[Asking the Future of US-China Economy] China: 'Economic Quality More Important Than Figures'

Interview with Professor Liu Rui of Renmin University and Tang Duoduo, Deputy Director of the Chinese Academy of Social Sciences
100 Years of the Communist Party of China... 60% of Party Members Are Under 40 Years Old

[Asia Economy Beijing=Special Correspondent Jo Young-shin] US-China relations are precarious. The expectation that US-China conflicts would ease somewhat after President Joe Biden's inauguration has proven unfounded. The US is leveraging the Group of Seven (G7) and North Atlantic Treaty Organization (NATO) summits to intensify pressure on China. China, in turn, has declared it has no intention of backing down. Its stance remains firm on core interests such as Hong Kong, Taiwan, the Xinjiang Uygur Autonomous Region, and South China Sea territorial claims. In plain terms, it is a "bring it on" attitude.

China's power to confront the global hegemon, the United States, lies primarily in its "economy." However, the Chinese economy also faces limits. Sustainable growth is difficult to achieve through existing methods. The Chinese leadership is drawing a new economic blueprint centered around the 100th anniversary of the founding of the Chinese Communist Party. The prevailing view is that the Chinese economy will change significantly at this centennial milestone. We spoke with Liu Rui, Vice Dean of the School of Economics at Renmin University of China (Professor of Applied Economics), and Tang Duoduo, Deputy Director of the Chinese Academy of Social Sciences, about the realities of the Chinese economy and the economic direction China plans to pursue.

Professor Ryu Rui, Renmin University

- How is China before and after the 100th anniversary of the founding of the Chinese Communist Party different?

▲ Professor Liu Rui = The Chinese Communist Party has reached 100 years since its founding. However, the party is still young. Among its 90 million members, 60% are under 40 years old. This means vitality within the party is maintained. The US wants China to split, but that will not happen. On the contrary, China is becoming stronger. Western countries, including the US, do not fully understand China's system. Top-level decision-making occurs within various party committees or leading small groups. Western countries only focus on China's State Council. This misunderstanding is where the West's misjudgment begins. South Korea also conducts much research on China, but personally, I think it is insufficient. The 20th Party Congress will be held next year, where President Xi Jinping's term will be decided. There is no problem with Xi's five-year term extension.

▲ Deputy Director Tang Duoduo = China has effectively achieved a Xiaokang society (a moderately prosperous society where all people enjoy a comfortable and affluent life). At the 16th Party Congress in 2002, the Communist Party promised to build a Xiaokang society by 2020. The Chinese leadership has fulfilled this promise. The 100th anniversary of the Chinese Communist Party can also be seen as a milestone for China's poverty eradication. The Chinese economy will enter a new growth phase, and going forward, China will place greater emphasis on the quality of its economy.

Tang Duoduo, Deputy Director of the Chinese Academy of Social Sciences

- China’s economy grew by 18.3% in the first quarter. Is the Chinese economy normalizing?

▲ Professor Liu = The first-quarter growth rate is truly remarkable. Personally, I believe there is no problem with achieving 8% growth this year. Despite US sanctions, exports to the US are doing well. Exports to other countries are also increasing significantly. The world is recovering from COVID-19, which presents an opportunity for the Chinese economy. However, the Chinese leadership does not desire high economic growth. They consider the quality of the economy more important than the numbers.

▲ Deputy Director Tang = It is hard to say the Chinese economy has fully normalized. COVID-19 is still rampant, and China prioritizes COVID-19 prevention. Compared to other countries, China is certainly on the path to normalization. The Chinese leadership will cautiously steer economic policy, considering the uncertainties.

- For the dual circulation policy to succeed, real income growth is essential. Side effects such as rising labor costs may occur.

▲ Professor Liu = First, the dual circulation policy is based on the US decoupling background. The US is pushing Chinese products out of its domestic market and will gradually exclude China. China is making efforts to expand markets to Southeast Asia, Europe, and Africa. This is why China is actively engaging in the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). It means preparing for future shocks. The dual circulation policy mainly focuses on expanding domestic demand but also implies a commitment to opening up externally. I agree with the question that real income must increase. The Chinese leadership is formulating various policies, including tax cuts, lowering public goods prices, expanding employment, and increasing welfare. Recently, the Chinese government increased rural welfare subsidies.

- This year, there are 9.3 million college graduates in China. College graduate employment is closely related to public sentiment. What about the employment difficulties for Chinese college graduates?

