Interview with the Director of the Institute of Finance, Chinese Academy of Social Sciences
Zhang Xiaojing
01
Yellen's visit to China unleashed a new U.S. attitude toward China?
From April 4 to 9, 2024, U.S. Treasury Secretary Janet Yellen visited China, the first senior U.S. official to visit China in 2024.
Wu Xiaoli: Yellen has repeatedly stressed her opposition to the "decoupling" of China and the United States during her visit to China, but she also said that the so-called "overcapacity" of China is the so-called "overcapacity" in China, so what is the more real attitude between China and the United States, or the United States towards China?
Zhang Xiaojing: Yellen's expressions should be their true attitudes, but there is no contradiction. For example, regarding non-"decoupling", as a simple example, there is an important literature published abroad, since 2018, the US Department of Justice has launched an investigation called the "China Initiative" to investigate whether there are Chinese researchers involved in important scientific research fields, and if so, find a way to investigate and clean it up. This study wanted to use this as a natural experiment, and after the investigation, see how the scientific output of Americans was? Finally, it was found that without the cooperation of Chinese, the quantity and quality of papers published had dropped significantly. The general reaction is that if they don't cooperate with China, their scientific productivity will drop dramatically. I cite this example to prove that true "decoupling" cannot be achieved, so it will not "decouple" from China.
What you just said about the attitude of the United States is not contradictory, but I want to say that this is a strategy of the United States to suppress China, and I don't think it will change in the short term. I remember that about two years ago, the Biden administration issued a State of the Union address, emphasizing that the next decade will be a critical moment in Sino-US relations, and even a "crossroads", saying that if the United States does not do well, it will be overtaken by China.
Wu Xiaoli: It thinks this will be a crucial decade for the trade-off.
Zhang Xiaojing: That's right. Therefore, the United States must now start to suppress China with practical actions.
Wu Xiaoli: So you want to ask, with such arguments constantly being promoted, is China's "new three" exports likely to be subject to a new trade war?
Zhang Xiaojing: I don't think we need to worry too much about these issues like the tariff war. During the Trump era, we have already faced such a terrible situation, of course, what about the future, is Trump going to come to power again, is there another tariff? I want to say that even if it is such a severe punitive tariff, we have survived, and I don't think there should be panic about the "new three" again, that is, the replication of the old model.
02
Zhang Xiaojing: For private enterprises
"Trustworthy", "let go", let it "earn"
Wu Xiaoli: A very important part of China's structural reform, you mentioned, is to vigorously develop the private economy, especially at the legal level and economic rules.
Zhang Xiaojing: Many aspects, such as financing, are typical. The private economy has a general name called "56789", indicating that it is actually the main body of the real economy, but when financial services are provided to the real economy, the financial resources to support the real economy are completely incommensurate with this "56789", which is the first discrimination I want to say, that is, it does not actually obtain its corresponding credit resources in terms of financing, including the listing of the capital market will also be restricted, and some industries it cannot enter.
There is also a more typical example, the central government is also emphasizing that now the country's big projects, hope that private enterprises to participate, but in fact, it is very difficult to participate, many times it is the national enterprises to win first.
Wu Xiaoli: Subcontracted to private enterprises.
Xiaojing Zhang: Yes. At this time, there will be another situation, sometimes we say that some private enterprises are very bad, and the quality of these projects is poor, but we have to think about what is the reason behind it?
Wu Xiaoli: There are several layers of subcontracting.
Zhang Xiaojing: It is divided into several layers, and it is already difficult to make money, so in terms of cost, sometimes it is cutting corners.
Wu Xiaoli: It's a vicious circle.
Zhang Xiaojing: Of course, it's a vicious circle. But we have to look at some of the fundamental reasons behind it.
Wu Xiaoli: Then why are only state-owned enterprises able to get big government projects?
Zhang Xiaojing: This is why our government, including banks, is still obsessed to a large extent, that is, state-owned enterprises are guaranteed.
Wu Xiaoli: State-owned enterprises will not fall.
Zhang Xiaojing: It's not simple, it's just that state-owned enterprises won't fail, and state-owned enterprises are reassuring, and they won't be fine.
Wu Xiaoli: Is it a guarantee of quality? Or is it a peace of mind that I will not have political responsibility if I hand it over?
Zhang Xiaojing: Yes, political responsibility, the core is this. Of course, we dare not say that this is a universal phenomenon, but it does exist. Therefore, with regard to private enterprises, I boil it down to nine words: First, we must be "trustworthy," because it is our own people; second, we must "let it go," what does it mean to be able to let it go? Don't have so many restrictions, glass ceilings, don't let people enter here, don't let people enter that, good and important industries or the "fat" we talk about, may be taken up by others, and private enterprises can't get a piece of the pie, and this must be changed; and third, "there is something to earn," you have to let it make money.
