilities, and the space left for society has shrunk.
The COVID pandemic has made the situation even worse. Of course, order and stability are crucial to a society as large as China's. But excessive control inhibits social and economic dynamism. In a way, it has already done a damper to China's economic growth over the past decade. Fortunately, I'm sure the leadership has taken notice. According to my statistics, the word "vitality" appears five times in this document. I think it's very special, I didn't notice that before. Therefore, I hope that the Government will be more tolerant of some of the deviations that have occurred. The cost of surfacing to eliminate risk is still too high.
Fifth, I would like to talk about reform and opening up. Since the Decision mainly deals with institutional reform, there are only a few paragraphs on opening-up. But as usual, the "Decision" still shows a firm determination to promote further marketization. I also believe that while there is still room for market access in China, China's opening up should pay more attention to the consistency of domestic institutions with other countries, especially developed countries, which is called "institutional opening", which is a very Chinese language expression in Chinese policy documents. The Decision provides a clearer description of what constitutes "institutional opening-up", pointing out that China will achieve the compatibility of rules, regulations, management and standards in the fields of property rights protection, industrial subsidies, environmental standards, labor protection, government procurement, e-commerce, and finance, which are all important issues that are often mentioned by foreign companies and foreign governments. In addition, in recent years, the Chinese government has repeatedly stated that China will align with advanced international rules in these areas.
So I think China has shown a strong willingness to seek more common ground with other market economies. Of course, China has always had its own Chinese characteristics, but in terms of economic system, I think China should seek more in common with other countries. Therefore, I think China needs more foreign exchanges like today's event.
I also want to defend China on WTO compliance. In fact, I just participated in the WTO's Ninth Review of China's Trade Policy, and most of the members have been positive about China's policy. In fact, there is only one member who has made very negative comments about China's trade policy, and everyone should know it, and that is the United States. I would not say that China has done a perfect job in terms of WTO compliance, because China is the third largest respondent in the WTO dispute settlement mechanism. If we are already perfect, there is no need for reform and opening up. But China is definitely not undermining the rules-based international order. At best, China is trying to use or circumvent some WTO rules for its own benefit or to comply with them as it understands them.
But for now, United States is only concerned with the issue of WTO rules. As I said, China's economic system is not perfect, and we need more reform and opening up. Everyone has the right to criticize certain policies and problems in China, but United States should not pretend to be a defender of international rules while dismantling the entire international system.
Overall, I am very positive about the Decision and the future of China's economic reforms. But as you know, China's policy documents tend to explain policy objectives rather than policy tools. These decisions have told China where it should go, but they have not been clear about how to achieve those goals. Therefore, we still need to pay close attention to what specific measures will be taken by the relevant authorities to achieve the goals set out in the Decision. That's all I have to say.
Q&A session
ETS总裁兼首席执行官Amit Sevak
ETS总裁Amit Sevak
I am honored to be here today. I'll just stand up and ask questions. I want to say briefly, the reflections and interpretations that we have just heard about the Third Plenum are very enlightening, and it gives me the opportunity as an United States to try to understand what these reform agenda themes really mean after the Third Plenum. What do these more than 300 important reform initiatives mean? How should United States companies looking to invest, expand, and provide services in China interpret the Third Plenum? So the question I want to ask Professor Huang is, how do you think United States companies should understand the content of the Third Plenum? I guess that might give us some inspiration.
Huang Yiping
I believe that the global environment is changing all the time, and this variability is the basis of our actions. As the Third Plenum emphasized, China is still very welcoming to foreign investors and companies, and in fact, last year the National Development and Reform Commission (NDRC) or other agencies introduced specific policies for foreign companies. After reading it, I think the policy content is very good, and I think the government definitely wants foreign companies to come to China. But market sentiment and confidence are still not particularly high.
In order to continue to grow, we face many challenges, including productivity growth. So, I think we need to keep two things in mind. The first problem is that as the economy enters a high level of development, the policy options will expand and we will start to judge which industries and companies are more marketable, for example, at some stage we have a lot of heavy industry investors, but these days are over. I think it's very important to recognize what is going to support the market. First, new quality productivity will continue to be welcomed. Second, we welcome anything that is conducive to improving the people's living standards. These are the options we offer to the industry.
