Lou Jiwei in conversation with Paulson: The biggest uncertainty facing global economic growth at present is the epidemic, and global cooperation should be strengthened in the future

Lou Jiwei, Chairman of the Global Wealth Management Forum and former Minister of the Treasury of the People's Republic of China, and Henry Paulson, Chairman of the Paulson Foundation and former Secretary of the U.S. Treasury, held a closed-door dialogue last month, which was chaired by Li Jiange, Director General of the Organizing Committee of the Global Wealth Management Forum and Chairman of the Sun Yefang Foundation. The two sides discussed important issues such as the global economic situation, climate crisis response, and Sino-US competition and cooperation.

Today, the Global Wealth Management Forum (GAMF) opened its first live dialogue.

Lou Jiwei and Paulson agree that the biggest uncertainty facing global economic growth is the epidemic; if the epidemic is effectively controlled, the biggest challenge to economic recovery is inflation. At present, the drawbacks of the lack of coordination among countries have emerged, the spillover effect of the Fed's policy withdrawal must be highly concerned, and the importance of the new global mechanism to promote coordination and cooperation is prominent.

In response to the climate crisis, Paulson believes that China and the United States are working together to cope with the impact of "net zero carbon emissions", but there are still huge challenges in promoting the green transformation of the economy. Governments with limited financial resources need to motivate the business sector, and major economies need to do more, including subsidies and improve regulatory frameworks, to help businesses succeed. Lou Jiwei stressed that the establishment of incentive mechanisms is particularly important, to achieve net zero carbon emissions, countries should pay attention to and abide by common but differentiated responsibilities according to their actual conditions.

In terms of Sino-US relations, there are certain differences in the political and economic systems of China and the United States, but at the same time, the two countries also have very important common interests, so it is necessary to find the right way to get along, identify common interests and common responsibilities. Lou Jiwei said that China and the United States should strengthen communication on the basis of the Unbrain framework and jointly promote the improvement of Sino-US relations. Paulson believes that the United States and China need to develop a new framework that identifies where the two countries cooperate, where they compete, and how to deal with differences and conflicts. He pointed out that at present, the two sides should strengthen cooperation on the issue of responding to the impact of the new crown pneumonia epidemic and climate change.

The following is a transcript of the conversation.

Li Jiange: 2021 has passed, and the epidemic is still raging around the world, casting a shadow on the global economic recovery. At present, the global economy is facing inflation, insufficient labor supply, supply chain tension, energy crisis and other issues, please ask the two guests to talk about how to view the global economic situation in the coming year? What are the biggest challenges to the global economic recovery?

Lou Jiwei: The topic just now describes the global economic situation, and I don't think it is particularly suitable for China. China's epidemic control measures against external imports and internal rebounds are still relatively effective, and we have not experienced inflation. The response in other countries is not the same as ours, the United States is an ultra-loose fiscal policy, paying checks directly to households and individuals, stimulating consumer demand, but the labor force participation rate has fallen, reluctance to work, and the pressure of rising prices has been created, and ultra-loose monetary policy has exacerbated this trend. The situation is similar in Europe, with Latin America being the most serious and Asian countries being relatively better. This year, it is estimated that the fiscal and monetary policies of various countries will be adjusted, which will reduce the pressure on rising prices. For the world, the biggest uncertainty is the epidemic. If the vaccine can be universally vaccinated and effective, the movement of people and goods can be normal, the recovery will be relatively strong, then the biggest challenge will be inflation.

Li Jiange: Just now Minister Lou pointed out some differences in the epidemic prevention policies of China and the United States, the East and the West, and there are also some common points. Many of our future challenges will be the same. I now give the floor to Mr. Paulson for his comments.

Paulson: First of all, I am very happy to be with Mr. Lou Jiwei for today's meeting, and I have admired him for a long time. I witnessed the reforms he promoted during his tenure at China's Ministry of Finance, as well as his contributions to CIC and the National Council of Social Security Funds. Arguably, he was a remarkable and influential leader.