▲ Professor Liu = Last year, there were 9 million college graduates, but the employment market remained stable. Unlike in the past, the employment opportunities for Chinese college graduates have somewhat widened. There are more channels now. Previously, people flocked to enterprises, government jobs, and banks. Now, some young people return to rural areas, and many go to suburban areas. Some choose entrepreneurship. A considerable number of Chinese students still opt for overseas study. Employment market stability is a major government policy goal and a significant concern. Personally, I think there is no major problem with college graduate employment in China.

- Western media often mention China's debt problem. What is the extent of debt among state-owned enterprises and local governments?

▲ Deputy Director Tang = Since 2013, China has paid special attention to debt issues. From 2017 to 2019, deleveraging had some effect. As a result, last year, China secured policy space to overcome COVID-19. Debt is necessary for growth but also carries risks. The debt frequently mentioned by Western media will not cause the Chinese economy to fall into difficulty.

▲ Professor Liu = Corporate debt in China mainly arises from state-owned enterprises. The debt ratio of state-owned enterprises is around 66-68%. Private debt mostly consists of housing purchase loans, about 49% of GDP, which is not very high. As the question suggests, debt defaults occur in state-owned enterprises, but they never lead to a chain default. The government controls this well. Hainan Airlines is a representative case. As a state-owned enterprise, Hainan Airlines faced debt problems and underwent debt restructuring for 2-3 years. It went bankrupt but did not cause a chain bankruptcy. The same applies to banks. Recently, defaults occurred at Baoshang Bank and Bohai Bank, but the government prevented these from turning into chain defaults.

- Western media often say China's real estate is a powder keg. Is this incorrect?

▲ Professor Liu = Housing prices have been rising since COVID-19. After the SARS outbreak in 2003, housing prices also rose. Usually, after a large-scale epidemic, people's desire to purchase homes increases. When housing prices surge, local governments introduce control policies. Recently, Shenzhen implemented such control measures. Real estate prices are a fierce tug-of-war between the government and the market. After Shenzhen's control measures, prices temporarily stabilized but will rise again later. China supplies rental housing, but it is insufficient. Many people live in rental housing and move to regular apartments once they save money. The Chinese government strictly punishes real estate speculators. Real estate speculation is not easy in China.

- There is a forecast that China’s economy will catch up with the US by 2028. What is the economic blueprint for China?

▲ Professor Liu = China's GDP has reached about 75% of the US level. If growth continues at this pace, China will soon surpass the US GDP. Variables include growth rate and exchange rate. More important than surpassing US GDP is approaching US competitiveness. Raising technological levels and strengthening industrial competitiveness are more important than GDP growth. The US does not want China's technological advancement and is hindering it. China strongly resents this, and the Chinese people agree that China must develop technology. Since President Biden's inauguration, US-China relations have not changed. Biden's sanctions on China have intensified in some areas. US-China relations can be categorized into competition, cooperation, and confrontation depending on the issue. However, since Biden took office, no cooperation areas have been found. The US's China policy is still unclear. The US seems to be searching for China's weak points for counterattack. A comprehensive countermeasure will be announced soon.

- China’s aging population is progressing too rapidly. It could be a disaster for the labor market.

▲ Professor Liu = The Chinese government recently introduced a three-child policy. This is a policy considering 18-19 years later, around 2040. It is a measure to prevent labor population decline. China introduced a two-child policy in 2016, but birth rates did not increase. I do not expect the three-child policy to raise birth rates. Chinese people do not want to have children. This is worrisome.

We must also prepare for the impact of population aging. The fiscal burden caused by aging is a long-term challenge. There may be state financial support, as well as assistance from social and public organizations. Social burden should be distributed to alleviate pressure from fiscal burdens. The state must prepare a long-term vision for population issues.

▲ Biography of Professor Liu Rui, Renmin University: Bachelor, Master, and PhD in Economics from Renmin University; Postdoctoral course in Economics at Seoul National University; Senior Researcher at Taiwan Chung-Hua Institution for Economic Research; Chair of National Economic Management Department at Renmin University; Vice President of Korea-China Social Science Association; Director of Social Development and Management Research Institute at Renmin University

▲ Biography of Deputy Director Tang Duoduo, Chinese Academy of Social Sciences: PhD in Economics from Graduate School of Chinese Academy of Social Sciences; Researcher at Macroeconomic Research Institute of Chinese Academy of Social Sciences; Senior Analyst at National Financial Development Laboratory; Winner of 2014 Sun Yefang Financial Innovation Award; Recipient of the 5th China Soft Science Award for Outstanding Achievement