The second issue is national security. Now United States has "small courtyard walls", and it is difficult to avoid it here, for example, in terms of data and information. I do see that over time, some changes come into play, and that gets a little tricky. But I think the most important thing is to realize that the growth model is different now, and you need to be more selective.
ETS总裁Amit Sevak
Some of these more than 300 important reform initiatives I spoke with some of the United States companies in the U.S.-China Business Council delegation, including Boeing, Apple, FedEx, Micron and others.
There are three areas I would like to ask you for. One is the message that China has been sending that it will insist on equal treatment of foreign and domestic companies, including state-owned enterprises. The second is to encourage R&D in China. The third is the commitment to reduce the number of negative list items from 100 to about 30. This is a particular concern for many foreign companies and organizations interpreting the outcomes of the Third Plenum, as they are critical.
You concluded by saying that there is often a gap between strategy and implementation. So let me ask one more question, because there are a lot of ambassadors and delegates here, and I want to know how global investors are going to interpret the areas that are hinting at opening up, and do you think those areas are going to be a key part of the strategy in the coming years?
Huang Yiping
I think that if a policy is written into an official policy document, it means that it is serious. I think the Chinese government has also recognized that the sustained growth of China's economy does require the active participation of foreign companies in China. No country can do this alone, not even China. I think it's recognized.
With regard to national treatment, negative lists, etc., I hope that there will be some progress. But if the issues in this area are related to factors such as national security and political stability, then we should not expect too much. Second, I would like to say that the implementation of any good policy will have a process, and the actual environment must also be fully considered. For example, when we hear that private enterprises should be treated equally with state-owned enterprises, from a policy point of view, the attitude is very clear. So should we expect private and state-owned enterprises to be treated 100% equally? I think we should be realistic, when a government official faces both a state-owned enterprise and a private enterprise, it is difficult to achieve 100% equality, at least in the current policy environment, and we must be very clear about that.
As mentioned earlier, it is helpful to identify areas where SOEs should focus on their work, as it allows private enterprises to gain more areas of operation. In these areas, unfair treatment will certainly decrease.
For example, you may have heard that private companies have difficulty obtaining financial support, and I have talked to many government officials and banks about this. The bank told me that they don't actually discriminate against private companies. Then I asked them, then why don't you lend so much money to private enterprises? The bank supervisor told me that I needed to do credit risk management. If I lend 1 million yuan to a state-owned enterprise and a private enterprise respectively, if the project of the state-owned enterprise fails, there may be people in the government who will support the merger and acquisition of the state-owned enterprise, inject assets, etc., then they are likely to repay the loan in the future; But if you lend 1 million to a private enterprise, and once it goes out of business, I lose the money.
I'm just going to give you an example. I think this policy is certainly serious, and we can also expect some progress from it. But if we want state-owned enterprises and private enterprises to be treated 100% equally, it will indeed take time.
Usha Mishra, UNICEF's Head of Social Policy and Reform in China
Usha Mishra, UNICEF's Head of Social Policy and Reform in China
Hello professor, I am glad to hear three things in your sharing: the issue of inequality, the problems faced by migrant workers and labourers, and the third most important, the issue of social protection. First of all, I would like to talk about immigration, for example, if these migrant workers get an urban hukou, then their living expectations and spending power will increase. But at the same time, they face many challenges, such as not having suitable housing and not being able to live with their families. There are many issues that need to be addressed.
And on social security, my question is: what do you think is the next area of development for social welfare or social security in China? Why are these areas prioritized over other social benefits? The last thing I'm curious about is that I haven't heard much talk about demographic change, which is one of the main challenges that China is facing right now.
Huang Yiping
I'm not an expert on social welfare systems, so I don't know where to start. But I know that if you live in the city for a while, you will get a "permanent residence". It's a bit like permanent residency in some countries, except that you haven't gotten citizenship yet. The current policy is that these permanent residents should enjoy the same social welfare protection. Also, you mentioned housing, to be honest I don't know very well, because now even people with household registration may not have free housing anymore, you have to buy or rent a house yourself. What we call the social welfare system is more about the right of children to go to school in the city, health care and other pensions, and so on. These are the issues that the government will address in the future.
