It's not really very much urgent.
It's more of a structured tactic that a government has to deal with.
Yes, people should spend more money, but I actually don't think it's a culturally bad thing that people think about saving money.
While the West is trying to cool any overheating, China has stopped to kick off a more new high-tech, advanced economy.
One is really there how we can really reduce regulatory costs on the supply side.
I think more of this price rebound in China is not going to be a global inflationary shock.
The fact that Prime Minister Carney visited China and talked about tariffs and talked about collaboration.
These are the things that are going to affect prices.
While Europe and the US are fighting inflation and forcing prices down, China is trying to push them up.
What's going on?
Welcome to the chat lounge.
I'm Tzu Yun.
Joining me on this topic, Professor Liu Baocheng, the director of the Center for International Business Ethics University of International Business and Economics in Beijing.
Dr Sean Chang, Associate Professor of Practice in Finance the University of Hong Kong, and Professor Doug Guthrie, the Director of China Initiatives at the Thunderbird School of Global Management in Arizona, the United States.
A warm welcome to you all, gentlemen.
So, Doug, since it's your first time on the show, shall we begin with you?
Sounds wonderful.
Thank you so much for having me, and it's amazing to be here with you all.
Great honor to have you here.
As much of the world is trying to push prices down.
As we mentioned, authorities in China are working to lift them.
Seems a tale of two very different worlds.
So in simple terms, how would you interpret this contrast from an American perspective?
You know, I have a long history as an economic scholar and a China scholar.
And so I think about all of these things in the context of what has happened in the United States economy and the global economy over the last 45 years, or 40 years, as I've been a scholar growing up.
I think one of the most interesting things that has happened in the United States we often don't focus on.
But you know we blame corporations and China and for stealing our jobs and kind of driving prices down because of cheap labor.
But we actually did this in the United States.
We did this in 1980 under Milton Friedman and Ronald Reagan.
China didn't steal our jobs.
We invited corporations to go global so that they could find cheaper labor and, you know, basically create value by taking jobs away from the working and middle-class and then transferring those values up to the upper 5 of the US economy.
The thing that's so interesting and this is where my research is all driven in is that China used that process over the last 45 years to build the most sophisticated manufacturing supply chain in the world.
And that manufacturing supply chain is unrivaled.
There is nobody.
So the Terrafor or whatever we want to talk about, there's nobody who's going to be rivaling Chinese manufacturing supply chain in the next 40 years.
And so the idea of Driving prices down or up.
Like all of these tariff war issues, are about the circumstantial aspects of how to do this.
But the real issues are how do you build the most sophisticated manufacturing supply chain in the world?
And that's what China has done over the last 40 years.
And so that's my position.
But what about this time?
China's focused on low prices.
Isn't that different from the rest of the world?
Isn't that kind of, you know, to some people quite strange?
Well, I think that, you know, if you think about lower high prices, you think about markets, right?
And so like yes, it is true that China is focused on low prices, but there's market supply and demand and you know, supply is driven in part by capturing the largest number of customers and lower prices are better for that.
And so I think it's, it's a really interesting take that China is positioning itself in that is really, really distinguished from the U.S. economy of high end white collar economies versus the manufacturing economies that can produce prices at lower levels.
And so I think China is going to win this game.
China is going to win.
All right.
So, Sean, you're in Hong Kong.
Yes.
Is Hong Kong experiencing what the mainland is experiencing?
Your explanation here, please.
Yes, I think what Dr Gottfried mentioned pointed out quite correctly that this is being one of the competitiveness of China.
And over the past decade China has already built not just functional but very efficient production chain.
And that helps prices can able to come down and also can deliver high quality products at the same time.
What's the pricing have to do, for example, as you referring to Hong Kong, and that also trigger some adjustment in Hong Kong economy that in order to stay of this competitiveness, it's not just a major financial hub around the globe, but it also have to take advantage of these prices from the mainland and help to build a stronger foundations of the economies here in Hong Kong.
I expect that you know lifting prices versus what China, I think from the economic standpoint, trying to avoid, is the any inflationary spiral, no matter is in which particular sector.
But this is something that, from the risk management point of view, China policymakers would definitely have to prevent.
So the topics today, I think, is very relevant with those challenges around the world.
While the West is trying to cool any overheating, China is starting to kick off a more new high-tech, advanced economy.
So I think that can leverage with any price adjustment and inflation.
Right.
Today we're focusing on the actually macroeconomic policy of the Chinese authorities in the coming year, which is trying to lift the prices up.
So it's quite different from the rest of the world.