I want to start with the United States. Economic growth in the United States is in full swing. This is unprecedented since President Reagan's presidency. Economic growth in the fourth quarter will reach around 7.5 percent. As Mr. Lou Jiwei said, since the outbreak of the epidemic, the US government has taken as much as $5 trillion in stimulus measures. This round of economic growth is driven by two aspects: one is stimulus measures, and the other is the epidemic. Because economic growth is shifting from service-driven to consumption-driven. As a result, even with some serious bottlenecks, the corporate sector is making record profits at this time and maintaining sufficient flexibility in pricing. As Mr. Lou Jiwei said, inflationary pressures have arisen, and the US inflation rate will reach 7% in the fourth quarter. Because of the open-ended polity in the United States, there is much debate and disagreement about inflation and its duration, as well as its harmfulness. However, the Fed is independent, and it has signaled to the market that it will take strong measures, and has not caused too much disruption to the market. The Fed will gradually reduce the size of its bond purchases within the strategic framework of quantitative easing. By March, the Fed will stop buying bonds and start raising interest rates. Considering the impact of this move on the global economy, I think emerging markets will be affected because they will follow in the fed's footsteps to raise interest rates.

I believe that this is not the factor that has the greatest global impact at the moment. I agree with Mr. Lou Jiwei that the biggest problem at the moment is the epidemic. The pandemic has made some of the toughest issues facing the world even more prominent. I am rather concerned to see the lack of coordination among countries, the tit-for-tat confrontation between open forces rooted in market principles and conservative forces rooted in protectionism. I think this problem was there before the pandemic, but it did play a role in fueling the situation.

It's clear that many companies are rearranging their supply chains to ensure multiple sources of supply, and they do so for good reason. What we're seeing is protectionism, including tariffs and retaliatory tariffs. We are seeing more and more protections and blockades of technology. Although there are reasonable national security factors in the emergence of some of the above situations, there is also a danger of going to extremes.

At the same time, the epidemic has exposed the shortcomings of international organizations. First, we have not really cooperated. I think the World Health Organization has occasionally gone wrong in dealing with some global public health events, and that Bretton Woods member states do not have the financial resources or the technology to provide due support to countries affected by the outbreak. However, I prefer to see this as an opportunity to strengthen international cooperation.

The epidemic has made people realize that some urgent problems cannot be ignored, and some backward international coordination mechanisms should be updated. I think we have to withstand the pressure of decoupling, and in the future, the GM will become more and more important.

Li Jiange: In the past year, it should be said that the global growth is relatively good first of all China, and the growth of the United States is also good, but the inflation faced by the United States is relatively severe, and China's inflation performance last year was relatively good. Second question, do you think there is a possibility of a financial crisis at present and in the next year? If it may occur, what factors cause it? How is it different from the last financial crisis? What are our responses?

PAULSON: Financial crises happen all the time. As long as there is a financial system and financial markets, and people can withstand market panic, a financial crisis will occur. I would say that it is almost impossible to predict where the financial crisis will begin. Every time there is a financial crisis, someone always gets the judgment right and says, "You see, I know!" ", but they will be wrong next time. So it's hard to predict where the crisis will come from. But with regard to the financial crisis, we know that if there is a problem in either market in the United States and China, both of our countries will be affected.

The financial crisis that originated in the United States in 2008 affected Europe, and China was also greatly affected. We see China's financial turmoil in 2015 and 2021 spreading through the markets. So I think the best way to deal with a crisis is to clean up the mess after the crisis, study and solve structural problems. I see both countries doing the same. I've looked at U.S. banks, and they're now very well capitalized. I also observed that China was dealing with some of the issues that needed to be addressed, as well as the work that Mr. Lou Jiwei was doing to rectify the shadow market and reduce financial leverage. I have witnessed some of the actions your country has taken this year, such as real estate defoaming in a way that has minimal impact on the market.

Another lesson I have learned after a difficult time in 2008 is that global collaboration in times of crisis is very useful. Therefore, I believe that dialogue between the United States and China in the areas of macroeconomic policy and finance is crucial. In 2008 and 2009, I worked with my Chinese counterparts to turn things around and avoid the crisis from having a more serious impact. Since then, I have witnessed that by implementing economic stimulus measures, China has not only escaped its own predicament, but also avoided a global economic recession. Now it seems that China's stimulus in 2009 may have been too great, and China has experienced the sequelae of the stimulus for a period of time, but the rest of the world has benefited from it.

I would like to reiterate that collaboration is essential. Never think we can avoid a financial crisis. Don't think that if we point to a problem and say, "That's it," we can stop it from happening, because there are so many problems. For example, looking back at the time of the new crown epidemic in 2020, the original system was completely shut down, and the harm is likely to quickly affect the financial system.

