Hello and welcome to the panel discussion of World Today.
I am Ding Hen in Beijing.
Despite a moderation in the trade war between China and the United States, great uncertainties remain.
Amid the fallout from the trade conflict, Chinese authorities are implementing a raft of stimulus measures including interest rate cuts and liquidity injections to support the economy.
Beijing says the Chinese economy is fully capable of coping with all kinds of challenges, suggesting the country will offer more development opportunities to the rest of the world.
So, how resilient is China in the face of a trade war?
Can China turn the challenges caused by the trade war into an economic opportunity?
These questions and much more in this edition of the program.
To listen to this episode again or to catch up on our previous episodes, you can download our podcast by searching WorldToday.
Joining us now are Warwick Powell, Senior Fellow with Taihe Institute, an adjunct professor of Queensland University of Technology, Professor Zhang Gong from University of International business and economics, and Li Lun, Assistant Professor of Economics, was Peking University.
So, thank you very much for joining us today, gentlemen.
Dr. Li Lun to start with you, first of all, how would you explain China's bumper exports numbers, as well as its industrial output in the months of April, despite a sharp drop in terms of China's shipments to the United States due to Washington's tariffs?
Yeah, so we're seeing pretty robust numbers for China's economy.
In April, we're seeing a continued momentum for recovery, and especially in manufacturing in high -tech sectors.
We're seeing, for example, the total value -added industrial output grew 6 .1 % year to year.
We're seeing major growth in manufacturing, in high -tech manufacturing, For example, like EV and robotics, we're seeing growth in equipment manufacturing, in mining, for example, and also we're seeing a pretty decent growth in China's export.
So if we look at, for example, export to different destinations, we will see that, you know, Export to US has decreased.
But exports to ASEAN countries surged by around 21%.
So ASEAN's share in China's total export today is rising to nearly 20%, which is nearly double of the US market.
So we're seeing this, basically, to sum up, we're seeing this pretty strong fundamental growth in China's manufacturing sector.
We're seeing pretty robust growth, especially in a structural way, changing from US to ASEAN countries to EU.
And we're seeing that China's economy, especially in the export margin, is staying pretty robust and relatively high growing.
Professor Zhang Gong, turning to you.
The current economic situation of China China is arguably in many ways different from the situation back when China entered the 2018 trade war with the first Trump administration.
Some people argue that, perhaps counter -intuitively, the economic challenges that China has faced with in recent years may have made the country more resilient to external shocks or internal shocks.
In other words, policymakers and businesses in China had been pushed to come to factor in the existing economic realities even before Trump imposed the tariffs for his second term in office.
How do you think about this argument?
Do you think it has a point?
I totally agree. This is one of the important factors I think, in a way, the Chinese government learned that in the first trade war, both the government as well as the corporate world have been preparing for this for some time, we all understand that Trump has a highly likelihood of winning the presidential election, which he did and been preparing for, what's about to come and it did come actually, right?
So I think in the corporate world, many companies have been preparing for this for some time via different means and venues.
So, I think, you know, you look at the April exports number.
I was really shocked actually to see that on the contrary as a lot of people would expect, you know, to see a drop in exports, the exports have actually increased.
It's actually increased quite significantly.
Even with a, if I remember this who have a 20 % job in exports to the United States, right?
So, you know, that speaks volume about how resilient the export sector is and how welcoming of the Chinese products by foreign consumers.
So I think, you know, we're certainly Chinese in a much, much better position compared to the first trade war.
Nevertheless, what have been reached so far in Geneva is still essentially a temporary truth.
And it buys some time, but it's only a time of three months.
And I think the two parties are engaged in tense negotiation.
And hopefully by the end of the three -month period, that there should be a more of a permanent solution to this under which I won't say the entire, but I would say the bulk of the trade between China and United States can still happen.
I think over the long run, there is no doubt on Washington part that they're determined to decouple to some extent what they call strategic decoupling.
There are products that definitely they want to decouple from.
So I think the overall long -term trend of the China -US trade is definitely towards going down, but at least in the short run, the trade should be stabilized.
So, Wowick, going to you, some people say sustaining China's economic growth against the backdrop of the trade war with the US, actually doesn't require injecting a broad flood of capitals into the markets.
Instead, it requires decisions that are aimed at addressing the pinch point like employment or domestic demand in China.
What is your take on this?
Sure, that's a great question.