So, from a Chinese perspective, or the mainland's perspective, compared with other parts of the world, especially Europe and the United States, why do you think China's policy priorities diverge so sharply, even as they face the same global uncertainties?
What are the key differences?
You know, like inflation dynamics or demand conditions and monetary environments in China.
Well, simply put it, for the formation of the market, there are three key stakeholders the workers, investors and consumers.
So it seems that our workers are working too hard and too diligently.
That can really drive the price down for competition.
And then the investors are getting worried, be it a government investor or corporate investor.
They need more money to expand their business, and consumers are getting more and more cautious.
So they are unwilling to open large of their pocket to purchase more, and for good reasons.
I mean on individual level.
So now the government policymakers sees that if the conception remains lackluster, then that can really squeeze investment and even to push the economy into a static cycle.
So that is why when they compare the figure, the globally inflation rate is roughly 4.2%.
China's inflation is almost zero.
If you compare the nominal GDP versus the real GDP, they are equal.
And so policymakers think it's not really a good sign.
So therefore, they are pushing over that for the sake of expanding the investment.
But I do not think policymakers will take it as really as end goal but as a mean to send more dynamics into the economy by spurring investment either into the stocks change or directly to push forward for production expansion.
So this is the deliberation.
But, as how much they are talking about, moderately or reasonably, raise the price, but how much can be set as a benchmark?
Is that going to be three percent that was really considered over the last five year plan or two percent?
So that's something that is not really decided for me as a part of the government think tank.
And we are still debating on that and how much we can really leave it to the market and how much the government can really do artificially to push the price a little forward.
So that's something important.
But more fundamentally, is that, behind the symptom of the lower prices, what can be done more fundamentally to deal with the tax reform, to deal with the differentiated competition rather than head-on competition, repetitive competition between businesses?
So these are really the core issues that we need to deal with.
And, I think, more practically, is that how we can really build a unified and streamlined market rule so that the cost of doing business for companies can be substantially reduced is something that's more significant, rather than simply push consumers to buy more or to pay more.
All right.
We'll dive deeper into what can be done, what should be done later on in the show.
But, if I remember correctly, consumer price inflation actually accelerated to a nearly three-year high in December.
Right Bao Cheng.
Even though four-year inflation fell to a 16-year low.
So you're saying the speed of prices picking up is not sufficient.
How urgent do you think this policy task is?
It's not really very much urgent.
It's more of a structural tactics that a government has to deal with.
It seems that investors, both government and companies, are really envious of the savings rate for the households.
So now, over the past five years, China's savings rate stubbornly stay at roughly 43%.
So that's something far higher than the OECD countries, which is average of a little more than 10%.
So they see the money, but the money is sleeping over there and how can really stimulate this money to really to go to the economy so that businesses can be further expanded?
So that's something investors are looking for, but in the meanwhile, it also gave them a very tough task that you got to be able to convince consumers that instead of, you know, simply to buy more of your products, what are those benefits that the consumers are seeking?
And, structurally speaking, consumers need more high-end services, medical care, better schooling and particularly for senior care, but that's not really being satisfied.
But on the other hand, if you look at clothes, electronics, et cetera, they're flooding the market.
And now even EV vehicles are really seeing a rapid decline on the consumption side because there is a saturation point and there are over 100 EV companies are competing with each other.
So there is no way that they are going to be able to raise their price, because it's more of a homogeneous competition.
So now it is really up to the government policymakers to focus on multiple functions, instead of simply saying hey consumers, you've got to spend more.
You've got to buy 10 sets of TVs at home.
So that's not really the approach.
They need really to educate and also adjust to micro policies, because right now there's not really much to deal with on the interest rates.
So it is already low enough.
It's really there.
You know how to look at structurally on the demand side and then to push up for branding, for differentiated computation and, more importantly, to provide high-end services that are acutely needed by the consumption side.
The Chat Lounge.
The chat lounge unpacks views and opinions on hot issues in a more casual way.
Baocheng already mentioned a lot of measures that the government should focus on.
So, Doug, from your perspective, in economic terms, do you agree with what Baocheng just said?
You know, not so urgent for the government to raise or to focus on price rises right now.
And what are the immediate consequences of persistently low prices.
You can think about Baocheng, I think just mentioned that it can squeeze out investment.
So I love this dialogue and I love this conversation.
I'm going to disagree with Baocheng a tiny bit and just saying that I don't believe that this is as big of a problem as a lot of people think it is.
Let's just do a comparison.
And Baocheng gave us some of the statistics.
I'll just recite a little bit of that.
Know, the savings rate in places like china singapore, a couple of other places is, you know, 40.