Fortunately, the United States took very quick action at that time. We never know when a crisis will come, but we need to be prepared to act quickly.

Li Jiange: As Mr. Paulson said, financial crises are generally difficult to predict. First, if everyone thinks that a financial crisis is about to happen soon, then the financial crisis may be avoidable; second, during the 2008 financial crisis, Sino-US cooperation was a very successful example. Dialogue between China and the United States is frequent, the movements are large, and the coordination is very coordinated, and it can successfully cope with the 2008 financial crisis.

Lou Jiwei: I also agree with Mr. Paulson that the financial crisis may be triggered by the gray rhino event or by the black swan event. But there is a situation to be reminded of, and now there is a need to withdraw from ultra-loose monetary policy. On the one hand, everyone has no money, and the public sector has no money; on the other hand, the central bank has expanded its balance sheet to an unimaginable extent and must shrink. This is a time when it is very easy to trigger those risks that may arise. In particular, the asset prices of some countries have reached a high level, and if the timing of the exit of fiscal policy and monetary policy or the intensity and rhythm are improper, it is likely to trigger the crisis.

For example, in the case of U.S. fiscal policy, checks are now sent to individuals and families; with the policy withdrawn, those at the grassroots level are no longer willing to work, they will be unhappy, and may intensify social unrest. Now, the asset price is at a high level, a considerable number of companies are buying back their own stocks, if the assets are at a high level, the monetary policy exit rhythm is not appropriate, there is a relatively large market price correction, the balance sheet of these companies will deteriorate.

The last financial crisis was different from this one. Last time, Wall Street institutions held a lot of toxic assets, and if they went bankrupt, it would bring about a systemic crisis, and the solution was completely different from now. Another difference is that the current global leverage ratio is high, the stimulus tool for economic growth is running out, and the average macro leverage is above 300%, which is terrible, the last time it was more than 100%. In this case, the spillover effect of the Fed's exit policy will be much greater than last time. So I very much agree with What Mr. Paulson said about strengthening global cooperation and working together as we did last time.

Li Jiange: The following question we specifically mentioned to Minister Lou. In December 2021, China held a central economic work conference and made arrangements for economic work in 2022. What will be the focus of economic work next year? What do you think of China's fiscal and monetary policies next year?

Lou Jiwei: As I said just now, the first question is that the analysis of the global economy seems to be different from the situation in China, where china's economic growth last year was 8 percent, and the CPI was only 0.9 percent. China's fiscal policy is also different from the West. We are a large-scale tax reduction and fee reduction for enterprises, and a small amount of funds is for subsidizing individuals. Monetary policy is also dominated by loans to support micro, small and medium-sized enterprises, what is the result of this? Contrary to other countries, it is that our final consumption is insufficient, the CPI does not go up, and there is the global rise in commodity prices, which has promoted the rise in structural prices, and the PPI reached 13.5% at the highest time, but the demand on the final demand side does not go up, so the pressure is put on the middle and lower reaches of the industrial chain.

Another feature is that external demand is strong, but the supply is insufficient, which brings opportunities to China. Last year, China's foreign trade exports were very good, which greatly promoted economic growth. However, there are some deviations in the work such as excessive compression of real estate and sports carbon reduction. Although deviations have been gradually corrected since the second half of the year, they have had a negative impact on economic growth. Coupled with the tension of the global supply chain, we are facing the triple pressure of demand contraction, supply shock, and weak expectations, the Central Economic Work Conference proposed to "stabilize the word, seek progress in stability", and require the prudent introduction of policies with a contraction effect, further emphasizing the correction of deviations. In particular, there is mention of giving the traffic light to capital. I think the term traffic light is very graphic. We drive at a red light, and we know it's about 40 seconds before we get green, and when we hit a green light, we know how much time it takes to turn red. That is, there are rules and expectations, and a red light cannot be half an hour, a green light and half an hour, that is not called a traffic light. You can't use some of the movement-style practices, like last year for real estate.

For fiscal and monetary policy, I think it is estimated that the stimulus will be maintained this year, there will be no major changes, and the emphasis is more precise. I am optimistic about China's economic growth this year.

Li Jiange: The fourth question is for the two guests. The Paulson Institute has made profound achievements in promoting carbon reduction and green finance, as well as biodiversity conservation, what challenges do you think the current global green transition has encountered? What are your suggestions for a smoother global transition to a greener economy? What opportunities do financial institutions face in the process of green transformation? How should it work? Ask Paulson to answer first.