The situation, I guess really needs to just be set in a slightly longer context in terms of the ongoing restructuring of the Chinese economy and how it works.
As John and others have mentioned, there has been a substantial growth in export markets away from the United States, not only in April, but in fact, this has been the pattern now for almost 15 years.
It has been a slow transition in the contours of global economic trade and China's own trade relationships that have seen the United States market become relatively less important than it used to be.
So that's probably the first point to remember.
The second point to remember is that domestic demand growth in the Chinese economy has been consistently strong.
We're talking about investment demand and consumption demand growing annually at a compound rate of at least 5 % for the best part of the last 10 plus years, so there has already been a significant amount of real growth in demand from the Chinese economy itself.
This really feeds into the reality that the Chinese economy is far less export dependent than many of the mainstream stories would suggest. Net exports contributes around 2 % of Chinese gross domestic flow.
It has been the case for a number of years now, and what that tells us is that in net terms trade is actually a relatively small part of China's overall economic robustness.
So, the loss of the U .S. market literally can be compensated for over the period of time through a combination of things.
Some of that is just organic growth in the domestic economy.
Some of that will be in existing trading relationships, and of course, if there is a need for it, there is still plenty of capacity or fiscal policy response in particular, both domestically and coordinated with other countries to inject a modest amount of necessary liquidity.
That's where I think most of this is going to happen.
There's no need to respond with any sense of alarm or panic.
There's been a long period of preparations as John has mentioned.
The de -leveraging of property over the course of the last five years has actually put the economic structure in China into a much stronger position today than it was in five years ago to deal with the effects of losing the United States market.
Dr. Li, before the China -U .S. economic and trade high -level meeting in Geneva, Switzerland, there had been some estimates by certain international investment banks, for example Goldman Sachs pointing to the number of jobs in China that could be affected because of US tariffs, especially those jobs that are involved in the production of US -bound goods.
Now if we put away those very specific estimates, how do you think China can stabilize its job market amidst trade tension with the United States?
Yeah that's a great question but that's also a very tough question because honestly, I think, right now, from the perspective of the Chinese government, there are relatively few things that can be done to address this problem.
Because you know, the response in labor market is mainly from the perspective of firms and firms are actually choosing, basically it's factors of production.
If firms doesn't think, you know, it needs so much labor at, for example, a high wage, then of course, from the perspective of governments, you can you can provide more liquidity, you can provide more capital or funding to the firms, but if the firms are relatively less willing to hire workers, then it has to be you know depending on the market to adjust this tension.
That's my overall opinion, but I do not think that the you know U .S. tariffs is going to have such a devastating effect on China's export markets, first because U .S. share as a total export destination for China's total export market has been shrinking.
China's trade relationship between ASEAN countries and EU countries, Central Asia countries are all improving.
So, of course, the U .S. is putting immense pressure on our export sector, but they are more than one buyer than the U .S. We can also expand to those locations.
Also, I think one caveat or the other side of the coin is that even though we are facing pressures in job market, it also means lower wages, lower expenses for labor costs.
So it could all become good environment in current time of crisis because it could be a good environment for innovation for startups because it's cheaper to hire labor, it's cheaper to kind of expand the new product line.
And also it's good to domestic consumers because product prices can be lower, there's going to be more competition, there could also be a positive screening process, meaning that when the outside environment is harsh and tough, you know, the most productive firm is going to survive and when you know things become better, you are basically left with only the best uh productive firm it's like the survival of the fittest right so it's uh it can be good for uh you know suppliers and and consumers uh as well so i don't think it's it's it's pretty severe but it's it's not as big as people think it is um
so the there were challenges but the sky won't fall down is that the the best way to put it what is your take professor Yes, yes, absolutely.
Yeah, well, I think there have been numerous calculations about the doomsday scenario, that is to entirely ward off the China exports to the United States market.
You know, the number ranges between 1 .5 to 2 percentage points of the total GDP.
And we're really talking about the worst case scenario, the doomsday scenario.
And even with speaking of that kind of a scale, it is still very much bearable, right?
I mean, you knock off China's GDP growth by and most two percentage points in our big deal, it's gonna be very painful, millions of jobs will be lost, a lot of companies will go belly up, that's for sure.
But it's a short -term shock and the market will react to this over time and I think the shock would be digested.
So, you know, that's the worst case scenario.
So I think the relative positioning power of negotiation very much is defined by this third party, third option, outside option here.
