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Donetsk. Now time for Talking Business. | :00:00. | :00:08. | |
Is China the next economic super power? The world's second largest | :00:09. | :00:14. | |
economy has the growth rate, but what else does it take with the | :00:15. | :00:18. | |
global economy? Here in Singapore, these are my guests, and we are | :00:19. | :00:21. | |
Talking Business. A warm welcome to the programme. | :00:22. | :00:45. | |
China's remarkable growth rate's propelled it to become the world's | :00:46. | :00:49. | |
second largest economy within three decades. It's expected by many to be | :00:50. | :00:54. | |
the dominant economy in the world within a generation. It's an unusual | :00:55. | :00:57. | |
situation for the world economy to have a country at a low level | :00:58. | :01:08. | |
development be an economic engine. Is China the next economic super | :01:09. | :01:12. | |
power then? Joining me to debate this are Bernard Young of the | :01:13. | :01:15. | |
business school at the national University of Singapore, Michael | :01:16. | :01:23. | |
Peddis Professor of Finance at a university and the Director of The | :01:24. | :01:26. | |
Think`tank the national Economic Research Institute. | :01:27. | :01:30. | |
Welcome to all of you. Let me start with you, Michael. Is | :01:31. | :01:35. | |
China the next economic super power? Well, China is already an economic | :01:36. | :01:40. | |
super power, but it's a huge economy. I would warn that we have | :01:41. | :01:45. | |
to be very sceptical because we have seen this story many times before | :01:46. | :01:51. | |
and this may sound like a surprising thing to say, but historically, the | :01:52. | :01:56. | |
growth miracle is the easy part. The adjustment's always been the | :01:57. | :02:01. | |
toughest part. We really don't know what China is going to look like 20 | :02:02. | :02:06. | |
years from now. You are nodding? I totally agree. China has launched an | :02:07. | :02:16. | |
economic miracle. You can call it a miraculous economic revolution, or | :02:17. | :02:20. | |
the economic renaissance. When you think through all the things in | :02:21. | :02:29. | |
China, it's facing tough problems. Pollution, ageing population and | :02:30. | :02:36. | |
many institutional developments. It has to advance a lot of | :02:37. | :02:40. | |
institutional improvement so as to get out of the imminent, possible | :02:41. | :02:46. | |
trap, in my opinion. That's basically referring to the fact that | :02:47. | :02:48. | |
when a country becomes middle income, it's very hard to become | :02:49. | :02:52. | |
rich and China's not quite there yet. Will it get there? Will China | :02:53. | :02:59. | |
become the next economic super power, Fan? China is a large | :03:00. | :03:04. | |
country, a large population. It's easy to get a large economy or a | :03:05. | :03:08. | |
largest economy in the world, but when you talk about super powers, | :03:09. | :03:17. | |
it's about quality. That is too far away for China. Per Capita GDP is | :03:18. | :03:25. | |
less than 7,000 US Dollars now and the US is 50, some European | :03:26. | :03:33. | |
countries is 80, 100, 1,000 US Dollars. China is still a developing | :03:34. | :03:43. | |
country. Maybe one day it will become, in terms of quality and | :03:44. | :03:46. | |
quantity a superpower but I would say it is still far away. Is | :03:47. | :03:53. | |
superpower or something we have a definition of? If we're living in | :03:54. | :03:57. | |
this world we think of the challenges in front of China, how it | :03:58. | :04:02. | |
can allow more people to have a rising standard of living, how it | :04:03. | :04:09. | |
can have more resources and create the changes in the positive way | :04:10. | :04:13. | |
without creating shocks. Without creating concerns. That creating | :04:14. | :04:21. | |
instability. To be a superpower is about moving forward. Meikle, you | :04:22. | :04:26. | |
said China is already an economic superpower and it sounds like there | :04:27. | :04:32. | |
is scepticism. It depends on what you mean by superpower. China, | :04:33. | :04:36. | |
Japan, Germany and the United States are all economic superpowers, it is | :04:37. | :04:42. | |
really a definition thing. We do not have a definition where we can see | :04:43. | :04:46. | |
this is and this isn't. I would warn about one thing that many people | :04:47. | :04:50. | |
ignore or forget, even though we have seen this before, I do not want | :04:51. | :04:54. | |