Wu Xiaoli: I can survive.
Zhang Xiaojing: Can survive and make money. Why do I mention this? Just one example is that after subcontracting, it's actually very difficult for it to survive. There are also some PPP projects that are government and social cooperation, a new PPP, you have to figure it out, people come in, there is investment, and in the end you have to let people make money, you can't say that it is completely free support, not charity. So I think these nine words are still very important, if they can be implemented, I think there should be a lot of room for the development of private enterprises.
03
Zhang Xiaojing: If the real estate collapses, it's not a question of whether you can afford it, but whether you have a job
Wu Xiaoli: I saw that at the end of 2023, you once said that the current private real estate industry is indeed facing great difficulties, and even has to save the market.
Zhang Xiaojing: Looking at 2024 now, we have actually seen a lot of policy changes, or improvements. So now there is a general view that this year's real estate investment may go down, that is, it is not a positive growth, but it may be narrower than last year's decline. I think these are some positive changes, but the overall judgment is that this year and even next year, it should be largely adjusted downward. In this case, if you don't save it, look at some risks in all aspects, and the people have to consider supporting them with policies, for example, you can also give him an extension, etc., but I think the core is the difficulties faced by real estate companies, especially liquidity risks, and our support is not enough.
Wu Xiaoli: I once read what you said, you said that our medium- and long-term expectations for the real estate market in Chinese mainland are abnormal, where is the abnormality? What should the normal expectations be?
Zhang Xiaojing: We see a particularly interesting rule, that is, the value of real estate accounts for the proportion of the wealth of the whole society, which is an important criterion. We found that since 2000, the average real estate wealth in major developed countries has accounted for about 50% of social wealth, of which Australia and the United Kingdom are far more than 50%, some reach close to 70%, but China is less than 40% today, this is our latest balance sheet estimate.
I want to say the first point, it is difficult to say that the proportion of real estate wealth in social wealth will be higher and higher, I think this judgment should be inaccurate, not higher and higher. But we have to think that the proportion of real estate wealth in social wealth has been stable for a long time between 40 and 50 percent, and this is a reality that we see, whether the population is aging or not, whether the urbanization rate has peaked, it has nothing to do with these factors, so what do you think is the reason? Land is scarce; second, real estate on land, as a means of storing value, can be passed on from generation to generation; third, what will happen to the post-industrial society? This is a very important question, but it may be ignored. In the post-industrial society, we have seen the revolution of artificial intelligence and digitalization today, what will this bring? "The father of ChatGPT" Altman said that with Moore's law of everything, its price will be lower and lower, but houses are scarce, and the growth rate of housing prices will be higher than the growth rate of prices in normal periods.
Wu Xiaoli: You just mentioned that in the medium and long term, because land is scarce, real estate must be scarce, so many young people who have not "got on the car" will feel that I can only buy if the house price drops, and some families who have already bought a house feel that the house price should not fall, otherwise I will have negative equity, what should I do?
Zhang Xiaojing: In fact, this is the case with any social policy, and we will find that different groups of people stand from different angles and have different views. But I think first of all, we have to look at the macro level, from the national level, if the price of real estate has been falling, and people who have not bought a house say that it will continue to fall, I will not buy it today, I will not buy it tomorrow, and I will not buy it the day after tomorrow, because it will fall, and it will fall to the point where it will not move, and it will rise, then I will start buying, and everyone must choose that point in time. But from the macro level of the country, we will find a problem, when the real estate can not support economic growth, when the real estate can not operate well, it brings the predicament, first of all, the financial risk rises, and finally a large amount of real money loss; In terms of supporting growth, we can play a little positive role, and we can see that the entire Chinese economy is not bad, and then those low-income people will get benefits, because they have jobs and income, they can consider making a down payment, paying monthly payments in the future, etc. On the other hand, if the real estate collapses, systemic risks arise, the economy has big problems, or it is said that it is a long-term recession, it is not a problem of your income declining, but a question of whether you have a job.
Wu Xiaoli: I can't afford it, I don't have the money to buy it.
Zhang Xiaojing: That's right, it's a problem of not being able to afford it, once you end up with no job and no job, the pressure will be even greater.