I would you know.
I think the statistics now are dipping a little bit, but it's still in the high 30s, right?
What's the savings rate in the united states?
Maybe 36 percent and, by the way, that's an aggregate savings rate amongst the entire economy and you know that the wealthiest people are saving a lot.
The poorest people are saving zero.
You know this is in like I'm not sure if that's a healthy economy.
Like, I think that that's very unhealthy economy.
I think that that's partly why we have the kind of political turmoil that we have in the United States right now is because people don't have money and there's not a cultural attitude towards saving money.
Right.
And so, like, yes, it's probably true.
And you know my team has written a lot about the consumption economy in China and the concerns about.
You know this goes back to Adam Smith's classic example from 2004.
150 years ago, where the basic idea was you invest a lot in a manufacturing economy.
People make money, then they consume.
And then, so you have this, what Adam Smith called the virtuous cycle of manufacturing and consumption.
That's fine.
And yes, it's true that China saves a lot more and spends a lot less than we might fantasize about for Adam Smith's virtuous cycle.
I'm not so sure it's a bad thing.
I actually think it's probably healthy that people in China save money.
And by the way, you know, I spend a lot of time in China and I'm in Shanghai right now.
And a lot of the people that I just do interviews with, and people are saving money for investing in real estate.
And you know there have been, know this is where people put a lot of their wealth infrastructure and you know there's been a real estate bubble and we worry about these things.
But i'm just less worried about the fundamentals of the china's economy.
I actually am more worried about the fundamentals of the us economy and i think people like justin lin and the new structural economics.
They think a lot about these kinds of issues, about consumption and about and yes, we would like chinese people probably to spend more so we could get in the virtuous cycle of adam smith's notion of how this all works.
But I think the Chinese economy is fine.
I believe it's more stable than places like the U.S. economy right now.
But not necessarily Adam Smith's cycle, but it's just the policymakers or decision makers.
They want that the Chinese economy can grow at a certain rate.
So you're saying it's not so important right now.
Well, i i'm not disagreeing with this issue and i think adam smith's Berkeley cycle, or whoever we put this on, like you know, everybody that i talk to is concerned with spending and consumer.
The consumer economy is a is an important issue.
I just am less concerned with it than others are because i think that the economy is pretty stable and yes, people should spend more money, but i actually don't think it's a culturally bad thing that people think about saving money much more than they do in other places like the United States.
Right.
Sean, your take there?
Well, my take is that, from Hong Kong perspective, obviously Hong Kong is a free, laissez-faire economy.
And you know, taking the previous references of the Goldman philosophies, you know if you try to lay out more policies and distortions and free flows, that certainly would have some side effects.
But I as an academia in Hong Kong, looking at the Hong Kong economy.
Hong Kong has lots of investment exposures in mainland.
And without any pricing power and any reluctance of normal growth in mainland it could translate into earnings downgrade to the Hong Kong investment companies.
And that also related to, of course, investor dividend expectations and the Hong Kong equity market.
I think all these, at the micro levels, they are relevant, is because you know I think we have heard of camps from Professor Leald and Professor Godfrey that you know there are sick equality and sectors like, for example, property sectors in mainland which publics have invested a lot in real estate and pricing is a bit stagnant still and that translates into revenue growth from corporate perspective.
So there are margin pressures and costs don't necessarily fall as the output prices.
But what's investor expectations what you're asking about and flows into this part of the region, into China, that will be discounted because of that.
So I think with proper policies that can upkeep with the pricing power and general inflation in mainland,
It has to be one of the main focus for policymakers in the upcoming 12 to 18 months' time.
So you're saying the central government's concern is valid when it comes to consumption?
I do believe that.
I support a few of that, yes.
Right.
Back to Doug.
If you are saying that it's not a big issue, why do you think China's central government is so concerned or so worried about it?
Isn't it because of the outside?
Just to be clear.
I don't want to disagree with my colleagues here and say that this concern is not valid.
It's a valid concern.
And it is true that China has a very high savings rate and people don't spend enough money and the consumer economy has not taken off in a way that you know.
So there are concerns right, and there are important economists who think about these issues.
So i'm not disagreeing with that issue.
I just think people overstate the concerns.
I'm not as worried about it because reason one china has the most powerful and sophisticated manufacturing supply chain in the world and it has worked for the last 45 years to develop that and it's going to continue to grow.
The world is not catching up.
Tariffs shmariffs, like President Trump invoking a trade war, is not going to bring manufacturing jobs back to America.
It's not going to happen.
China is going to win this game.
The second piece of this, though, is, OK, but how do we continue?
