Way ahead

As globalization debate rages, eminent economists at top China forum offer a few pointers

China will deal with financial imbalances in its economy and press ahead with supply-side structural reforms, says He Lifeng, minister of the National Development and Reform Commission.

He, who heads the agency responsible for macro-economic management, was addressing the 18th China Development Forum in Beijing, which brings some of the world's leading experts across a range of fields into contact with China's leaders.

The minister was particularly concerned about money flooding into the property sector and creating asset bubbles. Prices in some major cities, including Beijing, have risen by more than 25 percent over the past year.

"The excessive capital has resulted in surging housing prices in some key cities and pushed up the costs of the real economy," he said.

He also said supply-side reforms were vital and there was a need to cut excess industrial capacity and dispose of loss making "zombie" enterprises if these were to be effective.

The forum, sometimes described as the Chinese Davos and which was inaugurated in 2000, again attracted some of the world's leading thinkers, particularly in economics, with a number of Nobel Prize winners in attendance, as well as chief executive officers of Fortune 500 companies, politicians and academics. 

Key speakers included Henry Paulson, the US Treasury secretary at the onset of the global financial crisis and author of Dealing With China, and Apple Chief Executive Officer Tim Cook.

Topics included the state of the global economy as well as China's own, China-US relations, supply-side structural reforms, income inequality, innovation and work in the age of robots.

The future of globalization with the election of a protectionist and isolationist US president was one of the key areas of concern.

With President Xi Jinping delivering a landmark speech at the World Economic Forum in Davos, Switzerland, in January, China is now seen as a key defender of globalization.

Stephen Roach, senior fellow at the Yale Jackson Institute for Global Affairs, said Xi was making the speech a normal US president would make.

"We don't have a normal US president at present. We have an anti-globalization president. Donald Trump is all about America first. He is not in favor of the multilateral structures that weave the fabric of globalization," he said.

Roach, also former chairman of Morgan Stanley Asia, said protectionism should be resisted because it would ultimately be bad for the global economy.

"Should we defend globalization? The answer is yes, but the question is how. What are the consequences if we get the answer wrong?

"The lessons of history - the demise of the first wave of globalization from World War I to World War II - suggest that if we answer the question poorly there are grave and lasting consequences for the whole world." 

Wang Huiyao, president and founder of the Center for China and Globalization, a leading independent think tank and a counselor to China's State Council, agrees that globalization is now under attack.

"We see when Donald Trump came to office he actually said he preferred bilateralism to globalization," he said.

"He doesn't want to renegotiate the WTO or NAFTA (the North America Free Trade Arrangement) and actually said he wanted to impose tariffs on China. If every country in the world puts its own country's interests first and abandons the multilateral mechanisms for trade, it would mean globalization is under serious threat."

Joseph Stiglitz, professor of economics at Columbia University and one of the more high-profile figures at the forum, said there were, however, issues with globalization as it currently operates.

The Nobel Prize winner said that globalization was under threat from populist movements because it wasn't delivering for people.

"Globalization arrangements were designed more for corporate interests than the ordinary workers," he said.

"So, for example, drug prices would go up. That was not the interest of ordinary individuals. That was in the interest of the drug companies that don't create jobs, don't pay taxes and only make political contributions to get what they want." 

Kaushik Basu, professor of economics at Cornell University and a former chief economist at the World Bank, said the data showed that blue-collar workers in developed countries have been losers in globalization.

He said wages as a share of GDP have been on the decline since 1980 in developed countries and even in China since 1995.

"Since the demand for labor is going down compared with the demand for machinery and other technology, workers are not sharing in the prosperity of the world," he said. "That is why there is a rise in populism.

"But what Trump advocates is not the right policy response to it," he said. "We have to respond to this populist angst with the right kind of policy intervention."

Edmund Phelps, director of the Center on Capitalism and Society at Columbia University who is also a Nobel Prize winner for economics, said he is highly concerned with the loss of jobs and slow growth of wages in the United States.

"The world of work is under threat and something has to be done to restore positive attitudes about the possibilities of this world and people having meaningful careers and contributing to society," he said.

"Some think that a job is simply a paycheck and do not understand that a job is a huge chunk of someone's life and what someone does in their job is very central to their personal and intellectual development."

Phelps, author of Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change, said that there has to be a long-term rethink of the concept of work.

"People think that if someone doesn't have work, then it is just fine and all you need to do is throw some money at them. This is crazy."

Where now for the global economy? That was a leading topic for discussion at the forum. Nine years after the global financial crisis, growth in many parts of the world remains anemic. The World Bank cut its forecast in January for global growth this year to 2.7 percent, down from its previous 2.8 percent prediction.

Larry Summers, the former US Treasury secretary, said it was important not to get too depressed about the state of the global economy, contrasting now to when he was a key figure in the Clinton administration.

"People around the world are richer. They are living longer, more people are literate, and mortality rates are down In many, many ways the world is a better place than it was 15 years ago and my expectation is that this progress will continue," he said 

Summers, now the Charles W. Eliot University Professor of Harvard University, said many countries had already moved on from the global financial crisis.