Demographics are also a very important point. I think this is the biggest challenge we face, and there are two main problems, one is the shortage of labor supply, because aging means less labor, as in Japan. But I think it's easier for China to deal with this problem, for example, when we stay in a hotel, there will be simple robots to deliver things to us, which has been implemented in many places. So I think robotics and AI actually provide an opportunity for China to alleviate the labor supply problem. However, these challenges will remain very severe in terms of pension, medical care, and social security.
比利时驻华大使安博宁（H.E. Bruno Angelet）
Ambassador of Belgium to China, Ambonin
Thank you very much to CCG for hosting such an event again. The order in which the two professors spoke was particularly clever, as Professor Huang referred to the first (Professor One) and Professor Tu referred to the second (Professor Two).
So first of all, thank you, Professor Huang, for explaining your views and analysis clearly and intuitively. I was struck by the fact that everyone was paying attention to the communiqué that was released at the end of the week, which made the headlines. However, less attention has been paid to the Decision released over the weekend. There is certainly a difference between the two.
This is also a question that is very meaningful to us: what are the new measures of this reform? What else is overlooked by observers and experts? You provide us with insights. First of all, you said that there is a problem of overcapacity; It's always been there. As long as China is not a global power, the problem of overcapacity is not a global problem. But now that China is leading the way in the global economy, this has become a global issue. Then you said that overcapacity led to consumption problems, and you went to many provinces and cities to investigate. Your explanation is very valuable.
As the lady said, you also mentioned social security and population, and hukou issues. However, I was surprised that not much attention has been paid to the aspect of household registration in the Decision. The Decision mentions that the State will reduce or remove restrictions on citizens working outside their hukou, which is a typical hukou system. I've talked to other experts about this before, but you feel like you're making a good point.
But then I was told that it had appeared in policy documents before. And actually, the hukou system has changed, and if you go to a first-tier city, such as Shanghai, Chongqing, or even Chengdu, you'll hear that a lot of things can be done now. Hukou doesn't actually exist anymore because people can obviously buy houses; Social security is less obvious; And then the education system is also a problem because you either have children or you don't have children. If you have children, they can't go to senior schools.
So the question is, what are the new changes in the hukou system? I've heard that there are no new changes in this reform, firstly because these have already existed through directives and documents, and secondly, there are ongoing policy pilots everywhere.
And then the second question is about retirement age, because you mentioned Social Security. Retirement age is one of the topics of social security, which is also related to the population. As mentioned in the Decision, we will extend the retirement age voluntarily and flexibly. Everyone wonders what this means? The caution shown by the leadership on this is justified because it is a sensitive topic. This is sensitive in Belgium, where the government decided that I would retire at 67 instead of 65. Incidentally, Belgium's policy of delaying retirement has not been questioned too much. I know this is sensitive, but I still want to ask, how exactly will the retirement age be adjusted?
The third question is for Professor Tu, because you mentioned that the "Decision" mentions the construction of a unified national market. I was also surprised to see that there are still internal obstacles in such a mature single market as China. I understand that this narrative has been used officially, and that this goal has been written into many strategy documents. So I would like to ask, is there anything new in this "decision"? I apologize for the name I made earlier.
Huang Yiping
Let me start by answering your questions about hukou and social welfare benefits. The first point I would like to make is that although the Decision is more detailed than the Communiqué, it is still only a policy document. The 300 reform initiatives are now assigned to two different government departments, which are setting up working groups to develop concrete measures. We may have to wait a while.
Although we don't know the exact measures yet, I can share my guesses. Why is this reform different? In the past few years, the hukou system has become more flexible. But the main constraint is the budget of local governments. Because if you want migrant workers to settle in the city, you need to provide them with social benefits, and the local government needs to pay for it. That's why it's hard to do this in some places where local government budgets are tight. I suspect that the central government will play a role in this area, but I don't know exactly what that is, such as how much the central government will contribute to or which specific projects to focus on. However, with regard to the general idea of fiscal reform, the central government has indicated that it will concentrate some of the responsibility for spending on the central government, and will centralize the management of fundraising, as long as the fundraising is supported by the executive power, local governments, credit, etc. The central government will manage and consolidate the budget, which also means that the central government will play a greater role. That's what I think, and I think that's the difference.