And I know you dismissed a little bit my reference of Adam Smith, but I do think the virtuous cycle is important.
It is important that as people are making money in China, they need to spend money.
Right.
And so like there is a cultural predisposition here that is, again, it's not only China.
There are a number of other countries.
They tend to be smaller countries.
Right.
And so there I mentioned Singapore in the previous conversation.
But there's a lot of northern European countries that are pretty small economies where the savings rates are in the 15 to 20 percent as well.
And so, you know, that's real.
Like there are just different cultures and how to do this.
And so I think that the Chinese government pushing people in China to make the money that they're spending is OK.
I'm just not that worried about it.
I'm not as worried about this as an economic crisis, as some economists, particularly in the United States, are making the case that, like the consumer economy crisis is a disaster.
It's not going to be fine.
Right.
So that's why I think policymakers are saying or emphasizing that should be a reasonable rebound in prices rather than aggressive inflation stimulus.
So, Baoqing, then, how would you define reasonable in this context?
So like you said, whether it's like 3% or 2%, be your choice.
Well, I'm challenging for the last week of those policymakers during the debate that you know how much is something that you feel more comfortable.
Yes, there is a real concern.
They really wanted to generate a virtuous cycle of the economy.
You know consumption driven type of production on the supply side.
So it seems that investors, both government and companies, are too eager for the money in the pocket of the consumers.
And they really wanted for quick gratification.
But there are a number of challenges we're facing.
One is that if you really inflate, then actually you spur the export drive.
But China has already set a record in the trade surplus with the rest of the world.
So then the world won't really react more positively over such a sort of issue.
And the other is that okay, this is really equilibrium, although government is not very happy with such a sort of equilibrium created by the market mechanism China has been pursuing.
So yes, if When our economy grows at 5, which is also expected to continue for the next five years, so that we can really deliver on our second centennial goal, that's something too.
But much more is really needed in reducing the cost.
It's like, okay, producers and consumers are standing on the two sides of the bridge.
But the cost is there to add burden on both sides in the meeting of those producers and consumers, which is the part of exchange.
So one is really there, how we can really reduce regulatory cost on the supply side.
The other is that whether the policymakers can be generous enough to reduce the tax burdens.
If we compare with OECD countries, if you add all the fees and VAT over the companies, they are roughly six to eight percent higher than their peers.
So therefore, if we really want to spur expansion on the production side and so that they also be able to have more money for research and development for new products and new branding, there has to be a sort of tax reform over that type of issue.
And then you know, to stimulate consumers to open further of their pocket, you have to alleviate their worries.
One is their job security and also the possible prospect. of earning more over their jobs.
And now the spending pattern over the growth of per capita income is almost at par.
5.1% the income increase by job earnings, but the spending is 4.7%, which is almost close now.
So therefore, job is the most important issue that we need to create the type of enabling environment for a more higher
So that's something that's fundamental.
The other is that how government can really provide more of the public goods so that people will get alleviated from their worries, for example, in terms of Medicare, in terms of senior care and in terms of schooling, the reduction of fees in training programs, and support more RD of companies.
So this is something that can really alleviate the concern on both of the producers and the consumers.
These are really the fundamental issues we have touched upon.
So I think price is merely a symptom, but the real disease lies in those fundamentals and in how to really send more robust momentum into the economy for the three parts production, consumption and exchange.
But those measures you mentioned, like tax reform or boost job security, I think the central government is working very hard in those aspects.
They've introduced a lot of policies, but it seems they're not working as expected, right?
So where's the weakest link?
Wicked is really the predictability of business environment.
Some of those sectors are overdosed with regulation, for example, in the real estate sector.
It seems that we have a roller coaster cycle in addressing the real estate.
So if we think the policymakers as doctors, so they first have to make a correct diagnosis of all the economies so that they found where are really the true cause of that.
And the other is that the fragmented market.
So if you really shape the goals across China, so there are not only the toll fees, but also different regulations, different standards.
For example, if you send fruits like carrots, the red carrots can be considered to be vegetables.
I hear the complaint from the business community and the white carrots are not really considered to be vegetables or considered to be fruits.
So they are charged up by different localities of different fees and different tax rate, and also whether they are able to pass the grain channel on the highway with toll fee.
So these are really issues that we need to streamline.
So the government is really looking at it.
And this year, as a matter of fact, we are doing two things.
One is really to really build a unified Chinese marketplace to get rid of those roadblocks in logistics and in the distribution network, setting up the same type of standard and even go for judicial intervention into the local warlordism we mentioned.