"It has been in the rear-view mirror for some time as far as much of the world is concerned. There are particular strains within the euro system. The real challenge is finding ways to impart significant energy, particularly in the context of the American economy, where secular stagnation has been a problem."

Stiglitz said Europe remains the major problem with the debt situation in Greece and Italy, in particular, making global financial markets nervous and contributing to economic uncertainty.

"Many (European) countries have lower GDP than before the crisis and for many countries, the downturn is much worse than the Great Depression. Unemployment is unacceptably high and youth unemployment in countries like Spain and Greece is as high as 50 percent."

There was less concern about the Chinese economy at the forum. Premier Li Keqiang set a target for GDP growth in China of about 6.5 percent when he delivered the Government Work Report on March 5.

Jose Vinals, chairman of Standard Chartered, the UK bank with major operations in Asia, said the target was a sensible one for China since it allowed leeway for reform.

"Accepting lower growth in the short term, but rebalancing the economy with a better policy mix such as less expansionary monetary policy and more expansionary fiscal policy will lead to China having more sustainable growth prospects," he said.

Roach at the Yale Jackson Institute for Global Affairs said fears about China had at least eased in the short term.

"There is less near-term anxiety. The big challenge for China is completing the structural reform agenda that began five years ago, which means rebalancing the economy from manufacturing to services and from exports and investment to private consumption," he said.

"There has been good progress made in some areas and very limited and disappointing progress in many others. That is a long-term rebalancing that must continue if China is to be strong at home and strong globally."

Summers, however, is optimistic the China economy will make the transition whatever the short-term difficulties.

"China has grown at a remarkable rate and I don't think that rate is going to be ultimately sustainable. China has some substantial imbalances building up, particularly the accumulation of debt," he said.

"I am sure the path will not be exactly smooth, but I am also very confident there is good reason to expect Chinese living standards a generation from now will be very substantially higher than they are right now."

How to propel supply-side structural reforms in China was the subject of a panel discussion at the forum.

Michael Spence, professor of economics at the Stern School of New York University, said achieving success in this area was vital for the China economy.

"In the longer term if it doesn't happen, growth will stop," he said.

"Productivity growth, deepening the capital base of the economy, making it structurally more flexible and doing all the things you need to do to support innovation - all these are tremendously important. While making these reforms, it is important not to forget the demand side of the economy, which in China's case is important because of the need for consumption," he said.

Spence, also a Nobel economist, added that the supply-side reforms are different from those undertaken by the US under Ronald Reagan and in the UK by Margaret Thatcher in the 1980s.

"If you look at America, there was a macroeconomic management problem. There was inflation but it wasn't about market dynamism as it is in China. In the UK, Thatcher had to sideline a bunch of fairly obstructive unions to free the labor market and generally make the economy more flexible."

Urbanization was another theme of the forum, since increasing standards of living are dependent on more people living in cities.

China has had more people living in cities than in rural areas since 2011 when the 50 percent urbanization rate was surpassed.

Now 56 percent of China's population live in cities, and one of the key policy aims of the current Five-Year Plan (2016-20) is to encourage more people to move to urban areas through hukou or house registration system reform.

High-income developed countries all have high urbanization rates, with that of the US being 82.4 percent, the UK 79.6 percent, France 85.8 percent and Germany 73.9 percent. Some of the lowest urbanization rates are in Africa, such as in Burundi where only 12 percent of the population live in cities

Paul Romer, chief economist of the World Bank, said urbanization was vital to making people wealthier around the world.

"China has done a good job on this but it needs to do more. Many countries around the world, have room to bring more people into urban areas. So we need a more inclusive urbanization policy that welcomes everyone that wants to come to cities," he said.

"You have to say to people that you have a chance to pursue that, if you would like."

A number of executives of leading companies who attended the forum remained bullish about the China market despite slowing growth.

Tim Cook, chief executive officer of Apple, said it was vital for his company to build a long-term relationship with the world's second-largest economy.

The California-based giant plans to add to its existing bases in Beijing and Shenzhen with two more research and development centers in Shanghai and Suzhou.

"Look at the talent in China - it is just amazing," he told the forum.

"We want to broaden our cooperation with China in a deeper way."

Roland Berger, the founder and honorary chairman of the global management consultancy of the same name, said China represented a huge opportunity for global business generally.

"China will be the largest and strongest economy in the world in less than 20 years from now. It is a huge local market with 1.4 billion people speaking the same language. That is more than double the 700 million or so English speakers globally," he said.

"Although many Chinese businesses have been successful in overseas markets, the debate should be more about foreign companies coming here. We are now seeing a huge number of companies now coming to China, including younger startups, for the opportunities there are here."

For now, however, one of the biggest global risks remains China-US economic relations.

Former Treasury secretary Summers, who is also a former chief economist of the World Bank, said the actual relationship might be better than some expect.

"Certainly much of the rhetoric has not been that which I would have chosen or would choose to use when I was in office, but I think ultimately it is going to be the actions that are taken that are going to be more important than what has been said so far," he said.

Li Xiang and Xin Zhiming contributed to this story.

andrewmoody@chinadaily.com.cn