to get too technical but let's say you make a bad loan to me and I am | :04:55. | :04:58. | |
unable to repay you. The loan is written down, you take a loss and | :04:59. | :05:05. | |
that shows up as lower GDP growth. China, there has been almost no | :05:06. | :05:10. | |
writing down of bad loans. Under the circumstances there are two | :05:11. | :05:13. | |
possibilities. One is Chinese bankers are the most disciplined | :05:14. | :05:19. | |
bankers in history, or China's GDP compared to the US or England or | :05:20. | :05:24. | |
Brazil is significantly overstated by as much as 30%. We really do not | :05:25. | :05:30. | |
know what the sizes of these countries are. You have done a lot | :05:31. | :05:34. | |
of measurement of the Chinese economy, do you agree with Michael? | :05:35. | :05:40. | |
There are many countries that have a much higher ratio than that, and in | :05:41. | :05:47. | |
those countries that is crisis. From that point of view China is not | :05:48. | :05:52. | |
particularly bad or in a particular need to write off a lot of things. | :05:53. | :05:59. | |
Governments over the GDP ratio including the central government and | :06:00. | :06:07. | |
at a local platform borrowing are something where, 50% of GDP. Much | :06:08. | :06:13. | |
lower than most of the countries. Most of the developed countries. So | :06:14. | :06:17. | |
there is a lot of problems, of course. For a developing country we | :06:18. | :06:23. | |
have more problems, of course. And that is just too shall be in a | :06:24. | :06:26. | |
developing country. Does that mean we are not able to grow further? | :06:27. | :06:32. | |
Because of the problem? I don't think so. We as a country needs to | :06:33. | :06:37. | |
grow up with the problems and with many of the problems, so China is | :06:38. | :06:45. | |
not special. China is similar to anyone else, you have to go through | :06:46. | :06:52. | |
all of the stages, including this middle income stage. I would argue | :06:53. | :06:56. | |
that in this stage it is the most difficult stage for the country and | :06:57. | :06:59. | |
particularly for the developing countries because for the last | :07:00. | :07:06. | |
country in his seat with their 5000 per capita income they were not the | :07:07. | :07:10. | |
middle income, they were the highest. Now we have a comparison | :07:11. | :07:15. | |
with those people, comparison with richer countries, more equal | :07:16. | :07:21. | |
countries, better social welfare, better institutions and we have more | :07:22. | :07:30. | |
problems with this reflection in the comparison. So it is difficult. Grow | :07:31. | :07:38. | |
up, development becoming a superpower is a very difficult part | :07:39. | :07:43. | |
but the problem does not mean you cannot grow. That you cannot | :07:44. | :07:47. | |
continue to develop. Let me bring you in on the measurement issue, we | :07:48. | :07:52. | |
are basing many of these forecasts in GDP measurement and if you look | :07:53. | :07:55. | |
at the forecast as to when China will overtake the United States and | :07:56. | :08:00. | |
it looks like it will happen pretty soon, but given what the other two | :08:01. | :08:04. | |
men have said where you come down on this? I try not to look at the | :08:05. | :08:13. | |
average GDP GDP per capita, I would rather think the medium, I would | :08:14. | :08:17. | |
rather think about how solid the economy is. I think China, the | :08:18. | :08:23. | |
embeddedness problem is there but it can be overcome. But there can be a | :08:24. | :08:29. | |
lot of things that the government and private citizens and | :08:30. | :08:31. | |
corporations now. The question in front of others is not about how, | :08:32. | :08:39. | |
what kind of GDP we reach, how many people inclusively, included in this | :08:40. | :08:47. | |
growth process, it is about how good, how smooth the transition is. | :08:48. | :08:53. | |
How sharp the resource allocation is and how successful we are able to | :08:54. | :08:57. | |
raise the productivity growth. So we get more and more benefit reach. Do | :08:58. | :09:02. | |
you think that'll happen? Do you think the reforms are place? Reforms | :09:03. | :09:07. | |
that can raise productivity, and growth so that it gets people out of | :09:08. | :09:13. | |
the middle income trap? What is the point of being a superpower if you | :09:14. | :09:18. | |
are not a prosperous country? I am really optimistic, if you look at | :09:19. | :09:22. | |
