Decoding China’s economy
56:40 Share

What's the state of Sino-U.S. economic outlook and how can we work to build a better world for the poorest countries? Welcome to The Bridge, enlightening conversations on world cultures, life, and everything in between. Hey everyone, this is Jason Smith, host of The Bridge podcast from sunny California. If you like the show, don't forget to subscribe. We love The Bridge. Oh yeah.

Hi, everyone. My name is Jason Smith. I'm originally from sunny California, now living in beautiful Beijing. Today's guest is Liang Yan, a professor of economics at Willamette University, a research associate at Levy Economics Institute, a non-resident senior fellow at the Global Development Policy Center at Boston University.

and a research scholar of the Global Institute for Sustainable Prosperity. Dr. Liang specializes in modern monetary theory, the political economy of China, economic development, and international economics. Yan is

a regular commentator on CGTN, the East Asia Forum, South China Morning Post, The Diplomat Magazine, and more. Welcome to the Bridge to China, Dr. Liang. Thank you for having me, Jason. It's good to be here. You know, after reading your resume, I have many questions. I want to get right into it.

From what I understand, the IMF had just upgraded China's economy from 4.8 to 4.9 for this year and estimates about 4.5% for next year GDP growth. The West is saying China's economy is in dire straits. What's your take? Right. So we know the Western media and also think tanks and academia have been talking about China's collapse, I think, at least since 20 years ago. Right. So this is a time tested, I would say, false.

narrative that is, I think, serves certain purposes, right? They wanted to dampen the confidence in the Chinese economy in a way, dissuade foreign investors coming in and so on and so forth. But unfortunately, again, you know, these kind of narrative is not really supported by empirical evidence. So I think this year, as we have

seeing, you know, first three quarters, the growth rate was 4.8%. And then we see a numbers of indicators that show, you know, the economic activities actually picked up in speed in the last three months, especially, you know, after the end of September, there has been a slew of stimulus policies that have been rolled out. And so it really helps you turbocharge the economy. So I think, you know, IMF is right to upgrade the economic forecast and

And I think, you know, China is well on track to achieve that, you know, around 5% growth target. But I think, you know, it's not just that growth number or the speed that matters. And if you really look at the structural transformation in China's economy in this past year, it has been really remarkable, right? When you think about all these industrial upgrades, you see the new trills, the production of EVs,

lithium batteries and also semiconductor chips and also, you know, some other, you know, green products like the solar panels, they are really growing by leaps and bounds and really outpaced the general industrial output growth.

And then also you look at the green transition, right? China is really producing and installing over 1,200 gigawatts of solar and wind power this year. And which is actually, by the way, it far exceeded its own target in six years in advance, right? Because China's goal is to have this much of renewable capacities by 2030. And, you know, China really achieved that goal well ahead of its own schedule. So I think, you know, both in terms of growth speed

but really in terms of the structure of the economy, the driving forces of the economy, we have seen really this grand transformation. So I think if anything, the evidence really point to the opposite of this Western narrative of China's collapse story. You know, I was really curious because in your resume,

Online, it mentions that you study Chinese economy, and I'm someone who's fascinated by it as a non-economist. I always like to take these opportunities to ask people with such expertise about Chinese economy, and I wanted to better understand state-owned enterprises or SOEs, which are a huge part of China's economy.

In your opinion, is state management of utilities and sensitive sectors enhancing China's economic growth? I think the short answer is yes. And I think you're very humble to say that you're not an economist. But I think living in China and talking to all the experts and also by studying economics and witnessing the economic transformation, I think

you kind of see the vantage of the uniqueness, right, of China's economic model. This is really a model that does not rely only on the market forces, the profit driven sort of motive to drive the economy. So I think, you know, the state really plays a very important role in the Chinese economy, you know, from very high level planning. You know, China has this five year plans that they carry out.

over the decades, and it really helped to set the strategic vision and direction of the economy. And the government, the state sector, utilizes a lot of public institutions. The state-owned enterprises is one of these kinds of public institutions that really serve the long-term strategic goals of China's economic interest, right? In addition to that, you know, the state-owned enterprises also include state-owned commercial companies

banks and also development banks. And all these are very important to provide, you know, the essential finance, long-term patient capital, right? Instead of those speculative capital as in the Western market. So I think yes, the SOEs are really important. They account for about 40% of the Chinese GDP. And again, the Western narrative is that these are the zombies, right? These are very inefficient. They're counterproductive.

They're monopolistic. But the reality is when you look at some of these major SOEs, they mostly concentrate in the utility sectors, in the infrastructure, and some of these tech space as well, and also energy sectors.

And they are really playing a very important strategic role in the Chinese economy. So just to put some sort of names to these SOEs, right? They're not just abstract concepts. They're really well-running companies on the ground. So the largest...