The other is that there will be investment in the security-related projects and also some mega projects like how to deal with a big canal connecting with almost the entire China, from Beijing to Hangzhou.
And then the government continued to do the trading program, both on the conception side and also on the production side.
For example, if companies are there to renovate their operation lines and to build more of the duck houses, you know, having production government does really give them a lot more subsidies.
And now you know, households can really receive coupons or reductions of the price if you replace your car, replace your air conditioner, et cetera.
Government is really doing a lot alongside.
So today we pick on the theme of boosting a reasonable level of CPI.
So that's only part of the basket over the government prescription as a doctor.
This has been The Chat Lounge.
Then what's the potential consequences domestically and globally?
Should the rest of the world be worried that looser monetary conditions and rising prices in China could spill over into global inflation?
That's coming up next.
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Welcome back to the chat lounge.
We continue our chat on China's aim for a reasonable price recovery.
Sean, I'll come to you for some monetary tools later on.
But to Doug, I think that the fragmented market issue mentioned by Baocheng is a very interesting one.
I believe you also face the same problem in the States.
It's not like between or among provinces, it's between states.
So from your perspective, do you have any solutions for that issue?
Yeah.
So it's a great question and I love this conversation.
But just to be clear on this from my position, it's not an issue of the fragmented marketing or the fragmented market.
It's an issue of the movement of labor.
Okay, so where China is in such a powerful position, is that it has a mobile labor force.
So, in addition to the people that are employed all over China, there's something called the migrant labor force.
That is about 360 million people, which is the size of the entire US population that moves around the country and is able to service the manufacturing economy in spikes of production, but not be full-time employees of the firms that need them for the one or two months that are spikes of production.
Now, the chinese government did attempt to deal with this in 2015 and the laws were changed under the floating population law, but basically local officials are able to deal with this however they want right, and so if you have foxconn and jung joe, or if you have tsmc wherever they are or you have lens, you know they are all players that are able to service their production employees at spikes of production in ways that China allows for the most productive labor force.
That is a movement of labor.
And by the way, you know, we know about Foxconn going to Chennai.
This will never happen in India, right?
This is just not going to happen in India and will never happen in the United States.
And so China has actually, I think, really kind of done this interesting dance of dealing with migrant labor and dealing with different places of labor across
But those places, those individuals, who are the 360 million people of the migrant labor force, they're careful with their money.
They save.
They are not consumers because they know that they have to be thoughtful about how they do this.
So when you ask the question about. the difference between China and the United States.
Like, yes, they are all sort of provincial versus state level labor forces.
But the United States is it's a global union labor force.
We are never going to be in a situation that's competitive with China in terms of how it's developed.
Now, whether or not China is going to change this, I don't know.
And so that's really an interesting question.
But it is.
I think it's a key question of like how productive China's manufacturing supply chain is, the sophistication of the manufacturing supply chain, the use of temporary labor versus temporary vocational technical labor versus engineering labor.
It's a much more sophisticated manufacturing supply chain, in terms of the labor force and in terms of what they produce, than the United States by far at this point.
And so the United States.
Just it being a fragmented thing versus provinces, versus states, the United States can't compete.
We can't compete with China.
So for China, it's still a sort of a regulatory cost, like what Baoqing earlier mentioned.
100%.
I mean, the government is still very closely involved with all of this.
But, you know, my favorite China scholar on this topic is an individual named Andy Walter.
And he, in 1995, wrote an article called Local Governments as Industrial Firms.
So this isn't just Beijing's heavy hand coming down on different places.
This is all of the entrepreneurial work of all of the local governments at the provincial and city levels that have been developing this for the last 40 years.
So it's a very powerful system.
Okay.
So to Sean, in promoting price recovery, how much room does monetary policy really have?
I think Baochuan already mentioned that there is almost no room for interest cuts.
What's your opinion there?
Do we have to Do what Japan did like lower it to like zero or even negative interest rate?
Yes, I think Professor Liu and Professor Guthrie has already identified very correctly that now because of the strong productivity and the efficiency in China, uh these price pressures um has taken into account of the demand side which household has to save more because of the savings on their some of their investments in the property sector and because of these competitiveness pushing down prices what we have seen for the past five ten years the government is trying to deliver and trying to take off the off balance sheets financing but at the same time lower the interest rates and try to save more for these not just the state-owned enterprises but private enterprises and encouraging them for investment i think monetary side is just one side of things i think the governments have lots of ammunitions in particular from the fiscal policy side of quick drive the economies to go further and what the governments have done for the past few decades on infrastructures but those require longer payoff period and that might not be ideal for this cycle lower taxes you know could be another policies that policymaker could done more while for example the us is trying to mimic the lower tax economies like the singapore or other southeast asian economies with a competitive tax rate, China could make reference of that and how to make, for example, corporate tax system, the income tax system more in line to be more competitive.
