Professor Mao Zhenhua, founder-Chairman of the China Chengxin Group, Chief Economist of China Chengxin International, and Co-Director of the Institute of Economics, Renmin University of China, delivered an interesting speech on how China can reduce US pressure at the 20th Yabuli Forum -2020 on November 18-20, 2020. A translated gist is given below:
Addressing the 20th annual meeting of the 2020 Yabuli Forum held from 18-20 November, Professor Mao Zhenhua, founder of the China Chengxin Group, Chief Economist of China Chengxin International, and Co-Director of the Institute of Economics, Renmin University of China, spoke on the policy that China must follow to at the least ease US pressure. He stressed that though the PRC economy has recovered well and economic growth this year is certain to reach some 2-3 per cent, he said China still faces multiple internal and external pressures and it is necessary to pay attention to them. Prof. Mao Zhenhua explained that the First pressure is brought by the epidemic whose spread has increased as temperatures continue to drop. In this context, China’s epidemic prevention and control is facing very high pressure from imports. The National Immigration Administration recently made prevention of foreign [COVID-19] import top priority in its current work and closed 46 ports. These measures were very necessary. The second pressure is the long-term constant Sino-US game. He assessed there is a basic consensus in the US to contain China. 'I judged two years ago that the evolution of Sino-US relations might follow a trilogy: trade war - decoupling - full-scale cold war. China cannot avoid the game between itself and the US. Not hoping for miracles, we must take active measures to solve this dilemma. The core is to prevent American allies from delinking from us. From this point of view, Biden’s appointment is even more disadvantageous for our country, because Biden has pledged to mend fences with his allies'. He elaborated that 'the biggest news of current international cooperation is the signing of RCEP, which showed that many countries still put the economy in the first place. RCEP members do not have the US. On the one hand, this can break the US’ containment of China; but on the other hand, there are many traditional US allies among RCEP member states. The US is likely to put pressure on its allies to undermine or lead to a comprehensive regional economy. Warning that China must be alert to the possibility of the failure of the partnership agreement, he added 'it is not necessarily a good thing to have no international organisation in which the US participates'. The third pressure is the current financial risk China faces. With the Sino-US trade war from 2018, macro policy gradually shifted to a dual baseline policy focused on stabilising growth while taking risks into account. After the outbreak, China’s financial risk continues to increase, and financial risks are approaching the critical point step by step. He assessed that corporate sector debt is high; the epidemic's effect on corporate business conditions still exists, the release of credit risks has accelerated, and recently bond defaults in the bond market have been frequent and spreading from private to state-owned enterprises. The balance between financial innovation and supervision has recently been another hot topic. Historical experience and lessons are worthy of reflection, so China must pay attention to the game between financial innovation and supervision. Prof. Mao Zhenhua offered four suggestions since China faces greater internal and external pressure: (i) China must adhere to baseline thinking and avoid the ’policy cliff’ effect caused by the rapid withdrawal of the stabilizing growth policy. The two baselines are stabilising growth and preventing risks. There are different policy toolboxes under this regulatory framework, and adjustments can be made by judging their order and priority according to the economic situation. Based on this idea, we can find that the central economic policy changes after 2016 are based on stabilising growth or preventing risks'. He said 'I’m highly supportive of the current policy of keeping up a stable growth policy', adding that 'The economy is still far from the time to withdraw from the stable growth policy. Withdrawing from the stable growth policy too quickly can easily lead to a policy cliff effect'. (ii) build a conservation-oriented economic development model. 'Building a conservation-oriented society as an important part of current PRC  policy is also an important practice of baseline thinking. Building a conservation-oriented society development model is not only our long-term high-quality development choice, but also a requirement under the current special internal and external environment. "The current problem of making up for shortcomings cannot be completely resolved through supply-side reforms. For example, we have a structural food shortage; the PRC has sufficient supplies yet still needs to rely on imports for livestock feed; crude oil is over 70 percent, iron ore nearly 90 percent dependent on foreign sources". Once extreme incidents occur, China’s supply of production and subsistence materials will face great security problems. In this context, an important countermeasure is to save. There is ample room for saving at present. Food waste is for example, huge in all aspects, not least waste on the dining table; the steel industry is seriously under-utilising scrap steel, is concentrated in the middle and low-end areas, while high-end lags behind developed countries. In terms of specific measures, China can implement it through two aspects: ’opening up’ and ’throttling". This means changing the economic development mode to reduce resource consumption and waste; and promoting resource conservation New industries and new technologies, which can reduce resource and energy consumption, promote the formation of new economic growth points. (iii) properly handle the relationship between the government and the market. The prerequisite for the decisive role of the market is a limited government, and a promising government needs to play a role when the market is missing. Therefore, the role of the government must attach importance to both ’promising’ and ’limited". In this regard, we still have a lot of room to explore. (iv) 'Unite all forces that can be united to crack the US decoupling plot. Note here that we are not uniting all forces to fight against the US. The current theme is not struggle but relaxation. Fighting encirclement and suppression, and undermining of the weak by the strong, Chairman Mao had a sixteen-character policy. He failed in the fifth anti-encirclement and suppression campaign to abide by this policy, instead of adopting a left-leaning line of fortresses against fortresses, which brought huge losses to the Chinese revolution. Therefore, to crack the American scheme, it is to make more friends, not to keep making enemies. In this sense, China’s future development depends on our efforts in this area'. In conclusion, Prof. Mao Zhenhua said 'As Biden mounts the stage, Sino-US relations are unlikely to return to normal, but we need to generally relax a little. If we respond to the concerns of all walks of life in the US at this time, we still have a chance to relax on certain key issues. But if you expect US society’s perceptions to ease while doing nothing, that’s impossible. Key to future Sino-US issues is our taking the initiative to change. Another point is that we must crack the US policy of allies. If it fails to persuade its allies to delink with us, the US will of its own initiative join us in relaxing'.

(Comment: The China Chengxin Group is one of the few major credit rating agencies in China.)

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