As for the retirement age, I don't know very well. But presumably, we may delay the retirement age every three to five years. For example, if the retirement age is 60 now, it may be 61 or 62 in three years, and I see it this way. I think experts and policymakers should have reached a consensus. But you're right, the document doesn't really mention specific figures.
卢旺H.E. James Kimonyo
Ambassador of Rwanda to China, James · Kimonio
Thank you very much Professor Tu and Professor Huang for their wonderful sharing. As an African diplomat, I am particularly curious about your views. The next Forum on China-Africa Cooperation (FOCAC) will be held in a few weeks' time, when African heads of state will meet with General Secretary Xi Jinping to discuss strategic partnerships in different areas. I would like to know where you think Africa could benefit from the reforms that have been discussed so far? Because as you know, many experts have talked about the three paradoxes of Africa, the energy paradox, and despite the huge potential of Africa – more than 10 million megawatts of solar potential, 50,000 gigawatts of hydroelectric power and sufficient resources to produce new energy vehicles, Africa's industrialization is still in its infancy. We do not want to appear in any market as a desire to be assisted, we want to appear as a huge market of 1.3 billion people, a continent rich in resources. Taking food security as an example, 60% of the world's arable land is located on the African continent, yet many African countries face food shortages. But I think the solution should not be to buy food or cultural products from Africa, but to invest in agriculture to increase productivity, as we mentioned earlier.
So how do you think Africa should benefit from the current reforms? Because it can be a win-win cooperation, both for China's economic growth and for Africa's progress, especially since for the first time in Africa's history, we have become a single market. In January 2021, the continent also signed an agreement on a single market and the African Continental Free Trade Area, which is a huge potential for Chinese companies.
So I wonder if these reforms are also targeted, because I remember about three years ago, we talked about a dual-circulation strategy. What is the current status of the strategy, and what are its implications for the continent's overall growth?
Huang Yiping
This is an important question, but it is beyond my scope of expertise, and perhaps Professor Tu is better suited to explain to you what the government thinks. I'll just start with a few brief remarks. First of all, China has put forward the Belt and Road Initiative and has done a lot of things, both successful and not-so. I think the thing that the government is emphasizing is that in addition to providing financial support and infrastructure, we are also providing education and knowledge. For example, the National Institute of Development, where I work, has a parallel school called the Institute for South-South Cooperation and Development. Every year we have dozens of students from developing countries, including many African students, and the first PhD student I supervised was the director of the office of the Vice President of Zimbabwe. So we're trying to provide education and exchange opportunities for students in Africa, and I think this can be seen as the second phase of the collaboration, rather than just financial support.
The second point I would like to make is my own bold idea. Recently, when we talked about overcapacity related to electric vehicles, lithium batteries, solar panels, etc., I actually proposed a so-called "Global South Green Development Plan". It's a bit like the Green Marshall Plan. I think China does have overcapacity in some areas. Our main export destinations should be advanced economies, but these economies are creating barriers for our exports. So I think it's very difficult for the domestic market to absorb this capacity unless we disperse some of it. I think developing countries also need these manufactured products to achieve their own green transition. So my suggestion is that maybe the government could set up a new grand plan, like the Marshall Plan, to support the green transition in developing countries. This will not only increase demand for Chinese products, but also alleviate the problem of overcapacity. It's a bold idea, and I just wanted to share it with you. Thank.
爱沙尼亚驻华大使韩朔(H.E. Hannes Hanso)
Han Shuo, Ambassador of Estonia to China
Thank you very much for this opportunity and thank CCG for hosting a wonderful event. In your presentation, you focused on several important aspects of development and also mentioned the limitations. There are different restrictions in different fields, ranging from economic regulation to academia. What do you think will change after the Third Plenum? You mentioned that the word "dynamism" appears several times in the Decision. In your opinion, in what ways and in which areas which restrictions will be lifted or abolished? What impact does this have on the broader vitality of this society and the country?