Another thing that China could think of if borrowing from other major economies, is that on rebates, for example, China on these technologies and seeking for, for example, foreign investment tax rebate could be another thing that attract more fund flows and investments into China and that will help.
So not just from the monetary point of view.
I share your ideal, thinking that lowering interest rates could help.
But sometimes, if we are focusing on inflation, focusing on price adjustment, then probably the fiscal side could have done better.
So you're saying the government's decision to increase its deficit is the right decision?
Well, China has lots of buffers.
You know, by looking at the current account, by looking at the capital account,
China.
If well planned ahead, I think China could make some space in their fiscal policies and just some deficit policies or infrastructures could help.
All right, then.
It seems like you all are, I can say cautiously, optimistic, right?
So let's look into where such rebound can materialize.
We're most likely to materialize.
And where will it be hardest to achieve?
We know that the government has made sustained efforts to stabilize the property market, yet results remain limited.
So does this suggest in some sectors, markets are actually do not always respond predictably to policy support, as expected?
And which sectors do you think can respond as the government wishes?
Maybe we start with Sean.
Right.
How are we going to do it?
If, from the Kaizen perspective, if China wants to have inflation and close to the levels that are simultaneously stabilizing the output gap, keep real interest rates supportive, and i think at the moment maybe that could supply adjustments on the interest rates there's still some room on that and from the financial stability angle, i think nominal growth uh, high enough it could ease the, the real debt burden So strong, and nominal wage and income growth could support consumptions, as our colleagues are referring to.
So improved corporate earnings can be another way.
You know how corporates can really adjust some pricing power in their industrial sectors and to improve margins and that can translate into savings into consumption as well.
So stabilizing any situations financially.
From the corporate point of view, I think Now should be paying lots of attention because I believe in that.
You know corporate spending CapEx, higher improvements in their earnings and that can translate into consumption, the demand side, and that could support the price to be just into a more reasonable level.
Baoqing, which sectors do you think are most likely to materialize?
I think one.
Actually, the government has already identified the high-end service would be a breakthrough in boosting consumption.
For example, in the technical training for people, because right now it's not really the mobility that really matters most, but it's really the quality of workers.
Because when we are really heading into new productive forces, And the most dynamic factor would be people
So how people can be better trained to upgrade their skill sets, to deal with the creative work and to deal with even managing the robots, managing the duck houses without people working on assembly lines, and the entertainment industry, et cetera.
They all need more creativity than simply raw labor with their sweats.
But for that we need a more assuring policy because, for example, we used to have a very strong market for the extracurricular training program for school kids and then it seems that the policymakers, particularly during the covet period, they stamped out such a sort of industry.
So we need better regulations so as to revive those high-end services.
And the other is that we need to push more for research and development in the meanwhile to be synchronized with the branding process.
I compared, As a marketing professor, the earning power of Chinese brand versus OECD brands.
Our earning capacity is 10 to 12 lower than the OECD countries in terms of the firms as a price making power.
So therefore, simply rely on conventional goals dealing with utility instead of creativity.
Of course there's going to be jammed competition.
So differentiated competition lies in that how companies can really shape their perceptual value with their brands, of course supported by quality.
So this is something that we need to go along with a high quality development campaign proposed by the government.
And then more fundamentally, as a professor.
We also need more educational reform because right now, given all the AI in place, if we continue to cram students with basic terminologies to create the more of a homogeneous type of skill sets among those students.
Because China, you know, every year we generate more than 10 million graduates and they are not really fitted for the new requirements in those career tracks.
So these are really the fundamental issues.
And also more sectorally, you see that people are really lined up.
You need to wait for three hours, even if you book a doctor in the hospital.
So you still have to wait.
So there is also acute demand.
The consumers are willing to spend the money, but the supply side is insufficient.
So therefore, structural reform to address those sectors, areas that are not really there to be sufficient.
So the money can be directed over there.
So this year we are going to continue to issue long-term bonds to stimulate the production expansion.
The other issue is to address the investment environment.
So if we compare the growth rate of different provinces within China, so why Guangdong, Zhejiang and Jiangsu stand out to be the top biggest contributors?
Because they have more private companies than state-owned ones.
So therefore, to alleviate the private sector, to provide better job opportunity, to provide better and healthier competition.
So this is something that we need to do.
Instead of, you know, government tell, okay, let's set the price floor.