PAULSON: Thank you very much. I'd like to take a moment to talk about the Paulson Institute's work in China because it's related to your question, and we just celebrated the Foundation's 10th anniversary. The Paulson Institute's focus in China is biodiversity conservation and green finance. We have established a Green Finance Center to carry out work on biodiversity conservation, and we have worked with the National Development and Reform Commission and the Ministry of Finance to provide advice on the construction of national parks in China.

Together with the Chinese Academy of Sciences, we have done some very important work to study the wetlands along the coast of China and the need to protect these important ecosystems. I would like to talk about the development of green finance in China. China has always been a leader in green finance concepts. In 2016, when China held the G20 presidency, the Paulson Institute acted as an advisor to Mr. Ma Jun, working with the Chinese government on green finance principles, which were the outcome of the G20 Summit. At the time, we were a founding member of the Belt and Road Principles for Green Finance, which aimed to implement a set of voluntary lending standards. The Paulson Institute is the only non-governmental organization in the United States to participate. Every year, we conduct research work and publish an annual research report on FinTech in China to understand how FinTech in China contributes to sustainable development. We spend a lot of time on biodiversity conservation. I'll go into more detail about that next, and I think it's too important.

We have done a study on the financing gap between nature and biodiversity for China's Ministry of Ecology and Environment, and the Conference of the Parties to the Convention on Biological Diversity is scheduled to be held in Kunming this spring. We are working with the AIIB to establish a centre to provide advice on how it can take biodiversity into account in its work. We are working with Mr. Ma Jun to update the Belt and Road Green Financing Lending Principles and focus on biodiversity.

Now, let's talk about how China and the United States can work together to meet the challenge of "net zero carbon emissions" and promote the green transformation of the economy. I think China and the United States can cooperate more in this area. I am pleased that the leaders of the two countries have chosen this area of cooperation to jointly promote the reduction of carbon emissions. I think this is a very good opportunity for us to work together to reduce our dependence on coal and conduct research to promote and commercialize the climate technologies needed for the green transition in industrial production processes such as steel and cement.

But we face a huge challenge, which is that the goals set by governments are voluntary, and the governments have neither the financial resources nor the professional ability to do what they need to do, and they cannot help companies achieve the transformation they need. Correspondingly, enterprises do not have the right to make rules, policies, laws. Companies are innovating and committing to net-zero carbon emissions, but they can't achieve their goals without the tools available to governments. So I think the major economies need to do more, provide subsidies, incentives and regulatory frameworks to help businesses succeed, or they will fail.

That's my opinion. I think we have a lot to do to achieve net zero carbon emissions. Finally, I would like to turn to multilateral development banks. Multilateral development banks need more financial support to fulfil their responsibilities, and major economies need to work together to improve their charters and make them more effective.

Lou Jiwei: What Mr. Paulson just said is the main point. Let me turn to some more questions about motivation.

Green finance is very fashionable now, but green finance, whether it is loans or bonds, if the face of the use of the object than not to engage in green development to lose money, why do they engage in green finance? What mechanisms can motivate them to do it? Or the government has carbon subsidies, carbon taxes, or we have carbon emission credits trading, through cross-subsidies so that users of green finance can get benefits, willing to use, providers are willing to provide. That is to say, solving the incentive mechanism is the most important, which requires the market and the government to play a joint role.

First of all, to standardize the carbon emission measurement of each industry and each process, only a third-party measurement is not enough, and it must be verified by the government. This is the basis for the formation of various incentive mechanisms. To do green loans, these problems must be solved, so it is the cooperation between the government and the market that can solve the development of green finance and solve the problem of incentives.

Secondly, I also very much agree with Mr. Paulson's statement that global cooperation cannot be decoupled. There are a significant number of practices that have global positive externalities, and we should cooperate.

Third, when it comes to carbon regulation taxes and carbon tariffs, we must pay attention to observing common but different responsibilities. It cannot be said that who is emitting more carbon now, the country should pay more carbon regulation tax, but it depends on which country has historical carbon liabilities and which country has historical carbon assets. Otherwise, it will suppress economic growth in developing countries. This is true of carbon regulation taxes, and there are also such problems with carbon tariffs. The carbon tax must not be turned into a tool for creating barriers to trade. I see a little more risk, so I'll talk a little more from that perspective.