You know, I think in the worst case scenario, China can walk away from this and the cost of walking from away from this is at most two percentage points of GDP.
But I don't think that's going to happen.
I think that scenario is not acceptable to Washington because you're gonna very likely you're gonna see empty shelves in many retail outlets and the American consumers who have a very difficult time, especially those people at the lower strata of a society, you know, the budget will go up and it's gonna impose a political cost on President Trump.
and this is something he's not going to choose, I think.
So the more likely scenario would be somewhere in between, I would say.
I'm of the opinion, a strong opinion that eventually there will be some decoupling, Washington calls it strategic decoupling.
We are moving towards that direction, but at least in the short run, you know, there's still going to be trade maybe preserving maybe 70 % or 80 % of the trading compared to 2024, but still there's this trade going on and the impact on China's economy will be, I think more likely maybe 10 % to 20 % of what I just talked about, right.
Maybe 0 .15%, 0 .2 % of the GDP is gonna be affected the most. So I think that's a very manageable pain that the Chinese government and Chinese societies can bear with.
And I haven't even talked about, you know, there's some mitigating factors here by directing some of the exports to other countries by domestic digestion for example, right?
So you know, I think if you take into account mitigating factor that I just talked about, the impact could be smaller.
So I think it's not much of a big deal, but the, I think eventually both sides will reach a, some kind of a agreement.
Okay. So talking about domestic digestion, Dr. Li Lun, some local governments and major businesses in China, for example, JD .com, E -commerce giant, they have voiced the support to helping those tariff hit Chinese exporters redirect their goods to the domestic market for sale.
In your opinion, what can be done here in order to enable those tariff hits Chinese exporters to relatively smoothly switch to the sales in the domestic market?
Now again, before I answer this question, I think it's a big assumption.
there's a big if that experts really need to switch heavily to domestic sales, because as I mentioned before there are other, you know, expert destinations they can consider, so the export market is now shut down completely.
But besides I think it's important for them to kind of open up more markets to discover more opportunities, more outlets, more platform to to sell their products.
For example, I know a lot of, you know, local small sellers are opening live streams on e -commerce platforms to sell their products.
Of course they have a, for example, either higher quality or, you know, lower prices, which can attract consumers.
So, I think exporters really need all the help they can get to, you know, mitigate the risk that they're facing.
And one of them is to sell to more consumers domestically.
But I mean, there are only so much that domestic consumption can absorb.
So I think from the government side, we're already seeing that government is providing you know, two sets of laws.
One of them is to it's called a private economy promotion law, which ensures equal access to private industries.
So you know, for private firms, this gives them you know, better access to credit to equal access to the market which is great news and also you know for those private firms that are relatively larger it can also participate you know take a bid in the large projects that they were previously finding very hard to enter.
Also from the consumer side you know there is a 30 article consumption stimulation plan that was announced in March which you know gives the consumers a comprehensive plan to boost their consumption and one of them is basically to increase support in their health care, in their elderly support, in education support.
So consumers need to find an environment where they don't have to worry so much about being ill, about being able to take care of their kids or their elderly or not.
And only when they feel safe and secure to spend, And they will reduce their savings and increase their consumption.
So I think plenty of measures have been taken to address this problem.
And I think I'm pretty optimistic about the outlook in this area.
So Walek, going back to you, some people say reshaping an export -driven model of China China takes more than just a redirecting trade.
It actually requires recalibration of internal engines for domestic demand.
I mean if that's the case, how can China recalibrate the engines for domestic demand?
Look, I think there's probably a little bit too much talk about the situation concerning domestic demand.
A lot of it has come from a Western narrative which has framed domestic demand in the context of its proportion and relativity to savings and that comes from a very mainstream view, what it's ignored consistently is the fact that in aggregate real terms domestic demand on both the investment side and the consumption side has consistently grown, so demand in domestic economy has actually always been relatively strong.
So I don't actually think that there is likely to be a need for any significant measures above and beyond the measures that have been approved and made possible at the two sessions.
The reality is that Chinese manufacturing is predominantly oriented to the domestic market anyway.
In terms of Chinese manufacturing, direct exports to the United States market brings in in aggregate about 2 % of gross revenue, 2%.
The outstanding sector across the 20 sectors or so is actually consumer electronics.
So if you took out consumer electronics, the revenue is actually way less than 2 % for just about every other sector.
In other words, Chinese manufacturing firms are not particularly dependent on the American market for their revenues.