So this is going to further distort the market and create more of the problem than really alleviate such sort of issue.
You're saying raising prices like in those high end manufacturing or services sectors.
But people are asking what about other people?
You know traditional sectors like low end manufacturing or
They're experiencing like a.
I think the government I know what you mean, but a lot more credit by helping those conventional industries to boost their productivity and by subsidizing them with more of the new equipments, streamlining the operational process, et cetera, so that they can really earn time for those workers to retool their skill sets.
So this is something that's highly credible.
We have already seen the positive contribution out of this type of program.
The Chat Lounge.
The Chat Lounge unpacks views and opinions on hot issues in a more casual way.
Doug, do you have any concern that this price increase could create some dilemma, right?
Like dampening household consumption or creating some unintended and negative effects for the economy.
What's the likelihood of that?
Yeah, so let me answer your question but also just address a couple of the things that were just raised by my co-speakers here.
So the first thing is, to answer your question, I'm not that worried.
I actually think that the Chinese economy is in a very solid place.
Everybody knows who reads and hears my work and talking that I'm very bullish on the Chinese economy.
I think it's a very powerful process.
Yes, there are hiccups.
Things happen.
You know, we have a real estate bubble.
You know what?
In the United States, we had a major real estate bubble in 2001 and in 2008.
I'm sorry.
Like that's what happens when you have a lot of growth in the economy and investment in bubbles and these things happen.
I don't think China's real estate bubble is nearly the crisis that people think it is.
There is also a consumption issue, right?
And so we need to really think deeply about how leading economic thinkers are going to think about inflation and rising prices.
But again, I think China's savings rates are very high, but I'm not that worried about it.
I think that there is continuing to be a powerful cycle.
The interesting thing underlying all of this and I want to come back to some things that previous speakers said This is the most powerful manufacturing supply chain in the world, by far.
There is no comparison right now in the world.
And even thinking about issues like AI and vocational technical education.
China is doing better in vocational technical education than any country in the world and way way, way better than the United States.
So you know, Shanghai Jiao Tong University, a couple of about two decades ago, founded Nanyang Technical University, and It's all about vocational technical training.
And the people that are doing that.
I've visited the classrooms of that little voc tech school and they're all teaching AI.
And so if you look at companies like Lens or many of the manufacturers that are producing things like touchscreen glass and the most sophisticated issues in the world, they are so far ahead of the United States.
We always think in the United States that we're the best in AI, because we're so great at very very, very versatile AI, but we're not even close in what China is doing in vocational technical education.
And so I just think China's going to be fine.
I'm very bullish on this.
And so I think that there's a lot of tweaking to do with the issues of pricing and such, but the Chinese economy is safe.
All right.
Thank you for your strong faith in the Chinese economy, but we have our problems to settle, very imminent ones.
So Sean, do you have any concern that a rising prices could end up with some unintended negative effects for the economy?
Well, yes and no, but I'm more of a favor to the no because, as I pointed out, consumption is important.
But before that, I think the Chinese policies could be more focused on the corporate sector.
I think targeted fiscal support for the public, investments in the productive infrastructures and new economy sectors they are important and structural reform to boost household disposable income, such as the social safety net, such as Professor Guthrie mentioned about the hukou reform that can reduce any precautionary savings.
So policies to stabilize sectors such as the real estate, which has the impact on corporate earnings.
So if we can do something about the fiscal side and to support the corporates, especially for banks, developers and consumer companies, given that Hong Kong has invested a lot into those areas and that could have a coordinated policy angle and reduce the risk premium on China assets and to support on the equity valuations.
So when the equity valuations is attractive enough what we have saw over the past six months here in Hong Kong you attract fund folks, you attract capital into Hong Kong.
So I think, all in all, I'm more supportive for the views that you know.
Policies to adjust prices.
You know, at the end of the day, there are more pros than cons.
All right.
Then last question, let's zoom out to a global perspective.
There is also concerned that looser monetary conditions and rising prices in China could spill over into global inflation.
So how worried should the rest of the world be and how valid is such concern?
Shall we begin with Bao Cheng this time?
Yes.
By basic economics.
The price inflation at home can really have a flooding effect over the global marketplace by boosting export.
Already we are facing a very tough situation.
The Europeans are really having a higher scrutiny over the dumping issues.
But what we can do is that China has already joined the reallocation production cycle.
For example.
Actually, the reason that we remain very strong in our export drive lies in several factors.
One is that, as Professor Doug has mentioned, that we have such a strong and competitive production capacity.
So therefore, more of those global sales are really receiving not only the exports of finished goods but they also face the export of, or reallocation of the entire assembly lines over there to boost their industrialization process.