Steel Enterprises is the state-grade corporation of China, which was founded in 2002 and provides the electric power to over 1.1 billion people in China. They also invested a lot in China's

electric system and cover 88% of the Chinese, you know, the physical territory. They also invest a lot abroad in terms of the energy networks in, you know, countries like Brazil, the Philippines, Australia, Italy,

And you name it. So this is really a I would say really the backbone of that utility power generation system in China. Then you also find, you know, Sinopac, which is the petroleum company that really provides energies. And also, importantly, some of these construction companies,

the uh what is it called the sasak i can remember the the sort of the acronym that the china state construction engineering um that is also really providing a lot of housing constructions uh as a matter of fact you know one in every 25 chinese individuals they live in the house that is built by this china state construction right so we're talking about these soes they're really uh

They occupied really strategic, important places in the Chinese economy, right, by providing reliable, affordable electricity, energies, housing constructions and transportation systems, right? The railway system that built the largest network of high speed rails and so on and so forth.

So I think, you know, as you can see, you cannot just use the very micro narrow base to profitability to measure the success or otherwise of these companies because they really search serve very different economic and social and political and geostrategic goals.

You know, so I think it's important to recognize the, you know, the key role played by these SOEs and not to be sort of only constrained by the sort of other profitable or not. Right. I think that is really a moot point. You're listening to The Bridge.

well you're in the united states and depending on how we measure it the us and china are the largest economies china is by purchasing power parity in the united states by nominal so uh obviously in a in a world you know we're talking about geostrategic interests these two economies must work together in some way and the incoming administration has claimed previously it was going to be 60 tariffs on all goods from china and now it's claiming it's going to be 10 percent uh

tariffs on all goods from China will, in your opinion, increase tariffs, lead to increased inflation in the United States? Yes. So I think, you know, President-elect Trump has pledged right on the campaign trail of 60% across the board

import tariffs on Chinese products. And then recently he also threatened, you know, 10% of tariffs, 25% on Canadian imports and Mexican imports, right? The reason is because he thinks that these countries are not working hard enough to stand the fentanyl crises and also immigration crises in the United States. And so that's why there's another 10% of tariffs that was mentioned by the president. So this is,

obviously is going to trigger inflation. And this is because, you know, when you impose a tariff, this is as if a tax.

on the products when they cross the border, right? And given that China is such an important exporter of industrial goods, consumer goods to the United States, when the United States impose tariffs on China, right, if it's 60%, then this is going to add a lot more cost to those imported products. And therefore, this eventually, the consumers are going to foot the bill, right? Eventually, the importers are going to

pass these costs on to the consumers. And so the Peterson Institute of International Economics has done various simulations. So are, so did other, you know, credible research institutions. And by and large, they believe that this is going, for example, the PIAE argue that these tariff schemes is going to cost average American households $1

$2,600 extra every year. So this is, of course, it's higher cost and that's going to inflate the economy. Now, there are some commentators that, wait a minute, last time when we had a Trump trade war,

1.0, we didn't see a large inflation, right? When you think about 2019, the inflation rate in the United States was only about 1.9%. And so there is argument that, well, maybe we're not going to see much inflation. Maybe there is a small one-time jump in the price, but it's not going to cause inflation. But I would say, you know, times are different, right? For one, we're talking about 60%. And that is a completely different magnitude in terms of import tariffs.

And second is, I think when you look back in, again, 2019, the inflation anchor, the inflation expectation, which I think according to the Fed, right, the Federal Reserve, it's very important to contain inflation, right? In other words, if you have stable inflation expectation, you think inflation is going to be stable, then, you know, that tends to be a self-fulfilling prophecy.

But nowadays, people actually have not very good, sort of not very well anchored inflation expectation, given that the United States just came down from a 9.1% inflation rate, right, in the past two years.

So that means it's much easier for inflation to climb up again. Not to mention, as we know, in the United States, right, with a lot of these businesses that are monopolistic or oligopolistic, meaning they have the market power to raise price,

they are going to take advantage of this cost increase to inflate the price, right? This is what we call seller inflation in the United States, right? Which is that these companies are going to take advantage of this one-time increasing cost and they will keep, you know, increase their profit margin and that's going to continue to drive up the prices.

So I think I don't think the U.S. policymakers can be complacent, so to speak. Right. If they are going to really impose such a high level of tariffs. Now, that said, again, Trump being Trump, things are still quite fluid and unpredictable.