Tu Xinquan
In recent China trade policy reviews, members have consistently asked more than 2,000 questions, so I hope there will be a lot of questions for me. Your question is quite difficult, and like I said, there are some restrictions or controls in society. Our professors and academics have also had some complaints, such as the restrictions on our overseas visits after 2013. Even professors, we have rules that if you visit one country, you are only allowed to go out for five days, and two countries are allowed to go out for eight days.
But a few years later, this restriction was lifted. Because as I said, there are a lot of voices that are dissatisfied with this, because professors are facing restrictions on going abroad to communicate with other academic groups in other countries, which is not good for China's development, especially for expanding our international influence or international visibility. Therefore, the issue was gradually raised and reflected to the relevant authorities, and then these restrictions were lifted. In addition, we also face a lot of financial constraints in using our research funds, and it is very difficult for us to use our own research funds. It didn't take long for the government to take notice. Under the direct care of former Premier Li Keqiang, new policies and regulations were implemented.
Now these things are much easier for us. So what I want to say is, of course, there will be problems in the implementation of the policy, but we can find solutions to the problems. So actually, like I said, there are some restrictions that are inappropriate and not good for us. Therefore, the government will take new measures to respond. Of course, there are still some restrictions, such as the need to register for entry and exit from universities during the pandemic, which is still used by some universities. So if you're going to our campus, you'll need to register in advance and scan your ID.
So I think the continuation of this policy comes from the old, past restrictions. I think we need more determination to deal with these limitations. Stability and security are very important priorities for the Government, but they also need to strike a good balance. So I think we need to address these issues one by one, some of which will be difficult, but some of which will be relatively simple.
冰岛驻华大使易卜雷 (H. A. Thorir Ibsen)
Ambassador of Iceland to China, Ibrai
Thank you very much to the two CCG professors for their excellent sharing, your explanations are very clear, especially with regard to the conclusions of the Third Plenum. Obviously, it would be difficult for us to digest the entire document on our own, so you deserve our gratitude.
One of the main concerns of the Chinese leadership is imports, and they have made it clear that China is open to imports of foreign goods and that the leadership is interested in further promoting imports. What I want to know is, among these 300 important reform measures, is there any mention of imports? Or more specifically, a year and a half ago China introduced a new registration system for imported goods, but this in practice caused very big difficulties for exporters, because the process is complex and there are many procedures. So among these 300 important reform initiatives, are there any attempts to address these issues? Thank.
Tu Xinquan
Thank you for your question. I don't understand the registration requirements you mentioned. But I think I also mentioned that over the past few years, China has been trying to push for unilateral liberalization of trade. The current average tariff of 7 percent is already lower than the 10 percent of China's WTO commitment. In terms of trade facilitation, we have also significantly shortened border and customs clearance times. So basically, I think China has made a lot of progress in terms of trade liberalization and facilitation.
But as you said, perhaps the more important issue is not border measures, but some regulatory measures. I think this is the so-called institutional openness, and China should learn more from developed countries and learn from their better practices and regulations in different areas, such as labor protection or environmental protection. The registration requirements you just mentioned could be SPS (Agreement on the Implementation of Sanitary and Phytosanitary Measures) or TBT (Agreement on Technical Barriers to Trade), which is actually also related to regulatory consistency. Of course, the WTO already has these two technical requirements agreements. If you really have very important issues, the WTO also provides a platform to discuss them.
So sometimes there are some conflicting policy purposes, and for some government departments, they will have their own priorities, but sometimes they will conflict with other purposes of other government departments. For example, the Ministry of Commerce will promote trade liberalization and facilitation, but other agencies such as the SASAC or others will have their own priorities. Therefore, we need more internal policy coordination. In fact, the Decision also mentions that, particularly in the area of macroeconomic policy, we sometimes need policy coherence between different policies, so we need more coordination in this regard.
Liu Yue, President of Bloomberg Greater China
Liu Yue, President of Bloomberg Greater China
Professor Tu, you just mentioned that the "Decision" omits the expression "public ownership as the main body". If public ownership or state-owned enterprises will not dominate, what role do you think they will play in the economy?
Tu Xinquan
As I mentioned, China is a socialist country with a socialist market economy. Public ownership is an important feature of this system. Therefore, the state means the "omission" of public ownership in this decision.