They're also not dependent upon other markets either.
They are predominantly domestically oriented and so there will be some spatial effects because different sectors are concentrated in different parts of the country and there will be some reorientation as organic growth happens in other export markets.
What I have seen to assist firms to access other markets for instance in the e -commerce heavy areas in Yiwu for example many vendors are now learning Spanish right they've historically supported English language customers in the export market, but they are now learning Spanish so that they can access the Latin American market and Spain and that sort of thing.
So there are some very practical things that entrepreneurs are doing that will help them better reach these new markets.
What's happening with the Gulf States and ASEAN is another These tie -ups at a governmental level, at an institutional level, at an industry to industry level will also create new channels by which firms can establish long standing and meaningful trade relationships from China into Southeast Asia and of course from China into the Middle East as well.
So across all of these fronts.
My word of caution is that I don't think we need to be overly obsessive about the state of Chinese demand.
I don't think we need to be overly concerned about the state of Chinese consumption demand.
There are two issues here.
One is the rate of growth coming from real wages growth and the second one of course is the proportion between savings and spending.
The issues that Professor Li -Lun mentioned in terms of the precautionary savings, and if people are more comfortable with those sorts of things, they will spend more of their given income.
That's true, but let's not forget that expenditure growth happens in absolute terms by virtue of real wage growth anyway.
Thank you very much. Let's take a very short break here.
coming back, our discussion will continue.
Stay tuned. You are back with World Today, I am Dinghen in Beijing.
Today, we are talking about how China is coping with the economic challenges caused by a trade war with the U .S. Joining our discussion, Warwick Powell, senior fellow with Tai He Institute and adjunct professor of Queensland University of Technology, Professor Zhang Gong from University of International Business and Economics, and Li Lun, Assistant Professor of Economics, was picking University.
Professor Zhang Gong, going back to you, before the break we were talking about a move to help Chinese exporters redirect their goods, their products to the domestic market for sale.
Do you think such a move will likely lead to deflation or to say the least the deflationary pressure in China?
Why or why not? Well, the answer is in the short run it's probably going to happen because this is very much due to competition.
You know, we have going to have more domestic suppliers actually and given the same demand and you have more supplied prices for the job.
That's just driven by competition.
But this is in the short run.
I think you know over the long run the market has a way to work things out, uh you know companies would be looking for a decent profit level um and uh you know the poverty would be some access from the market by some companies um and eventually we will store to the equilibrium.
Um but I think uh you know what's a little bit unique is that historically and even today I would say it's also true that the the average profit level uh by Chinese companies uh are relatively low you know compared to corporate market for example This was quite some time ago.
I did a study to compare the average profitability by corporate China versus corporate America.
And there's a very significant difference here.
So I think probably this depletion in pressure is going to last for some time.
Usually companies need some time to adjust, right?
And the market reacts to pricing as a signal, but that's usually a sort of a lag going on and it takes some time to react to this.
But I think one thing we need to be very careful is that in economics, you usually think about deflationary pressure something very negative, as a matter of fact, that there are even some talks in the economist community in China about fighting against this definition and the pressure by deliberately increasing prices.
And the best and easiest way of doing that is just to increase input prices, right?
If input prices goes up, usually the end product processes are gonna go up as well.
The input market is very much controlled by upstream industries here in China.
I'm not talking about oil and gas, for example, electricity, right, basic transportation, these things.
So I just want to make a point here to caution against that kind of narrative.
I don't think that's a good thing.
I think the way we interpret defrayer pressure has to be reasonable.
So we need to take into consideration that China has a very unique situation here.
So that's the point I want to make.
Okay, so, Dr. Li Lun, on one hand, Chinese authorities are looking to encourage people in this country to spend more.
On the other hand, China is also looking to ease the public worry about the trade war or the trade tension with the United States.
How do you think these two missions or these two goals can go hand in hand and advance each other ?
Yeah. So I think to encourage spending, of course, as Professor Gong said, you know, right now we are facing a slightly deflationary or having more deflationary pressure.
But from a, you know, the economics 101 course, we know that when prices are lower, of course, people tend to demand to increase their demand.
Their real demand, basically their real purchase for goods and services.
So what we need to look for, or what's preventing, you know, higher demand in the face of cheaper prices, there are two things.
First is they have a precaution -saving motive, as I just mentioned, and second is that their income is, their disposable income, or lower.