In fact, sometimes I hesitate to say this kind of opinion, because if these opinions are put on the Internet, I will definitely be scolded. But I want to be objective, you have to know what real estate has to do with the overall economic situation. So we don't want real estate to fall all the way, we hope that real estate will be adjusted, within the range that the whole society can bear, and this range of tolerance includes many aspects: low-income people think that the housing price is okay, at least it is not so scary; banks feel that bad debts are there, but they are basically acceptable; from the economic point of view, it drags down the economy, but the drag is not so serious. I think this is probably the time when everyone can reach a consensus, and when this stage comes up, I think this adjustment is basically complete.
04
Zhang Xiaojing: If finance can't support strong technology,
Then it can't be called a financial power at all
Wu Xiaoli: You have been doing economic research, what are you most concerned about now?
Zhang Xiaojing: If you want to talk about the big picture, it's how China will become a modern power, and to be specific, because my study of finance is how to build a financial power, although it is far away now.
Wu Xiaoli: How far is it?
Zhang Xiaojing: If we compare history, the United States surpassed Britain at the end of the 19th century to become the world's largest power, but it became the largest financial power after World War II, half a century later. I don't think China has to be the world's largest financial power, but China's current financial development and economic status are not commensurate.
Wu Xiaoli: The financial powers in the history of the world are the Netherlands, the United Kingdom, and the United States. In what sequence are we in the process of financial development?
Zhang Xiaojing: It's definitely not the first camp. Because it is very interesting that many economic powers, or former economic powers, are not financial powers, such as Germany, Japan, etc. But why do we want to put forward the idea of becoming a financial power? One of the core points is that if a country is strong, it must be strong in science and technology, and what is the basis for being strong in science and technology? Many people may say that the United States is strong in science and technology, because of the immigration policy and the incentive for technology, and a lot of global talents are coming.
Wu Xiaoli: But it is impossible to succeed without the support of venture capital.
Zhang Xiaojing: That's right, technology can't be done without strong finance.
Wu Xiaoli: You said that you should do ideological enlightenment.
Zhang Xiaojing: That's right, ideological enlightenment, why? Because technology is too closely related to risk, and it is all uncertainty. Musk once said a very interesting sentence, he said that if you haven't experienced failure, your innovation is not really innovation. So I want to say, since we are facing so many failures and losses caused by failures, what should finance do? What are the most basic functions of finance? The general secretary has a summary, the four major functions of finance, the last of which is called risk management, that is, finance can identify risks, price risks, and allocate risks. But our entire financial system is weak in dealing with risks, which is reflected in many aspects, such as our banking system is relatively stable, and we see risks to avoid;
Second, our risk pricing is intervened, and our government directly allocates financial resources, not according to the risk pricing of finance itself, such as strategic industry selection. I think this has its advantages from the perspective of national development catch-up, and I often give examples to say that when Chinese enterprises, including local governments, develop, they can only take care of development, not risks, and the central government is in charge. But not now, how can our government have so much financial resources to take all the risks, so at this time, our philosophy should change, that is, we have to gradually hand over the pricing of risk to the market, and I think this is a new understanding of our financial thinking.
I think it's more important that innovation is future-oriented, and our financial thinking can't look at the present from the past. Now, when we evaluate whether a company can go public, we have to look at the profitability of the past three years, but many companies, the real disruptive innovation of the enterprise or technology is future-oriented, it can't benchmark. I came across a case in Shenzhen, he was doing biomedicine, he said that we have achieved the world's top level, but we can't raise capital at all, all the financing institutions will say, I think you are very good, find a benchmark in the United States, I will evaluate you according to it, he said we are the first in the world, where to find a benchmark? This directly affects the real disruptive innovation.
Wu Xiaoli: So in fact, the whole system of IPOs has to change.
Zhang Xiaojing: Of course. The simplest example is the "Hefei model". Hefei has a lot of scientific and technological talents, including the University of Science and Technology of China, as well as many institutes of the Chinese Academy of Sciences, every time they go to invest in this area, they are a group of scientists and a group of entrepreneurs, and then those who come directly to do it, such as government participants, without which it is possible to do a good job in science and technology.
Wu Xiaoli: Yes, without these due diligence, it is difficult to do different support.
Zhang Xiaojing: That's right, this is the most difficult job. If we don't do it well today, our financial development, no matter how big it is, cannot be considered strong. Because of a financial power, if finance cannot support a strong science and technology, then it is not called a financial power at all.
Wu Xiaoli: This is a very big system project, and this is not a person's enlightenment.
Zhang Xiaojing: But I can see that there is a discussion and thinking about this from top to bottom, including local officials, and I think that's a very good sign.
Producer: Han Yan
Choreographer: Mei Yuan
Editor: Jin Peng