And in recent days and weeks, it seems that he conceded quite a bit. Right. He said that he's not sure he can't guarantee the consumers are not paying for those tariffs. So I think there is some indication that he could see that tariffs could be, you know, really loose, loose kind of proposition, not only for the Chinese economy, but also for the U.S. economy. What if we took the opposite direction in terms of instead of trying to

divorced logistically. We actually married logistically. After what manner can the U.S. economy benefit from working closer with China and how can that be done in both nations' interest? Yeah, I think that's a great question. I think these days, a lot of the policy

and think tanks are seeing the U.S.-China relationships through really this very straitjacket lenses of national security, right? So there is really kind of a zero-sum mentality. But really as an economist, and when we look at things from a more economic perspective,

It doesn't need to be a zero sum game. Right. So there are many places where I think the two countries can cooperate and they have to cooperate as the two largest economy. One, of course, is being the climate change. Right. So there's so much, you know, area that the two countries can work together to advance, you know, green technologies, green products and also to provide green finance opportunities.

for the rest of the world. And so I think that is really a fruitful area for the two countries to cooperate because again, China has some technologies in certain areas and the United States as well. So it's very important, I think, and necessary for the two countries to work together, not to mention, you know, with all this nationally determined contributions to carbon reduction, right? If the U.S. is not part of it and China also, you know, is not part of it,

if they cannot have a cooperative relationships in that front, then it would be very difficult, I think, for the world to move forward to really decarbonize. The second area, I think, again, that's controversial, but I think is important is in the tech space.

Right. So, you know, these days there's so much competition in this space. The U.S., of course, is trying to contain China's technological advancements, especially in AI, in, you know, semiconductor chip making areas. But

As the United States Secretary of Commerce Raimondo just reckoned, to try to contain China's technological development is a false errand. China's technological advancement cannot be contained. So what you can do is to cooperate, to learn from each other, because technology, again, in economic terms,

it will generate the so-called endogenous growth, meaning that if we cooperate, we'll be able to leverage on each other's strengths and learn from each other and we'll be able to multiply the technological developments and achievements.

So I think that is very important as well. Not to mention when it comes to AI, when it comes to, you know, digital, there is a huge governance issue as well. So if the U.S. and China cannot work together and craft some kind of common grounds for governance,

then you could easily see the sort of parallel systems, different standards, different ways of government technologies that I think would be very counterproductive, right? And last but not least, I think, you know, even in trade in some other investment areas, there's also a lot of cooperation, I think, opportunities, right? Like EVs, for example. China's battery now is pretty much

I think if the United States really want to achieve its green transition, especially in the transportation system, which by the way accounts for 30% of the US's carbon emission. And of course, Biden has already rolled back on those EV penetration targets and Trump will probably completely scrap it. Well, not probably, for sure.

Right. So I think in that space, there are also cooperation that that could be done that is not only helping the U.S. to achieve the green transition, but also, I think, in some ways revitalize their auto industries, which I think is really on the downhill since the 80s.

So I think those are just small, some of the initial possible areas of cooperation. Instead of, again, thinking everything the zero-sum game mentality, I think both countries could really work together to confront some of these common challenges and map out these common sort of opportunities. I've been thinking about GM, General Motors, and I was thinking if they combine their efforts with the JV, with BYD, they might actually give Tesla a run for their money.

Switching to a different aspect of cooperation, the United States, and this is really hot right now, the United States does not produce enough high school graduates to fill STEM roles, science, technology, engineering, and mathematic roles in U.S. university. And in recent years, Chinese students, along with students from many other countries around the world, have kept U.S. STEM going and research going. But

Lately, we've seen a rather unpleasant environment for international students, especially from China. Do you think given the current environment, Chinese students are likely to come and stay in the U.S. and fill these roles? Yeah, I think that's an excellent question, right? We know that the United States is really relying on a lot of this foreign talent and these days on a lot of policy discussion space, right?

big discussion topic of course is h1b right that whether or not the united states should continue to provide these sort of special visa categories to attract and retain some of the talents including the tech space uh what i would say again this is another area i think the two countries can all cooperate right so it used to be i think uh 2000 i would say 2017 um

there have been a lot of Chinese students in the United States. I think 370,000 Chinese students that come to the United States and study here. Some of them stay, some of them go back. But now this number has dropped significantly. The number that I've seen is it has gone down significantly.

in the last academic year by about 25% from the peak. So now it's about 277,000 as opposed to 370,000. That is back in actually 2019. I'm sorry, it's not 2017, 2019. So right before sort of pandemic, there have been a lot of Chinese students in the US, but now we're seeing, you know, a quarter of decline.

And you're right. I think the United States is lacking in terms of the production of the STEM graduates. In China, they produce about 3.57 million STEM students every year. The United States is a lot less, right? So it's about 700,000 to 800,000 students.

So in that sense, yes, I think if there are more opportunities for Chinese students to come here and study and learn from some of these STEM technologies, and some of these students will go back to China and others may stay. In any case, I think it will be helpful for these kinds of intellectual and technological exchanges between the two countries.