I think how do we kind of prevent those two scenarios?
So we have to look for ways to kind of, as I said, to make people feel like it's a more secure environment to spend, they don't have anything to worry about their health care, their elderly care, which I already mentioned in my previous answer.
And another thing we need to look for is the so -called deflationary spiral, which means when prices go down, when firms are becoming more competitive, they have lower profit margin.
So they kind of lay off their employees, cut their salaries, which reduce the disposable income for the residents, which further decrease demand.
So, you know, previous example of that some people say, you know, for the last decades, in Japan, or, you know, the Great Depression in the 30s in the US are some examples of that.
So what we can do to kind of prevent that?
I think, first of all, to have more confidence, or to have to inject more confidence in the R &D sector in the innovation sector is very important, because what's fundamentally different is that if we have a productivity growth, if it's fundamentally cheaper to produce something, not because of external pressure, not because of lower demand, but because it's more efficient to produce something from the beginning, then it doesn't have to mean that cheaper prices will bring the company's profit down or to bring the wages down, because companies find it more productive to use the high tech, to use
the automation to produce the same thing at lower cost and still maintain the same profit margin.
So in that case, the deflationary spiral would not happen.
So a very important, I think, way to guarantee that is to double down on our high tech sectors, like EV, like machinery, like humanoid robots, all kinds of stuff.
And in 3 to 5 years, when those technologies become more mature, when it actually enters the scope for Chinese consumers and Chinese firms, they bring the productivity up and even though you're going to see some cheaper prices, it's not going to affect people's aesthetics that much. So of course, that's a hopeful scenario.
Wowick, earlier the scenario we mentioned about the workers in the U city learning Spanish.
That's a very interesting case.
I think pictures and videos depicting that scenario has even become pretty much viral here on China's social media somehow.
Now, we understand President Donald Trump's first term in office already proved to be a cue for Chinese traders to look elsewhere for buyers.
According to the Laoi Institute in Australia, more than 145 countries do more trade with China today than they do with the United States.
So to what extent do you think the current trade conflict is is prompting Chinese companies to further adjust the destination for their exports.
Look, this is just part of a longer -term pattern when the rest of the world grows faster than the traditional advanced economies, then trade with the rest of the world, which is actually one of the drivers of the growth in the developing global south, is invariably going to be greater than trade with a mature European and North American markets and that's exactly what we've seen over the course of the last 15 to 20 years.
This pattern is going to continue, now that's at a macro level.
At a micro level of course it means that enterprises need to do the work, you can't just sit back and think that somehow macro dynamics will sweep you along and lo and behold you will discover new markets.
and so learning new languages, exploiting connections that may be opened up through trade fairs, building networks through subsidiary companies that already have relationships and distribution channels, as well as exploiting digital pathways that can connect directly up with buyers all around the world, will become critical to continuing continuing the pattern of trade expansion that sees China growing its trade with other parts of the world, the non -American and the non -G7 parts of the world.
Today China trades more with the global south than it does with Europe, Japan and North America put together.
Over 54 % of China's trade last year was with Belt and Road countries, first time ever, that the BRI countries trade with China has succeeded that with the more mature, advanced economy markets.
So this is really a long term historical pattern.
This issue, by the way, of deflation, there are two types of deflation.
The mainstream textbook speaks of deflation as if there's only one type.
And the mainstream textbook type of deflation happens when there is a collapse in aggregate demand.
Historically, there's actually very, very few cases where that actually took difference, and this is precisely the case with China.
Aggregate supply is growing very very strongly as is aggregate demand.
You add into the mix high levels of intense competition, which is what we have in China, and it is inevitable that prices will converge towards an marginal cost. Now what does that do?
Well, it ultimately drives enterprises, as Professor Leland mentioned too, to look for ways to reduce costs.
So it will compel enterprises to explore opportunities for productivity and handling.
It will also drive industry rationalization.
It is inevitable that there will be some consolidation in certain sectors, as firms seek to achieve greater economies of scale and then take out some of the smaller firms or less efficient firms. That's also inevitable.
and I think we're going to see all of these things play out over the next five years.
What I don't think we're going to see though is a deflationary spiral caused by a collapse in aggregate demand.
There will be no collapse in aggregate demand, either on the investment side or the consumption side altogether.
So, Dr. Li Luen, If China can maintain an international image as a stable, reliable force in global trade, in a multilateral trading system, what do you think this will ultimately bring to China's economy?