Li Jiange: I very much agree with the statements made by both of you. Now we often talk about using finance to support green development, but I personally feel and agree that the role of finance should not be generalized. At present, everything that development depends on finance, the development of the real economy depends on finance, the development of science and technology depends on finance, green development needs to rely on finance, and even common prosperity depends on finance. Financial support for anything has prerequisites and conditions, and it requires a policy environment, otherwise it is a slogan.

The following question is for Mr. Paulson, because Mr. Paulson, you mentioned that we should create a new asset class, including fertile soils, efficient pollination of crops and healthy watersheds, this idea is very novel, can you share your ideas? How do you think global cooperation can be done in this regard?

PAULSON: Thank you very much for asking that question. In fact, we are facing a double crisis. We often hear people talk about climate change, which is of course a big issue, but I think there's another crisis, and that's the biodiversity crisis, which is closely linked to climate change because climate change is accelerating the loss of biodiversity, and the loss of biodiversity is also accelerating climate change. I believe that the biodiversity crisis is more urgent than the climate crisis and, to some extent, more worthy of our attention. We at least know about climate change and the science behind it, but we know very little about biodiversity loss. Species are being destroyed and extinct at 1,000 times the rate of natural evolution, and by 2050 half of the species on Earth will cease to exist.

When we start tinkering with nature's imbalances, we all know that the problem will be serious, but it's hard to say how serious it really is. So the Paulson Institute, at the request of the Department of Ecology and Environment, conducted research on nature financing, viewing the biodiversity crisis as a financing crisis.

From the past to the present, it has been difficult for us to accurately value natural capital. But in fact, it is possible to value natural capital. If we do not value natural capital and treat it as zero in value, politicians will think that natural capital is inexhaustible and inexhaustible. And we know that natural capital is in fact depleted. So we're doing some forward-looking work in this area with China and the AIIB and other institutions.

Below I would like to talk about the asset classes that can provide financing. In the study, we considered all biodiversity flows and the corresponding financing modalities. First of all, the most important thing at present is not to continue to destroy it, but to protect and cherish the ecological diversity. Because once the biodiversity is destroyed, the cost of remedying it will be much higher.

Take, for example, watershed protection financing. At one point, New York City needed to build a multibillion-dollar water filtration plant. In fact, New York City did not do so, but invested in the remediation of a semi-wilderness basin near New York in Catskills. They cleaned up the watershed and made sure that wastewater and fertilizer did not flow into the basin. Protecting watersheds is much more cost-effective than building concrete infrastructure.

I have worked on several watershed conservation projects and founded the Latin American Commission for Nature Conservation, which spans all of Latin America. Increasingly, we will see opportunities to value and finance natural capital. Once again, I would like to express my appreciation for the AIIB's attention to biodiversity conservation, and China is doing a lot of useful work in this regard.

The accelerated destruction of global biodiversity is an issue that must be addressed. It can have a huge impact on economic and social health. The least costly biodiversity conservation measure at present is to change agricultural policies. We can still take steps to stimulate production, but only if we do no harm to natural capital.

Then there's the financial industry. I fully agree with what you and Mr. Lou Jiwei said, unless there is something solid to support, green finance will be meaningless. Because losing money is not sustainable. Savvy investment institutions and banks will not make loss-making transactions at all, but they should not also fund investments that substantially abuse natural capital without disclosing the extent of the damage.

So, compared to the past, I think green finance is a huge step forward. The next step, of course, is to protect the valuable natural capital. In this way, many ingenious financing tools will emerge, because green water and green mountains are golden mountains and silver mountains, fertile fields will be worth a lot, and even ordinary and diligent little bees will soar in value. If these gifts of nature are burned, we will pay astronomical economic losses.

Li Jiange: Some media say that Mr. Paulson is a lifelong environmentalist, and it seems that he has become an expert in environmental protection.

The following question is for the two guests. Recently, we have seen dialogue between China and the United States at all levels, and Mr. Paulson has advocated that The Relationship between China and the United States needs to be repaired. In what ways do you think China and the United States can further build consensus and cooperate? Mr. Paulson is invited to answer this question first, and then to Minister Lou for comment.

PAULSON: It's an extremely important topic. The political systems, values, and economic systems of China and the United States are very different, but at the same time, the two countries also have very important common interests, such as the issue of climate change that we have been discussing, and the issue of a stable global order and world peace.