Now, the great majority of the Chinese students do go back to China after they study in the United States. I think according to the Ministry of Finance, sorry, Education in China, you know, from 1978 to 2019, there are about 80 some percent. So 86 percent of the students who study abroad, this is not just the United States, but study abroad would eventually, you know, go back to China.

But that said, I think some students do stay and work in the United States for a few years and so on and so forth. So still, I think they made very productive contributions to the United States tech development and the broader economy as well. So I think both countries would be benefited, right, and enriched from this kinds of academic exchanges.

But unfortunately, to respond to your second part of the question, which is, would this sort of trend be in some ways going down or even reversed, right, that students choose other countries instead of the United States? I think we're seeing some of that, partly because of the tensions between the two countries. But also part of, I think, is also that the Chinese students find other opportunities elsewhere.

within China or elsewhere as well. And so I think, unfortunately, if we don't improve the relationships between the two countries, right, for example, the Fulbright is one of the, you know, very important, I think, channel for academic changes that have been terminated by the United States.

So I think many of these kinds of, in a way, sort of bridges, right, were burned down. And in the U.S., especially in the STEM field, in the tech field, I think there is increasing scrutiny on the Chinese scholars and Chinese students. So that is very counterproductive, I think, for the United States. As you said, you know, Chinese students used to be really important for their technological sector.

And now I think, you know, they're really in Chinese sort of saying, right, they're lifting the stone and they hit their own feet. And this is not going to be helpful. Wow. I didn't know Fulbright was canceled. That's news to me. It's kind of sad because when I went to university, that was still a thing. China is working towards a theory called Fulbright.

high-quality productive forces, developing these high-quality productive forces. What are these and how will these help China's future potential growth? Yeah, so I think this has a, you know, this is sort of really the buzzwords, right? The whole idea of quality, high-quality productive forces. But if you really look at the Chinese development trajectory, I think, you know, by about 2017, the leadership has sort of, uh,

that China needs to embark on the so-called high quality development, right? So instead of pursuing high speed, we need to really emphasize on the quality of growth, which means we want it to be more productivity driven. We want it to be more sustainable and we want to be more inclusive.

And then following that, I think this concept of high quality productive force was coined by Xi Jinping himself. And it definitely has a Marxian kind of connotation, right? That we have this kind of productive force that allow us to transform the material world, right? To improve the economic basis and therefore that we could build a more sort of a super structure of the economy and the society.

So this idea, I think, has three different connotations, I would say. The high-quality production forces, first of all, is that we wanted to build these high-tech emerging industries, right? So some of these are captured in the Made in 2025 plan, which is we want to develop, for example, the semiconductor industries, the EVs, and advanced manufacturing, and new materials, and biotech, and so on and so forth.

So these are the emerging industries that really hold the promise of transforming the future industries. And so these are very important. These are tech based. But in addition to that, I think some of these technologies are developed in the AI sector, in the digital economy could also be integrated

in the rest of the economy. So for example, you still have traditional manufacturing sector, but using digital, using AI, you're able to transform the production process and make it more efficient, right? And so that means we're going to have not only just

as some of the people would say, the oasis in the deserts. It's not just a few of these emerging high-tech sectors, but really these technologies will be integrated in the rest of the economy. And so that will be very important because we know that China has achieved the middle-income country status

But to be able to escape the so-called middle income trap, you really need to have innovation driven and productivity-led growth. And so I think that is why China emphasizes on this new and high quality productivity growth by fostering some of these new sectors and by integrating the new technologies in the rest of

of the traditional sectors, this would really help to promote the total factor productivity and drive economic growth. But I think there's also one last piece here is that how you transform also the productive relationships among these different factors of production. So I think that is also very important as part of the high quality productive force. You're listening to The Bridge.

According to Nature.com, a lot more Chinese universities are making the top 10 in terms of STEM fields. And some of the numbers I've looked at are as many as seven out of 10 top tier universities in science, technology, engineering and mathematics, according to Nature.com, are now in China. As someone who studies science and economics, I'm not sure if I'm going to be able to

What do you think of Chinese universities in our current geospace? Yeah, I definitely think the Chinese universities are really improving, are progressing. Right. I think in the past, when you talk about Chinese universities, a lot of people would say, oh, they're just producing students that can they can do very well on tests.