So, I think it's already somewhat taken been taken place already.
So, of course, China will become more relevant in the global stage because, by the end of the day, you know, all countries just want to buy affordable, high quality products.
So, China if, you know, it's a reliable vendor for such needs, worth for such demands, then of course people will tend to do more business with China.
And in terms of cultural and political proximity, countries will of course leaning towards China, because for example through buying Chinese products they become more accepted to China's culture, to China's, they become more familiar with China's different provinces and locations.
And I think fundamentally these increased proximity with China will further accelerate people's further trading activity with China because when people don't have any hostility, because it's one thing to buy from China and thinking that China is this very hostile country or this very distant country that I know nothing about versus another thing that I even become familiar with for example, Sichuan food is spicy, and I'm familiar with Chongqing or other Chinese locations.
I'm familiar with a product from Shanghai or Suzhou.
And then I can become more of an expert in China's suppliers and the production networks and even increase the efficiency of further trading behaviors.
I will know where to source my products and where to import my products as well.
So I think this will bring to China's economy like a large cohort of people who are more familiar and friendly to China.
Well that sounds exciting as well.
Professor Zhang Gong, Dr. Leluan earlier already emphasized about the importance of tech innovation.
According to a 2024 report by this Washington DC -based think tank, Information Technology and Innovation Foundation, China is leading or globally competitive in five out of nine high -tech industries and quickly catching up in four other industries.
Now, some people say, while Washington's tariffs might alter the global map of China's manufacturing and exports, they will not dismantle any of the elements that enable Chinese technologies to emerge as globally competitive.
What is your take on this?
Okay, well, first let me say a few words about ITIF, Information Technology Innovation Foundation.
This is actually a very much a anti -China think tank.
It's founder and president, Robert Atkinson, is the tourist for opposing policies that's in the detrimental interest of China.
Nevertheless, I think what that report says, It makes actually a lot of sense.
I mean, I went through the, actually I read this report some time ago.
You know, I think across the board, the technological gap between United States and China, China and United States of course, is getting close very rapidly.
I think, especially I think in the defence industry, so we look at the latest technological breakthroughs in fighter jets, for example, you know, We have two Chinese six -generation fighter jets in pilot flying program.
While that's in United States reported, there hasn't been a six -generation fighter jet taking to the sky yet.
So, you know, I think that statement is very credible.
Indeed, you know, China's making rapid progress in that area.
And this is what the United States is so much worried about.
I think, you know, the entire supremacy of America and world stage is premised upon its primacy in defense technology and any innovation.
And when that is getting challenged, of course, you know, there's anxiety on the part of Washington.
I think this explains a lot of the fundamental reasons why United States treats China as a major adversary, rival, opponent, whatever you call it, and this kind of a structural problem is going to persist for many years to come.
So this is something that's very difficult to change and even during dialogues it's something that Washington is not going to be persuaded to do.
So, Warwick, do you think China can count on tech innovation including artificial intelligence developments or electric vehicles and renewable energies, solar panels, wind turbines, etc. to break through the economic headwinds caused by Washington's tariffs and trade protectionism?
Absolutely, and we'll do that in a few different ways.
At the most fundamental level, And these developments in technology will fundamentally transform the energy return on energy invested equation at a production level.
So it will actually drive a more efficient production system overall, including actually in the production of data through low cost energy, supporting data storage systems, data transmission systems and ultimately data calculation and algorithms and AI.
So that's one part of how these developments in technology will fundamentally transform the economic model and structure.
The other part of course is that the outputs of these technologies will also have their own productivity enhancing benefits not only in terms of traditional input output measures but again in a fundamental energy efficiency way.
So, we are looking at really a transformation in the political economy of energy at the foundations of the economic system itself and this is what I think the focus on high quality production or high quality technologies is actually all about.
We're going to the root of what economic systems are and the root of economic systems, energy transformation systems in terms of the efficiency of energy in to produce something and the utility of that thing for the next activity going forward. So, these are circulation systems and ultimately China's development in these high tech arenas are going to support that.
The last thing I will say in this area of technology is that China has a proven track record of technology adoption and implementation.
So not only is China developing or has over the last 40 years developed the foundations for a rich research and development ecosystem and thereby enabling it to catch up and in some technology areas become world leaders in the raw technology itself.
China, its society and its industries have actually become rapid and successful adopters of technology, integrating new innovations into workflows.