this from an economics perspective the thing that catches my attention | :09:23. | :09:27. | |
is, give the market a bigger role in the decision`making. Let me bring in | :09:28. | :09:33. | |
Michael on this point, many of these reforms are what they say they are | :09:34. | :09:36. | |
doing, but do you think they are doing the right kind of reforms that | :09:37. | :09:41. | |
can they deliver on them? That is the million`dollar question. The | :09:42. | :09:47. | |
reforms at the right ones. Among economists there might be some | :09:48. | :09:50. | |
disagreements about sequencing but basically we all agree. All of the | :09:51. | :09:54. | |
reforms one way or the other increase the relative size of the | :09:55. | :09:57. | |
household sector and reduce the state sector and that is what China | :09:58. | :10:00. | |
must do. Many countries have tried these reforms, almost all of them | :10:01. | :10:05. | |
have failed and the reason they have feel this because there is blood `` | :10:06. | :10:10. | |
it is politically very difficult to implement these kinds of reforms | :10:11. | :10:13. | |
which almost by definition mean undermining the elite and in China | :10:14. | :10:17. | |
it is well`known, that is the vested interests of the debate. We have | :10:18. | :10:22. | |
been talking about this since 2007. We have had trouble moving forward. | :10:23. | :10:27. | |
Can you prevent them? I totally agree. The directions are right but | :10:28. | :10:32. | |
the adjustment process can be very painful for some. And whether we | :10:33. | :10:38. | |
will have a transparent process, whether we will have the kind of | :10:39. | :10:42. | |
independence that is needed so that people will have a smooth transition | :10:43. | :10:48. | |
is challenging. It is not just growth rates that determine whether | :10:49. | :10:53. | |
a country is an economic superpower, it is the institutions like | :10:54. | :10:55. | |
democracy and legal protections such as those afforded to the middle | :10:56. | :11:00. | |
class that matter. After all China Main Hanes `` remains a commonest | :11:01. | :11:05. | |
system. An economic factors maintain a `` maintain China's position? And | :11:06. | :11:18. | |
what with China look like? Bernardo, Michael and the director of the | :11:19. | :11:21. | |
leading Chinese think tank remain with me. Let me put this to you, | :11:22. | :11:29. | |
what kind of institutional reforms will China need to secure its | :11:30. | :11:35. | |
position in the world economy? There are many things, the government has | :11:36. | :11:41. | |
already come up with a big planned and it is very comprehensive, it | :11:42. | :11:46. | |
includes all of the sectors of the economy, society, you just think, | :11:47. | :11:53. | |
this economy is moving towards the modern economy, you need a lot of | :11:54. | :12:00. | |
institutions to accommodate that. For example we are talking about | :12:01. | :12:04. | |
legal protection and the rule of law, legal protection of | :12:05. | :12:13. | |
intellectual property is. If China wants to have better industry, more | :12:14. | :12:20. | |
innovative capability, this is a must. This is the very beginning of | :12:21. | :12:26. | |
Chinese companies, Chinese industries are crying for this type | :12:27. | :12:32. | |
of protection because they start to have elevations. Before they were | :12:33. | :12:38. | |
just learning, they were in the early stage of development so they | :12:39. | :12:46. | |
are trying to catch up. They do not have the capacity for innovation but | :12:47. | :12:49. | |
now they are starting to and they are asking for the changes, for the | :12:50. | :12:58. | |
institutions. This is just an example. Bernardo, where do you come | :12:59. | :13:02. | |
in on this? What reforms do you think are needed for companies in | :13:03. | :13:07. | |
order for them to sustain Chinese growth? More transparent, more | :13:08. | :13:16. | |
stable, policy development process so we know the rules of the game. | :13:17. | :13:21. | |
Whichever way it is, let us know. It would be useful. I visited some | :13:22. | :13:24. | |
Chinese companies and I find that they are very entrepreneurial and I | :13:25. | :13:30. | |
believe that they are able, they have the capability and there are | :13:31. | :13:36. | |
people who will take advantage of the liberalised market both in terms | :13:37. | :13:40. | |
of market space, in terms of capital market, but they must know what the | :13:41. | :13:45. | |
future will be like. So I would say the town centres process, and number | :13:46. | :13:49. | |