they're not creative thinkers, they can't innovate and so on and so forth, right? So I remember, you know, even just as early, as late, I would say, as 2012, you know, the Harvard Business Review has said, you know, can China innovate? So in hindsight, I think really that this idea that China's educational system is not promoting, you know, innovative and

really technological talents, I think that is really a myth, right? I know that for sure the Chinese education system still has room to improve, but I think as you just mentioned in terms of the nature's ranking and also I think in terms of really the technological output, I would say China is really progressing, right, by leaps and bounds. We have all these young people, they're thriving in the STEM fields. You know, China actually

has 41% of its graduates are from the STEM field. And that is the highest in the world, right? And the second largest, I think it's Russia, that's 37%. But China is 41%. So when you think about 41% of about 11 million of the graduates every year, right? So that's a huge pool of talent. And the quality asset

has also been improving. When you not just looking at the ranking of the universities, but also looking at the citation numbers in some of the top stamp journals, the patents that the Chinese based companies have filed, individuals have been filed, firing. Also looking at, you know, just some of these reports about Chinese technological advancements, right? Bloomberg has just published a

a report that basically showed that China is leading in five out of the 13 critical technologies, catching up in seven and only lagging in one. And also, according to the Australian think tank, right, the ASPI, the Asian Society Policy Institute, they show that China is leading in 54 out of the 63 high techs.

Right. So I think all these indicators will show that, yes, China is really moving very quickly in that tech space. And so it's from both the basic education, higher education to the entire innovation ecosystem. I think, you know, China is really making noticeable progress over time. You're listening to The Bridge.

Coming to China as an American, one of the things that always fascinated me was poverty alleviation, which China took very seriously even during my time here and achieved raising everyone out of extreme poverty by 2020, which is one of, I would say, the modern miracles of our time. But there's still poverty in a lot of the rest of the world.

And so sustainable development in the developing world is still something that the world looks at, that the UN looks at, that people around the world take very seriously because it means the difference between living and dying for some people. So both the U.S. and China are engaged in some kinds of sustainable growth in the developing world. The U.S. has notably used the World Bank and IMF.

Sometimes their policies are described as the Washington Consensus, which means the liberalization of the economies of developing countries in exchange for low-interest projects. China's tools have been focused on the Belt and Road Initiative and the AIIB.

What are these approaches and are they improving the lives of people in the underdeveloped world? Yeah, I think that's an excellent question. I think in a way that there are two different separate questions, but they are definitely related. I think you're right. China really puts a lot of emphasis on eradicating poverty, especially absolute poverty, as you mentioned, that, you know, by 2020, you know,

China has eradicated the absolute poverty. And since the reform opening of 1978, China has lifted, you know, 770 million people out of poverty. And that accounts for about 70 percent of the global poverty reduction. So these are really amazing results. And I would say, you know, China's approach seemed to be really working well to address all of these.

And when you look at also, you know, in terms of inequality, China is also making improvements, right? The Gini coefficient back in 2008, it was 0.49. And by 2020, it has gone down to 0.468. So China is improving the bottom line of billions of dollars.

millions, hundreds of millions of people. So I think the targeted poverty eradication approach that China has employed, right, that's sending political cadres down to the village level and help to fight, you know, livelihood, the means to livelihood and all that, I think it's very important and build infrastructure, right, to build roads. And in China, we say, you know, if you want to be rich, you build the roads first. So the

a lot of, I think, very important and proved to be very efficacious kind of approach to eradicate poverty. So I think China definitely has the experience to share, right? This year's G20, one of the major goals is to reduce poverty and hunger. So I think China's experience can be learned by many other countries.

Now, when it comes to development finance, I think you're absolutely right. China has launched the Belt and Road Initiative since 2013. But in addition to that, China also provides development financing to other countries, even if they're not part of the BRI. For example, Brazil is one of the largest recipients of China's investments and finance in Latin America, but it's not officially a BRI country.

but I think, you know, China's, uh, finance is very different from, I would say World Bank or IMF, right? So China's, uh, uh, financing a lot of times is very targeted in infrastructure, in connectivity, um, and to really provide capacity building, um, to these recipient countries. And it doesn't come with any sort of strings attached. Whereas, as you just mentioned, IMF and World Bank, um, they really, you know, uh,

provide some of the financing, but then they also have the so-called structural adjustment programs, right? And mostly is you need to privatize your companies. You need to liberalize your trade and financial system. And also a lot of times impose the so-called austerity, right? Fiscal austerity to these poor countries, basically saying the government needs to tighten the belt so that some of these foreign creditors can get their money back.

To be to be really blunt. Right. That's the whole purpose of the whole austerity measures. Look at Argentina these days. Right. The the the IMF, the World Bank are boasting about the country's ability to reduce their external deficits.

but 50% of poverty rate, right? So I think that just shows the difference. The Chinese financing is a lot of capacity building really to help countries to develop without any sort of economic strings attached. A lot of times these projects are initiated by these host countries, right? China doesn't just come into the country and say, "Hey, you need to build an airport."

Right. Is these countries reach out to China and say, can you help us to build a port, to build an airplane, a bill airport? So I think that is really the difference. And I just want to make also just one last quick point on this just to put some specific examples. This year's AIPAC, you know, hosted in Peru.