So there is still a big market for it, together with very practical technology transfer.
And the other is that if we really shape more of our branding because right now, if you notice over the interbrand ranking, only Huawei is within the top of the 100 top global brands, but no other companies can really enter into that ranking
Although, you know, we have well over 100 Fortune 500 biggest companies.
So most of the Chinese companies are big enough, and they also they're massive.
But in terms of the brand equity they are not there yet to compete with the top notch global players.
So this is something that we can really move forward.
The other is that China has filed enormous amount of the patents globally.
But how to really translate those patents into real competitiveness?
By providing more of the savvy gadgets to have more of the price making capacity.
So this is something we can do to alleviate the concern over China flooding global market with dumping.
Right.
I think Baoqing is a perfectionist, right?
Okay, to Sean, please.
Right.
I think more of this price rebound in China is not going to be a global inflationary shock.
I think if anything, it normalizes China's role in the global pricing system.
And the rest of the world.
I think should be more concerned about whether we demand and about China causing any new inflationary wave.
So I think for global investors you know any sections on reflate pricing or to adjust that that will support, especially in the emerging market on the asset risk premium and also would stabilize any volatility in the foreign exchange market.
And Hong Kong has a role in the financial hub, and that would be supportive of that.
Thank you.
Thank you.
And it's the perfectionist tendency that pushes China's progress.
And last but not least, Doug, should the rest of the world be concerned?
Well, so two quick, quick things and just echoing my collaborators and speakers comments.
The first on issues that Professor Baocheng just raised.
It's really important to also remember that this isn't just about the manufacturing supply chain in China, but this is about Chinese companies going global.
Right.
And so there are a number of Fortune 500 companies in China.
Huawei is the best known of them.
Huawei has been the biggest target from the United States.
But You know, this is a really interesting model because this isn't just about the Huawei's of the world.
This is about the Chinese term Chu Hai, which is to go global.
Right.
So, as Chinese companies are thinking about the Belt and Road Initiative and the BRICS economy, this is a reformulation of the world global political economy.
Right.
And this isn't just a couple of small companies going to build roads in Africa.
This is about major Chinese state owned organizations.
Building the global political economy in BRICS was originally just, you know Brazil Russia India China, South Africa, and now there's nine other countries that are a part of it.
Like this is a big, big, big, big play, right?
And so the BRICS plus the Belt and Road Initiative.
This is not just about China being local in China anymore.
This is about China building the world and it's big.
The second thing that I would just mention here that's really important is just thinking about the sort of branding of this notion of Chinese companies going global, and how we think deeply about the branding of the manufacturing supply chain, because I think that there's a lot of companies that I talk to in China right now who are thinking very carefully about how to brand themselves as leaders in sustainability and leaders in economic development and corrosion materials and leaders in.
You know, there's just a lot of really interesting play that's happening here right now.
And so I think that you know again, this is all about development of the world and manufacturing development more generally.
But I actually think that there's a really interesting play for China to really kind of think about how the brand itself is a leader of thinking in these different spaces about economic development and things like sustainability.
And so it's a fascinating time.
Right.
You haven't answered that question.
Let me add one sentence.
Right now, the price inertia is only a hiccup.
So by the Chinese advice, popular advice, take some water, you will get well.
Thank you for that.
And I hear what you're saying that maybe I didn't answer the question, but maybe the second part of my answer to the question is we are in a critical time right now.
That's not just about Chinese companies going global, but it's also about the Chinese political situation in the world.
Right.
And so the fact that Prime Minister Carney visited China and talked about tariffs and talked about collaboration.
These are the things that are going to affect prices.
Right.
Like these are the things that are going to affect the real process of the global political economy.
And so I think that China's playing the game and I think they're doing it well.
And so I think that China, through playing the price of going global, but also President Xi meeting with Prime Minister Carney, this stuff is, it's real.
Like it's happening and it's going to have an impact on prices.
So sorry, did I do a better job at answering your question now?
Yeah, that makes perfect sense.
And with that, we come to the end of our chat for this session.
Many thanks to Professor Doug Guthrie, the Director of China Initiatives at the Thunderbird School of Global Management in Arizona.
Dr. Sean Chan, Associate Professor of Practice in Finance, University of Hong Kong.
And Professor Liu Baochuan, the Director of the Center for International Business Ethics.
University of International Business and Economics in Beijing for your time and insights.
We'd love to know what you think.
Drop us a line anytime at radio at cgtn.com.
I'm Tuyen.
Join us for more chat at the chat lounge next week.
Bye for now.
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