two more separation of government for business is very useful, too. | :13:50. | :13:56. | |
And number three, as was mentioned, the relationship between the central | :13:57. | :14:01. | |
and local business must be more transparent so there are no | :14:02. | :14:06. | |
arbitrary new regulator is coming up to change the scene. Number four is | :14:07. | :14:10. | |
really that I hope in some point in time there will be judiciary | :14:11. | :14:13. | |
independence. That is tough because the judiciary in China as part of | :14:14. | :14:23. | |
the administration. Do you think that one of the fundamental | :14:24. | :14:28. | |
obstacles is the one party commonest system? Because these institutional | :14:29. | :14:33. | |
reforms perhaps needs to happen but could they happen under the current | :14:34. | :14:39. | |
political system? In principle it could happen. For example, you could | :14:40. | :14:44. | |
have many of the adjustment processes associated with | :14:45. | :14:47. | |
democracies within a one party system within China. If you | :14:48. | :14:50. | |
implement the adjustment systems within the party itself. But I think | :14:51. | :14:57. | |
we sometimes forget we look at inmow vagus and massive capital | :14:58. | :15:00. | |
expenditures, we see machines and robots and we say, wow, innovation | :15:01. | :15:03. | |
must be taking place there. That's not true. That's simply capital | :15:04. | :15:10. | |
expendstures. Countries historically that have been very innovative, | :15:11. | :15:15. | |
whether culturally, scientific or whatever, tend to have a series of | :15:16. | :15:19. | |
institutions that were fairly clear. Legal institutions have been | :15:20. | :15:22. | |
tremendously important. Financial property rights have been tremendous | :15:23. | :15:27. | |
and important. Many people don't realise that in the United States, | :15:28. | :15:33. | |
it was in the 19th century we started seriously implementing | :15:34. | :15:38. | |
intellectual property rights. That's when American novels, music and | :15:39. | :15:42. | |
science and technology took off. So we need a number of very important | :15:43. | :15:46. | |
institutions. It's been difficult to implement them. I know I'm running | :15:47. | :15:51. | |
on, but to me a fascinating question's always been this, about | :15:52. | :15:56. | |
four or five years ago, someone told me, there are more French | :15:57. | :16:01. | |
entrepreneurs in California than in France. Can't be because the French | :16:02. | :16:06. | |
education was worse or the infrastructure was worse, can't be | :16:07. | :16:09. | |
because they don't have a good legal system. But for some reason, | :16:10. | :16:16. | |
entrepreneurialism drives in certain contexts and we need to understand | :16:17. | :16:21. | |
why. It's a very difficult question. So far we haven't been able to | :16:22. | :16:27. | |
impose those reforms. That's why I'm sceptical. Fan, Michael is | :16:28. | :16:30. | |
` sceptical that China could implement the institution of reforms | :16:31. | :16:36. | |
to help it to grow. Do you agree? Well, I'm already said the reforms | :16:37. | :16:43. | |
is a process that cannot be done overnight. You cannot implement | :16:44. | :16:51. | |
something that we don't have reactions from the practice. So the | :16:52. | :16:57. | |
institutions will not become perfect without the long`term development | :16:58. | :17:05. | |
with the cases and with the problems in the process. So it's not easy, | :17:06. | :17:15. | |
you know. It's a process. It's a process with the development and | :17:16. | :17:19. | |
with economic growth. I think that's why we need to be sceptical because | :17:20. | :17:23. | |
China's not the first country's that had astonishing growth. It's not | :17:24. | :17:27. | |
even the first country that was going to become the largest economy | :17:28. | :17:34. | |
within the world within ten years. The Sovietdown`on, everyone knew it | :17:35. | :17:38. | |
would overtake the US before the end of the century because they had gone | :17:39. | :17:41. | |
through 20 years of spectacular growth. I don't need to remind you | :17:42. | :17:46. | |
in Japan we had the same thing. It's very interesting because it's that | :17:47. | :17:50. | |
adjustment process that's proven so difficult and we know so little | :17:51. | :17:56. | |
about it which is why I say we have to be sceptical. | :17:57. | :18:02. | |