We saw this Changkei port that was inaugurated and this is the China-Peru joint project. China has invested about $1 billion, but there will be more investments, about $5 billion.

to build the, you know, connective infrastructure. So then this port is going to be really the gateway to connect Latin American countries with Asian countries. And so that would really help to facilitate trade and investments and tourism and so on and so forth around the region.

Whereas at the same time, the United States were also present in the AIPAC meeting and they, you know, claimed that they donated, right, some of the sort of the trains to Peru.

But it turned out it was some kind of very old 40-year-old train that was retired from California. And it wasn't a donation. The United States actually sold this 40-year-old train quite, I would say, like scrap metal for, I think, $6 million, if I remember correctly, somewhere between $4 and $6 million.

And so you can see the contrast, right? China is building a port that is cutting edge technology that is really state of the art. It's autonomous. It has a lot of cool digital technologies. It's a deep sea port and, you know, and so on.

And the investment is in the billions, whereas the United States is selling very outdated rail train for $6 million. So I think the contrast cannot be more stark. And it just showcases how China is really...

in a way, you know, helping the global South countries to really, you know, grow in a sustainable and also a really sort of industrialized way. I actually, I look at a lot of these projects around the world, thousands of these projects, and I agree with you. But I just want to give you the opportunity to respond to the idea, which I see every day for people, especially people who don't really know much about what China is up to, that China is debt trapping

developing countries and that it is offering loans that are ultimately used to for China to take control of aspects of foreign economies. What do you make of that? Yeah, I mean, that's another time tested myth, right? I mean, there are so many things wrong with this kinds of narrative. I think for one, I mean, there has been so much, you know, so much debunking sort of attempt, right? I mean, but still, I think

The Western media, the think tanks are still hold on to this, even in the policymaking circle in the United States. I think for one, it's very clear that these kinds of ideas of a debt trap wasn't really originated from the recipient country. It was actually started from an Indian scholar and then it got really picked up by the Western circles. And so it wasn't really the recipient countries that worried about the so-called debt trap in the first place.

And also, I think there are many scholars have done really important work to, again, debunk this myth, right? For one is they have shown that a lot of these projects are initiated by the recipient countries. And China is one of the bidding countries to win the project, right? So the Hambantota port in Sri Lanka is often used as a example to showcase the debt trap. But the matter of fact is,

that is the Sri Lankan government has approached the Chinese to say, you know, would you be able to help to finance and also construct a port? In fact, they have already asked earlier, I think the United States and also India for the financing, got rejected and then they went to China. And so it wasn't really something that Chinese went in this country and trying to trap them, right, so to speak.

And second, I think it's also important to see, you know, what this debt is used for, right? Not all debt is created equal. Some of the debt is unsustainable by design. But China, in terms of development financing, again, a lot of these are going into infrastructure and that is going to generate long term economic benefits.

And so I think it's important also to think about it's not just the amount of debt, but also the uses of these debt, whether or not they're going to generate, you know, positive cash flows, whether these are really bankable projects. And again, for the Sri Lankan port, there was independent, you know, consultancy firms, I believe it's from the Netherlands or Netherlands.

I think it's from Netherlands, right? They have shown, you know, this port is supposed to be a bankable project. So again, there's a lot of narratives that are simply mythical. And then finally, I think also I'm actually delivering a paper in the next few days in one of the Economic Association conference

which is about China's efforts to help countries to restructure their debt. And I think that again, it's another myth, right? The idea that when these countries are facing these debt problems, then China simply go in and seize their strategic asset, right, so to speak.

But the matter of fact is that China is actively pursuing, you know, fruitful and productive debt restructuring with these countries. China has no interest to take over the so-called strategic assets. But really, China is trying to restructure debt to help these countries to be able to pay back their loans or get some relief in their debt. Right. You know, China has a really significant role in the G20, you know, debt suspension initiative, the DSSA.

You know, China alone contribute to about 60 some percent of the debt relief, the debt service relief under this G20 common framework. So, again, China is playing a role as a rescuer, as a matter of fact, sending, you know, billions of dollars of rescue loans to some of these debt stressed countries, right?

So I think all of these are really important to look into, right? Who initiated the projects and what the debt is for and how China is helping the country to cope with the debt issues and so on and so forth. So I think it's important to really understand this whole debt trap narrative only serve, I think, the Western sort of geopolitical sort of interests.

and not a reflection of reality at all. I don't think there's actually been a single project that China has seized anywhere in the world under any circumstances. And it was only that Sri Lanka needed an additional loan to pay off Western loans with high interest rates that it allowed Chinese companies to offer another package to take partial control management of that port. So it took this additional loan from China to pay off Western loans. So

There has been no case in which China has seized or taken over any assets of foreign countries anywhere in the world. I would ask you a different question, though. What is China's purpose in creating economic growth in the developing world? Yeah, I think that's a great question. I think there are a couple of reasons. For one is I think China always believes that China,

The developing countries and China, they are fellow travelers, right? They're all the so-called global South countries. They all have the similar history, right? Being colonized, being bullied, being victimized in the global system. And so they're really seeing the kinds of common past and they're going to chart a common shared future. So I think from a, if you want to call it ideological point of view, to me, it's a vision, right? The vision that global South countries have

don't have to be always victimized and bullied by the global West countries or the global North countries. They could have a seat on the table. They should have a shared and bright future going forward. So I think that is one reason. And second reason, I think, is this idea of win-win cooperation.