And we see that for instance in the adoption of deepseek across a broad range of economic activities already, such as supporting the speeding up of the tracking of containers coming through ports.
Now we've got 5G enabled automation at many ports in China already, which is dramatically improving physical productivity and now we're going to have AI enabled productivity improvements by being able to identify and differentiate different containers far quicker and cheaper than has ever been possible before.
So I think that these commitments in these technology arenas will ultimately play significant dividends in terms of the quality of the economic development pathway going forward. Dr. Li, if the China -US trade or economic war becomes a protracted conflict over the course of the second Trump term.
How should China's economy prepare for a scenario like that?
For example earlier we were talking about tech innovation in China.
Do you think there is a need for China to make sure that its tech innovation become more efficient rather than based on wasteful investment?
Yeah so I think unfortunately all innovation will have some sort of wasteful investments, until you find the one solution that solves it or the previous investment in new technology will look as if they are wasteful.
But it doesn't stop the innovators to create new ways, new products, new ways of production.
So I think, I still would emphasize that I think the only way out of this is to double down R &D, double down innovation.
So if we become a one day become, you know, completely decoupled with U .S., which is, I think, more and more likely, judging from, you know, the news and the situations we're seeing.
I've just read from the news that you know, President Trump is is pressing Harvard in terms of his, you know, foreign students.
So if we have if we are in a scenario well, where we completely decouple with the U .S. I think what is going to happen is that U .S. is definitely going to, through its military and financial dominance, coerce countries to take sides.
There is going to be probably North American countries and Mexico or Latin American countries who are geographically more approximate to U .S, is more likely, for example, to be more subject to the coercion.
But at the end of the day, I think the logic is that if we have one side that is labeled by protectionism which puts its own interests first versus another side which labels or supports globalism, which promotes or encourage trading between different partners, and make people all grow better together.
Which side will inherently have more friends?
I think the answer is pretty self -evident.
Also, I think it's very hard to kind of support to be a self -supported or self -sufficient country, given the US's current stage in its manufacturing.
So China, on the other side, even if China is completely isolated by all the other countries, I think of course it's going to be severely affected in many aspects.
But in food security in, for example, you know, everyday living supplies, China will have no problem providing those supplies.
While we're seeing, for example, during the COVID pandemic, US consumers are finding it hard to buy toilet papers to buy infant formulas and such things like that.
So I think practically it's pretty hard for the U .S. to kind of steer all the way towards protectionism.
In a strategy perspective, U .S. is already steering all the way towards protectionism.
It's like when you're learning to drive, the coach always say to you do not steer all the way to the left or all the way to the right.
You always save some room in case you need to make an adjustment to the direction of the car.
So China is staying pretty much at the middle of the steering wheel.
So if it came to one day that China needs to change its strategy, it's possible for China to change its strategy, but right now it's pretty hard for US to change its strategy given the political base for President Trump and their political stance towards protectionism.
So it's it's pretty hard for them to change unless it's another election and another president.
I take your point. China is currently drafting the blueprint for its next five -year development and in symposium with a few provincial leaders in late April, President Xi Jinping said China's development for the next five years should be driven by tech innovation anchored in the real economy that advance the upgrading of traditional industries while at the same time safeguarding people's well -being.
The final question goes to you, Professor Zhang Gong.
To what extent do you think the economic relations with the United States will define China's next five -year development?
I think its impact and its relation to the US market is going to be more and more diminished over the years.
It's just due to the strategic thinking of both parties.
The United States, I think, is very much determined to strategically decouple from China, at least in some high -tech products, other products concerning national security, for example, They are determined to source from some other countries.
And from China's perspective, you know, China is also preparing for this and China is trying to solve the problems of resolving these choke points imposed by United States.
So I think the overall trend was towards some kind of a partial decoupling.
I think the issue is how to manage their process, manage their process in a way that is less destructive, less provocative, and in a way to make sure that the parties, the stakeholders in this process to be engaged in sound industry would be adjusting their strategies and policies smoothly and by some time essentially.
I think this is a direction that we're going towards, and hopefully we can go towards that direction in a peaceful way.
Mmmm, well, a big thank you to our panelists, Warwick Powell from Taihe Institute, Professor John Kang from the University of International Business and Economics, and Dr. Li Wen from Peking University.
That's all the time for this edition of World Today, I am Dinghe on Beijing, thank you so much for listening, bye for now.