What role should state-owned enterprises or public ownership play? I very much agree with Professor Huang on the role of state-owned enterprises in China's economy. I believe that SOEs should and can play a very important role, especially in providing public services and ensuring socio-economic stability. I also think that this is actually an advantage of China's economic system, because state-owned enterprises are controlled by the government, and the government can use it for many social purposes.
At the same time, as Professor Huang mentioned, there is also inequality in China, and the public or public sector has played an important role in this, such as hospitals in China now. At present, China's hospitals are mainly publicly owned. I believe that China's hospital system provides the public with at least affordable but imperfect but still good medical care. As I mentioned earlier, I'm from Zhejiang Province, but I'm actually from a small village in Zhejiang. Now my parents are able to access the public health system. Even the poorer have access to relatively good health care. If the healthcare system were entirely private, I think the cost would be much higher. Therefore, I remain convinced that the public sector can play a very active role in the provision of these public services.
德国商报驻华记者谷莎莉（Sabine Gusbeth）
Germany Business Daily correspondent in China, Gu Sally
Hello, I'm Sally Gu from Handelsblatt Germany. One of the biggest problems facing China's economy is the housing crisis, which has also dampened household consumption. Do you think this issue has been adequately addressed in the Decision and reflects the necessary urgency? The second question is that the Decision mentions a new year - 2029, which is the number of years to complete the reform tasks set out in the Decision. I don't think this was mentioned in the previous central documents. Do you think this creates a new urgency? Or how should we interpret this year?
Tu Xinquan
Thank you for your question, but I'm sorry, I'm not an expert on this issue. As you mentioned, the real estate market is crucial to the Chinese economy. In fact, part of the difficulties in the current real estate market is due to some excessive policy interventions. The government's intention is actually to divert resources from the real estate sector to other more productive sectors, particularly manufacturing. So, I think the purpose or intent of the government is correct.
But the problem is, especially in China, as Professor Huang mentioned, we have a very low percentage of consumption. Chinese's consumption is mainly related to houses. Chinese are very good at saving, not good at spending, but we are willing to spend money on houses. When the real estate market goes down, so does our consumption.
So in my opinion, we didn't anticipate the impact of the downturn in the real estate market on consumption. I think it's very urgent to deal with this crisis. I'm not sure if this document provides a definitive solution, as the housing market is still on a downward trajectory. I guess it's going to take a while. So far, the government has taken a series of measures to try to stop this decline, but it has not been easy. Thank you.
Qi Zhang, Senior Director of Government Affairs at Nike
Qi Zhang, Senior Director of Government Affairs at Nike
Thank you, Professor Tu, I know that you are an expert on WTO trade policy, and my question is about this. The Third Plenum document mentions that China will deepen institutional opening-up and change rules such as subsidy policies, intellectual property protection, environmental protection and subsidies, and labor protection. So, does this mean that China will abide by the rules of the CPTPP? Can you give us an update on China's accession to the CPTPP negotiations? Do you think China will rewrite domestic rules in line with CPTPP standards? Because we all know that the CPTPP contains more demanding international rules.
Tu Xinquan
Thank you for your question, this is really my area of expertise. China has applied to join the CPTPP, but as far as I know, there has been little progress. It is very difficult for China to join the AIIB because of the different understandings of the existing member countries on this issue and there are some political difficulties. So for now, I don't think it's possible to join the CPTPP, at least for now. But in fact, in recent years, many local governments have been trying to use the CPTPP rules as a benchmark for their own reform and opening up. So in that sense, I don't think China needs to join the CPTPP before it can work according to the CPTPP standards. We can do it ourselves.
The CPTPP rules are basically about institutional reform, not about the market. Of course, there are [rules for market reform], but they have nothing to do with market access. So you can do it unilaterally or on your own. So as I mentioned, there are areas in the resolution that we can push for ourselves, and a lot of them are related to the CPTPP rules. Not all, but somewhat. So in that sense, I think China's institutional openness can even go beyond the CPTPP rules. We need to learn from international rules as well as the best practices of other countries. So we should learn from others and make ourselves better. Thank you.
This article is based on the recording of the speeches made by the guests at the "CCG Masters Dialogue Luncheon" hosted by the Center for Globalization (CCG).