So if developing South is growing, that means they are going to also contribute to China's own economic prosperity through trade, through investments, through technological sharing, through, I think, just in general, security and stability and peace in the world.

So I think that is also very important from China's point of view, right? When you build a railway in Tanzania or Kenya, what would help is that these countries are able to improve the trade with other countries, but also with China as well.

So I think that is also important. And last but not least, I think the geopolitical inferences and the power projection, of course, is important. Now, that doesn't mean that China is going to force other countries to choose China's sides or only use China's way of growth and governance and so on and so forth. But I do think that China sees the needs to balance the kinds of power in the world and

that the Western, both in terms of their political ideology, but also in terms of the culture, it's always about dominance, right? It's about my way or no way. So I think for China, it's important that you're able to consolidate and solidify and unify with the global South. So then they are able to promote the kind of diversities in terms of their ideas, cultures, political system, economic models.

So I think for China, these three things are really important. That's, I think, the reason why China is working and meaningfully engaged with the global south countries. There was a forum in 2024 in Beijing called FOKAK in which African leaders came to Beijing. One of the announcements made by the Chinese side at FOKAK

was that China was going to remove tariffs of every kind for about 50 of the least well-developed countries in the world. What, as an economist, what effect might that have on some of these developing economies? Yeah, so this is part of China's policy

high level opening strategy, right? That China is not only making multilateral cooperation through various channels and forums, but China is also unilaterally open its economy, right? So one of the things, as you just mentioned, is to remove tariffs for some of these least developed countries to allow them to export more to China.

Also, you know, other things are welcoming foreign investment in all manufacturing sectors and also expand the service sector. So all of these are in this sort of umbrella of high level unilateral opening. So why I think this is important is I think it really showcased China's

resolve and determination of working with the global South countries and also uphold that multilateral system. We know that a lot of developed countries these days are really launching a lot of protectionist policies, right? The IMF has shown that protectionist policies after COVID was three times the amount than pre-COVID.

So when times are tough, countries typically revert back to protectionist policies. And so I think China sees the danger of that. And that's why I think it is trying its own efforts to open its economy to the rest of the world.

Now, I think for these least developing countries, China remains to be a big market, right? China imports about $2.5 trillion every year. So to be able to tap into the Chinese market, I think that it's very important. Now, I would say, though, you know, just by removing a terrorist may not be sufficient because I think a lot of these countries are

uh, one of the biggest barriers for them to export to China, um, is that technology, right? The, the way they're able to co-chain, to utilize co-chain technology to preserve the food and, uh,

to be able to send to China to meet China's sanitary standards requirements. All of these, I think, are the barriers that many of these countries face. So that's why, you know, China's job is not done completely yet, right? Again, China continues to build that infrastructure connectivity. So,

you know, not only allow these countries to connect with each other within the countries, but also build these deep sea ports and railways that would allow them to send their products to China. And China also in the four-car meeting, I think it's very important. Not only China pledged, you know, some $51 billion of development finance, you

Big names always catch the title of the media, but I think the more important things is a lot of these industrial capacity building, technological training centers, learning demonstration zones. Those are the things I think are really, really important for these African countries to be able to improve their own productive capacities, their own technologies, so they're able to improve the production and the ability to trade.

to sell their products to China. - You know, it's interesting that you mentioned cold chain technologies. I mean, a couple of things that you mentioned, I think are very fascinating to me personally. One of the things about the Belt and Road Initiative or One Belt, One Road is that it facilitates interconnectivity on a logistics scale. Ports, like you mentioned, airports, rail,

all kinds of means of getting goods from one country to another for African countries to get their goods to Chinese markets, but African countries to get their goods to one another's markets. And I was in Nansha's port recently in Guangzhou, and they were very, very proudly showing me the largest cold...

freezer or cooler in the world. And they were like so incredibly proud. And at the time I was like, you know, okay, it's a giant refrigerator. Wow. But then, you know, the more I learned about it afterwards, the more I understood, you

how critically important it is for nations to be able to ship one another goods that survive that trip so that they can ship their goods further and to better recipients for those goods where they can get higher prices. So the Belt and Road Initiative for me is not just about

opening up trade, but it's about facilitating trade. And I think that's something that for us non-economists, it's something we need to spend a little more time thinking about how critical it is for those developing countries. Before I get to one of my last questions, I wanted to ask you about special economic zones.

