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Chinese Economy: Key to Transformation

Nov 17-2020   



The MBA Forum by the NSD was held in Shanghai on October 31st, 2020. As the keynote speaker, Prof. Yao Yang shared his take on the challenges of China’s economic growth and the policy highlights of the 14th Five-Year Plan. He’s Bo Ya Distinguished Professor of PKU, Dean of the NSD, Director of the China Economic Research Center (CCER), and Executive Dean of the Institute of South-South Cooperation and Development at PKU (ISSCAD).

 

The recently-concluded plenum of the CCPCC lays the foundation of and sets the direction for the 14th Five-Year Plan, which is released at a time when international situations are going through drastic changes. The content of the communique of the Fifth Plenum will greatly affect companies and people’s life.

 

The Chinese economy will undergo a transformation in the next five to 15 years mainly in four areas: tech innovation in key fields, new urbanization, equality of urban and rural services, and green transformation, according to Prof. Yao.

 

Tech innovation is not new to policy-making but has never been stressed so explicitly, which largely has to do with the changing international environment. The US under the Trump Administration has used what Prof. Yao called ‘Tonya Harding Tactic’ to deal with China, in reference to the skater’s deliberate infliction of physical injuries to a better competitor to stop her from the competition. Likewise, the tech blockade by the US has cut both ways. Chinese firms like Huawei might run out of state-of-the-art chips, while their US suppliers would lose a major market and the R&D budget for the future. Joe Biden, once elected, might pare down or even cancel the blockade list, but US tech blockade on China will persist. In high tech, China must strive to achieve tech independence, especially in chip making, but much remains to be researched and discussed how to pull it off. Prof. Yao said that in certain industries whose tech path is fairly clear, it might be viable and possible for the state to pour funding into one or several firms; yet in most industries, firms should be responsible for innovation and the government should ensure fair competition.

 

Though 62% of the Chinese population live in cities now, urbanization still needs to improve on quality and concentration, said Prof. Yao. If the residence permit is the yardstick, then less than 45% of Chinese residents are city dwellers. The Hu Kou system has become a thorny issue for further reforms. Prof. Yao said that the current point system, whereby people are assigned different points based on their jobs, education and some other criteria when applying for the residence permit of a city, is seriously incongruous with the socialist values and should be abolished. In its place, a gradual reform could be implemented by replacing the Hu Kou system with a residential pass system. In terms of population concentration, Prof. Yao cited the opinion of Prof. Lu Ming of Shanghai Jiaotong University, who estimated that city clusters might be home to 60-70% of the Chinese population by 2035.

 

On the equality of urban and rural services, Prof. Yao explained the necessity (though painful and controversial) of merging villages into towns to improve the offering of public services at lower costs. Besides, the social security system needs to be beefed up to cope with the aging issue. The primary solution is to reform the retirement age, which is too young compared to life expectancy. Another challenge for the social security system is to build into a national one, probably by adopting a leveled system that ensures basic universal coverage but doesn’t focus on highly equitable provisions.

 

China aims to cap its carbon emission by 2030 and achieve carbon neutral by 2060. Prof. Yao drew attention to such new policies as the re-launch of carbon trade, carbon tax, and green finance. In many ways, China is working towards a green economy and circular economy. Overall, economic growth targets will enjoy less attention while the quality of economic growth will be the focal point of the government. In social development, the government will put more efforts into realizing new urbanization and offering social security and other services nationwide, said Prof. Yao.

Chinese Economy: Key to Transformation

Nov 17-2020   



The MBA Forum by the NSD was held in Shanghai on October 31st, 2020. As the keynote speaker, Prof. Yao Yang shared his take on the challenges of China’s economic growth and the policy highlights of the 14th Five-Year Plan. He’s Bo Ya Distinguished Professor of PKU, Dean of the NSD, Director of the China Economic Research Center (CCER), and Executive Dean of the Institute of South-South Cooperation and Development at PKU (ISSCAD).

 

The recently-concluded plenum of the CCPCC lays the foundation of and sets the direction for the 14th Five-Year Plan, which is released at a time when international situations are going through drastic changes. The content of the communique of the Fifth Plenum will greatly affect companies and people’s life.

 

The Chinese economy will undergo a transformation in the next five to 15 years mainly in four areas: tech innovation in key fields, new urbanization, equality of urban and rural services, and green transformation, according to Prof. Yao.

 

Tech innovation is not new to policy-making but has never been stressed so explicitly, which largely has to do with the changing international environment. The US under the Trump Administration has used what Prof. Yao called ‘Tonya Harding Tactic’ to deal with China, in reference to the skater’s deliberate infliction of physical injuries to a better competitor to stop her from the competition. Likewise, the tech blockade by the US has cut both ways. Chinese firms like Huawei might run out of state-of-the-art chips, while their US suppliers would lose a major market and the R&D budget for the future. Joe Biden, once elected, might pare down or even cancel the blockade list, but US tech blockade on China will persist. In high tech, China must strive to achieve tech independence, especially in chip making, but much remains to be researched and discussed how to pull it off. Prof. Yao said that in certain industries whose tech path is fairly clear, it might be viable and possible for the state to pour funding into one or several firms; yet in most industries, firms should be responsible for innovation and the government should ensure fair competition.

 

Though 62% of the Chinese population live in cities now, urbanization still needs to improve on quality and concentration, said Prof. Yao. If the residence permit is the yardstick, then less than 45% of Chinese residents are city dwellers. The Hu Kou system has become a thorny issue for further reforms. Prof. Yao said that the current point system, whereby people are assigned different points based on their jobs, education and some other criteria when applying for the residence permit of a city, is seriously incongruous with the socialist values and should be abolished. In its place, a gradual reform could be implemented by replacing the Hu Kou system with a residential pass system. In terms of population concentration, Prof. Yao cited the opinion of Prof. Lu Ming of Shanghai Jiaotong University, who estimated that city clusters might be home to 60-70% of the Chinese population by 2035.

 

On the equality of urban and rural services, Prof. Yao explained the necessity (though painful and controversial) of merging villages into towns to improve the offering of public services at lower costs. Besides, the social security system needs to be beefed up to cope with the aging issue. The primary solution is to reform the retirement age, which is too young compared to life expectancy. Another challenge for the social security system is to build into a national one, probably by adopting a leveled system that ensures basic universal coverage but doesn’t focus on highly equitable provisions.

 

China aims to cap its carbon emission by 2030 and achieve carbon neutral by 2060. Prof. Yao drew attention to such new policies as the re-launch of carbon trade, carbon tax, and green finance. In many ways, China is working towards a green economy and circular economy. Overall, economic growth targets will enjoy less attention while the quality of economic growth will be the focal point of the government. In social development, the government will put more efforts into realizing new urbanization and offering social security and other services nationwide, said Prof. Yao.