These dialogues are therefore crucial. One of the keys is that we need to develop a framework to determine where the two countries compete, how they compete, where they cooperate, and how to deal with the conflict between the two countries. This is extremely important. Now, with a bit of a sense of great power confrontation between the two countries, we must ask ourselves whether there is political room for cooperation while competing. I think the two countries can certainly cooperate, and they must cooperate. If the two countries do not cooperate, the world will be in a very dangerous situation. Failure to explore appropriate ways of cooperation between the two countries will lead to serious systemic consequences in terms of the global order and world peace.

I am pleased to see that the dialogue between the leaders of the two countries has truly opened up the process of communication. Although national security is not my area of expertise, I think that, in general, the great powers have no intention of going to war, and they are caught in the quagmire of conflict because of poor communication, and as a result, accidents occur and the situation deteriorates. So, I think it's important to have a security dialogue. The same is true of dialogue in other areas. Mr. Lou Jiwei and I have stressed the importance of macroeconomic dialogue, as well as financial access and financial flows, because financial turmoil anywhere in the world, in any country, can ripple to other countries.

I think that's a very important area. We also mentioned climate change because leaders on both sides have said "it's important" and have begun to cooperate. However, on climate change, I think we have to be very careful to avoid falling into bad competition. Mr. Lou Jiwei mentioned this when talking about the carbon tax just now. So climate change is an area where we can work together.

I would like to see the two countries work with other major economies to drive global institutional change. However, this is not easy to achieve, because I don't think China will identify with the so-called "liberal Western order." But we have a common interest in global stability. We all need rules, we need to reformulate them, we need to update our institutions. So the question is, what exactly are the rules? How do I update a rule? Who sets the rules? Which rules will address those evolving interests? As with the previous questions, there are challenges to working together on this issue. I would also like to see more cooperation between the two countries in the field of trade. Despite the difficulties that cooperation will encounter, at least I would like to see the two sides complete the first phase of the trade agreement, extend the duration of the agreement, and jointly resolve some issues on trade issues. I would also like to see the two sides work together to advance some institutional changes. But for now, at least, the first thing to focus on is working together to respond to the COVID-19 crisis. At the same time, I hope that the two countries can engage in dialogue in the area of security and openly explore areas of potential conflict. Dialogue on macroeconomic and financial issues is also the need to develop.

There is much more that can be done about Sino-US cooperation. But at the heart of the problem is that there is political resistance to a series of cooperation between the two countries that cannot be underestimated. I think we need a new framework for U.S.-China relations. As I said before, this framework should look at what the two countries can achieve, how they can achieve it, how they can cooperate, and how they deal with conflict. Otherwise, both countries will be thrown into chaos, which will not benefit either side.

Lou Jiwei: I very much agree with Mr. Paulson's view, especially when it comes to areas where the two countries can cooperate, such as climate change, public health, regional security, especially military security, there must be a bottom line, there can be no major conflicts, and so on. In fact, I am the same as Mr. Paulson, and I have more experience in the macro policy and economic fields.

I am now observing a particularly interesting phenomenon: when I was China's finance minister, the U.S.-China Economic Dialogue, the U.S. side made a request: Should China lower tariffs? Should China be more financially open? Can China reduce industrial subsidies? At that time, we said that China was a model for practicing its commitment to join the WTO, and tariffs had been reduced a lot. The financial opening that China promised at that time was done, and that was an additional requirement, and China had no obligation. As for industrial subsidies, we can negotiate. Now we feel as if we've turned around. The United States has increased tariffs significantly, and China has countered. In terms of financial opening-up, we are now getting bigger and bigger, as I said just now, China has no restrictions in many aspects. But I see under what conditions The Chinese stocks must be withdrawn, as if the US side has added a lot of restrictions.

In terms of industrial subsidies, when I was minister, industrial subsidies were a difficult question to answer. China has various funds under industrial policy, as well as subsidies. From President Trump to President Biden, it has been proposed to let the manufacturing industry flow back through industrial subsidies, especially to leave the advanced semiconductor industry in the United States and the chip industry in the United States. Is this an industrial subsidy? Is it a market distortion? Now the other way around. It is not appropriate to compete with each other on these matters. And the United States suffers by doing these things. For example, if china imposes so many tariffs, China has also countered. Treasury Secretary Yellen said more than 90 percent of the tariffs were borne by U.S. importers. To put it bluntly, it is borne by American consumers. Then mutual tariff cuts are good for U.S. consumers and are also good for suppressing the current high inflation.