Since reforming opening up in China in 1978, 1979, China has used special economic zones to develop its economy. Sometimes they become larger. Sometimes the ideas in one will open up to the entire national market. But China is also developing, helping...

developing countries develop their own special economic zones. What are special economic zones and how can they help developing countries? Yeah, I think that's an excellent question. In China, the special economic zone is really sort of an experimental ground, right? This is the window for China to experiment with its reforms and opening policies.

because China is this large country and so you don't want to have the so-called shock therapy. So China's way is always incremental, experimental, but gradualism, and that has served China very well. Now, in terms of the special economic zones that China helps other countries develop, especially, for example, in Latin America or in Africa, I think there are two very important purposes.

One of them, of course, is the same idea that you wanted to have a place where you could experiment different policies. You could devote more resources because certain resources are constrained, right? Be it labor or capital constraints.

or natural resources. So you want it to be able to leverage and amplify the uses of certain resources in that specific economic zones with certain specific purposes, be it if you wanted to say use this special economic zones to produce textile products or produce more consumer electronics or what have you.

So it is a way to pull resources together to be able to really amplify the network effects. So I think that is one of the reasons. And then the second reason is if you look at, again, in Africa's example, in Kenya, for example, they built this railroad that connects the capital city with Mombasa, which is the seaport.

And that also connects a lot of the industrial parks along the way. And that I think is also helpful, right? Because again, if you have, you know, industrial parks that are able to build some products, but if you don't have the means to transport them out,

Right. Then that would be very counterproductive. So you have to. Sorry. You have to establish a lot of these industrial parts to pull the resources together, but also connect with infrastructure. And I think that is, you know, it's really going to helpful for some of these resource constrained countries.

So in a way, I think China has learned from its own success from these economic zone experiments. And so I think that is going to help benefit some of these latecomers as well. Going back to your expertise in China's economy, I think a lot of the fans who watch this show and a lot of people generally are very interested in China's economy, especially because it has been so incredibly successful over the last few decades.

If we look at the Gini Index, for those people who don't know, that is about equality. And China is less unequal than the U.S. And China counts itself as a socialist market economy, also called socialism with Chinese characteristics.

But when Western leftists see the word socialism, they think about economic outcomes for the least well off also. So what – right now China has transitioned to something called the Common Prosperity Campaign. What is it and will it narrow economic disparity? Right. So I think the common prosperity idea is –

basically part of those high quality development, right? The inclusive economic development. Because as you mentioned, you know, in the past decades,

China has achieved tremendous economic growth and also with poverty eradication and also relief. So I think the general direction of the economy is really to promote the kinds of inclusive development. So benefit not only the great majority, but also people who are on the bottom.

So I think this common prosperity idea is very important, not only because, yes, this is part of socialism, but also I think by economic logic, you have to live this sort of the bottom or the middle class to be able to continue to grow. Right. Because

In economics, sometimes we mention something about a consumption propensity, which means how much you're going to spend out of your income. And that number tends to get larger when you travel down the income strata. Because if you're a poor person, you most likely have to spend most of your income to make the ends meet. Whereas when you're rich, they usually spend a small proportion of your income.

So if you wanted to continue to grow and you wanted to continue to cultivate the kind of domestic demand, then you need to make sure that not only people have more income to spend, but also income tends to go towards the people who have a larger spending propensity, which by default, the bottom, right? So that's why I think common prosperity not only serve this ultimate goal of socialism market economy, but also is really the key for continuous demand and consumption demand growth.

Now, China has been making a lot of progress on this front. When you're just looking at some of the basic social safety net, China now has the basic medical insurance for 1.35 billion people. So very close to the entire coverage of 1.4 billion people. They also have the basic pension for 1 billion people. China provides 800 million social housing units.

to help about 200 million people. So there are a lot of these kinds of basics, social safety net that is helping the poor individuals.

And I think going forward, we tend to, we're likely to see more improvements on the social safety net. But also very importantly, I think, you know, China has resisted this idea of simple cash handouts to everyone. But I think they have emphasized policies to provide cash handouts and income supplements to the poor, you know, to the relatively less well-off families.

So I think that is, again, the way to, you know, sort of help with these low income families. Right. To really level the plate field and to promote the kinds of common prosperity. But I think, you know, in addition to providing more social safety net, the other one, of course, is to continue to provide job opportunities. Right. To provide, you know, better education, education.

Wow.

That's incredibly insightful and so much to digest. I just want to thank you so much for your time and for your very thoughtful answers. Thank you, Jason. It's been a pleasure. Really appreciate all your questions. And thank you for sharing your platform with me. And yes, and we should chat again soon, hopefully. Absolutely. I'd love to have you back next year. All right.