We are talking about the scepticism, we are talking about if we can | :18:03. | :18:05. | |
continue the growth. I would say at the very beginning of reform and | :18:06. | :18:15. | |
opening up, that China takes off. I think there are very few people | :18:16. | :18:22. | |
believe China will come to this way now. For us, we didn't really | :18:23. | :18:31. | |
believe that China will come to this stage so we are still sceptical but | :18:32. | :18:38. | |
at the same time I will say practice will work out something that we'll | :18:39. | :18:43. | |
be able to work out. This is how I feel too. I think the roads are | :18:44. | :18:48. | |
created with people. The desire is there. There are pockets of | :18:49. | :18:56. | |
locations in China that they demonstrate creativity in, genuine | :18:57. | :19:01. | |
creativity and they are able to develop something that develops the | :19:02. | :19:07. | |
world. It takes a lot of great human capital and a collective desire for | :19:08. | :19:13. | |
us to create this. Finally, say that China Jeffers comes these obstacles | :19:14. | :19:20. | |
and becomes the dominant economy many the world, how would the global | :19:21. | :19:27. | |
economy be different? Multiple choices. When you have multiple | :19:28. | :19:32. | |
economies, each are having significant and very strong, I think | :19:33. | :19:38. | |
the global world is safer and there would be complimenting. As an | :19:39. | :19:44. | |
economist, you know that comparable advantage is a good thing. I think I | :19:45. | :19:49. | |
would say that it would be a very positive world if China developed | :19:50. | :19:56. | |
into a sound, healthy, resilient economy with strong productivity | :19:57. | :20:02. | |
growth and is as significant as other economies. Michael? First of | :20:03. | :20:07. | |
all, I don't think we should ever be arguing about whether China's going | :20:08. | :20:10. | |
to grow or not grow. It's clearly going to grow over long periods of | :20:11. | :20:17. | |
time. What's happened in the last four decades has been truly | :20:18. | :20:21. | |
spectacular. In history I can only think of two other cases. Argentina | :20:22. | :20:27. | |
and the four decades before 1914 and Japan in the four decades after 1945 | :20:28. | :20:34. | |
had such incredible growth. China's been very unique and that should | :20:35. | :20:37. | |
give us a little bit of comfort that we are going to be moving in the | :20:38. | :20:41. | |
right direction. I want to cop out on the question because you said | :20:42. | :20:45. | |
what will the world look like when China's the dominant super power and | :20:46. | :20:48. | |
my answer is going to be that for China to become the dominant super | :20:49. | :20:53. | |
power, that is such a path dependent crossing that it will be a | :20:54. | :20:58. | |
completely different China so it will be very hard to say what the | :20:59. | :21:02. | |
world with that kind of China will look like. That will require you to | :21:03. | :21:06. | |
defind what China will look like then. I can't give you an answer. | :21:07. | :21:12. | |
Fan Gong, I will pose it to you. What would the world economy look | :21:13. | :21:16. | |
like if China were the dominant economic super power? The world | :21:17. | :21:23. | |
economy will look better and happen per because 1.4 billion population | :21:24. | :21:31. | |
become rich, become healthier, more educated, more travelled, so the | :21:32. | :21:35. | |
world will become better with the growth of China. I believe many | :21:36. | :21:40. | |
other countries will grow together with China, including some Asian | :21:41. | :21:47. | |
countries and other continents. Not only is it the story of China, it's | :21:48. | :21:52. | |
the story of the emerging markets and the developing countries. And it | :21:53. | :21:57. | |
gives the people the hope that poor countries can grow. The world will | :21:58. | :22:06. | |
become more diversified and happier. Thank you all very much indeed. That | :22:07. | :22:15. | |
was Bernard Yeung, Michael Pettis and fan Gong. | :22:16. | :22:29. | |
China's economy is slowing down but its growth potential and `` the | :22:30. | :22:33. | |
question we have been debating will probably continue to be debated for | :22:34. | :22:36. | |
some time yet. That's all we have time for. Check out the website. | :22:37. | :22:42. | |
Join us next time for more Talking Business with me, Linda Yueh. | :22:43. | :22:58. | |
After a week or so of dry weather, some of us will | :22:59. | :22:59. |