As for the problem of market distortions, the United States also has it, and it has also enacted legislation on it. The two sides can sit together and talk about what is market distortion and what is industrial subsidies? Set the rules, now is the time. There are other aspects of the problem, and I have just made some points, and these core points should be strengthened.

Li Jiange: Here is another question, it is for the two guests, in recent years, the existing international order and global governance system have been challenged, how do you think the two countries play a role in the process of reconstructing the global governance system? First of all, I would like to ask Minister Lou to talk about his views.

Lou Jiwei: First, we must solve the problem of basic understanding. To reconstruct the global governance system, China's attitude should be based on the UN framework. If we abandon this principle and engage in another set, we can only pull a small circle and not be recognized by most countries.

Second, we must abandon the new Cold War mentality. My feeling is that the competition between China and the United States may last for more than a decade, but there can be no Cold War, because the Cold War is useless to China. The Cold War strategy worked for the former Soviet Union, but China was not like the former Soviet Union. China supports the framework of the United Nations, but the Soviet Union does not; China demands and embraces globalization, and the Soviet Union is closed; China is engaged in market economy, and the Soviet Union is engaged in planned economy. Therefore, using the Cold War method against China, I think, is useless. This requires a basic understanding.

On this basis, we can start with the most pressing problems to study which aspects can be ruled and which aspects are unrealistic ideas. I have just talked about economic and trade issues, strengthen communication, China and the United States can strive for consensus under the G20 mechanism, and it is easier to improve other aspects.

At present, the WTO reform is more urgent. The WTO is too backward, now the economy and society have been digitally transformed, and the global consensus is to transform to a low-carbon society, and the WTO rules are actually far behind. Digital trade, trade rules, definitions of environmental goods, transactions, etc. all need to be addressed, and cooperation can be strengthened.

PAULSON: I've already mentioned this topic, and I'd like to add a few more comments. Regarding tariffs, I do believe that the United States has been trying to promote the elimination of tariffs on environmental goods and services, because we should focus on improving the world environment, and no country should impose tariffs on products that can improve the environment. This is an area where we can work together. But I would say that the whole world is in trouble, the world is changing at a very fast rate, we just talked about trade, and I'll give some thoughts on trade later.

We can see the changes that are taking place in scientific and technological fields such as the Internet, aerospace and marine technology, genetic engineering, and we find that technological progress is almost a thousand miles away. To some extent, our ability to govern and make the right rules has not kept pace with the development of science and technology. In this case, if we only work with close allies, it will be difficult to make changes to the various systems and ensure that they work.

I very much agree with Mr. Lou Jiwei's view that there is no Cold War between the United States and the Soviet Union at present. But historical experience shows that great power rivalries usually don't end well. So it's a tricky problem that's hard to deal with. As I said, China and the United States have different values, different views on many things, and some sharp differences. The interests of the two countries are constantly changing, and it is not easy but necessary to figure out how to work with other organizations to advance institutional change. It's that simple. A few years ago, I gave my views on trade issues in a speech in Singapore in which I warned of the Economic Iron Curtain because, as Mr. Lou Jiwei said, the World Trade Organization has lost its influence for various reasons. One important reason for this is that countries like South Korea, Singapore or China, especially China, the world's largest trading nation and global economic giant, still call themselves "developing countries" to receive special treatment from the World Trade Organization. This is unreasonable. In the past, it was difficult to reach a corresponding trade agreement without the unanimous consent of the World Trade Organization system. As a result, the World Trade Organization has now lost its original influence.

In today's world, we do not have a common set of international standards and implementation mechanisms. This means that our world can be full of opposites, with standards conflicting and incompatible with each other. This doesn't work. So you can see that we're starting to restrict trade and move toward protectionism. It's like an economic iron curtain, where the flow of capital and goods is restricted.

This is just one example, and there are many more like that. In a word, although coordination and cooperation between major powers is a very difficult task, it is better than the worst road, isn't it? If the global order collapses, the consequences are too much for us to bear. We may have different views on how mechanisms should be shaped. China and the United States share common interests in world peace and stability, and although there will be challenges in the process, the two countries must find ways to cooperate. I believe that the main challenge ahead is the U.S.-China relationship and how the two countries properly handle the above issues, which will have a major impact on the two countries and the whole world. That's why I spent so much time thinking about the U.S.-China relationship, which is why the Paulson Institute was established.

This article originated from the financial world