Transcription
I like to say that China does have a major challenge and something has to change. I do also think that these technologies should not be dominated only by Chinese companies. And the challenge is not going to be just with the US going forward. It's actually going to be with everybody around the world. To to think that the vast majority of Chinese manufacturing is successful and dominant because of subsidies, I think is a misunderstanding. I think if you want to know China in the next five years, 10 years later, you really ought to understand about the new generation. And I think that if there's any hope of reducing US China tensions and leading to a more sustainable path, it will be the new generation who will steer that.
From your book or your experience, help us understand your perspective on again not necessarily what to think, but how people should think about this kind of a challenge.
Well, first of all, I'd like to say that China does have a major challenge and something has to change. Um, what we're seeing just talking about observations, China is too dominant in manufacturing. China is too dominant in the renewable uh new technology emerging technologies. Uh, the green transition is critically important. And whilst I think that the low-cost high-quality Chinese green technologies could be beneficial for the green transition, I do also think that these technologies should not be dominated only by Chinese companies. And the challenge is not going to be just with the US going forward. It's actually going to be with everybody around the world if China continues to export that much capacity and to dominate in so many things.
Now that said, I want to give you my perspective on how to think about this, right? I do think that there are potential ways to resolve this. To give you an example, maybe China needs to appreciate their exchange rate, although there are technical difficulties as well there. Then it wouldn't be market-based determinative exchange rate, but a 30% appreciation might resolve some of the trade tensions and the gaps. It could also think about potential voluntary export restraints in certain areas. Of course, the answer to this would be boost your domestic demand and domestic consumption. You can absorb more of that. These are things that I think that China should be actively thinking about and discussing with the rest of multilateral institutions like the WTO and many others on finding balance. What we're lacking in the world today is some kind of harmony and balance. Right? It's not necessarily the imbalance is not just the trade deficits. I think that's a misconception but there is some kind of imbalance of productivity of you know what kind of things are exported who dominates and so forth. So there has to be more harmony.
That said, if we look more at a more nuanced way at the data, 90% of the exports are done by private companies, many of which are actually related to foreign multinationals. Um, the latest research which I have looked at shows that the majority again, 90-95% of manufacturing investment patterns adhere with market moves. In other words, there's no overinvestment subsidized by the government. It's primarily market driven. The remaining that does not subscribe to that patterns are in some of the EV space and the renewables. And I think that could be a really a focal point. But to think that the vast majority of Chinese manufacturing is successful and dominant because of subsidies, I think is a misunderstanding. Uh, first of all, the level of competition in China is just so fierce and they are going after each other in terms of price wars. So that has led to really a deflationary pressure. Um, but also in terms of supply chain efficiency, the cost base, the drive behind innovation to reduce cost, that is China's advantage. I mean, if you look at a company like Shein, they're able to produce these beautiful dresses for pennies, right? Um, so little that why is that? It's not because of government subsidy. They don't have any government subsidy. It's a clothing company. But it's that mastering of the supply chain efficiency and the scale, the learning, the fast iteration and the competitiveness. So even as EVs, you're phasing out the subsidies now. We're going to see, right? You've taken out the subsidies of the solar panels already. They are not the drivers of China's market share into the future. But Chinese competitiveness is the result of many, many different factors. Again, if not just because of government subsidies, there are a range of other factors which you might consider fair or unfair. But whatever the reason behind this, I still think that it is a problem for China, right? Dominate in so many sectors. So I liked your audience to have a slightly different view. Look at the numbers, right? The government is super fiscally constrained at the moment. The local government's debt is incredibly high. They have to resolve all the local real estate social issues, they're not plowing it into companies, but the level of competitiveness and this comes back to our previous conversation of the initial state push to have led to more competition. You can say whether it's right or not, but the end result is all the same.
Mhm. Uh, and I'd like to get your thoughts on when Americans say, "Well, do Chinese companies and individuals have in some ways more privileged access to America and opportunity with America than Americans do directly into China and opportunity in China?" Uh, and so that might be a perception. But regardless of whether that perception is right or wrong, how would you see the role or concept of reciprocity fitting in US and China interactions going forward?
Um, if the US wants to emphasize reciprocity, at least from the government level, the Chinese side emphasizes respect. And I think there's a lot of room that we can really have space to maneuver if the country, if two sides are willing to give each other what they want, which is respect and reciprocity. Now, I think that what you said about access to market was certainly true a few years ago. I'm not really sure it is the case now through all the stories and the examples that we've heard of US China Chinese companies really facing significant blocks trying to expand into the US economy. Actually, virtually impossible, even nothing companies, nothing to do with national security, say, "It's going to be too much of a battle in the US," including investments and so forth. So I think the situation has really turned around with the Chinese side openly saying, "We're all open for business," and the negative list of investments, what you can't invest has reduced, and we've given wholly subsidized foreign ownership to companies like Tesla and American banks. And I actually argue that this is the right strategy. Open it up for all the American companies to come to China and to make money. Let's make money together. Let's make the pie together. I think is really the right approach to take advantage of the growth potential.
Um, so in terms of reciprocity, I really think that China can be pushed in the right ways. You know, to do things. Even the Chinese admit themselves that there's room to change things, to negotiate. You know, but again, it has to be on the basis of mutual respect, and that is something where a country of civilization of a thousand years really truly, sorry, but this is founded upon China's demands of mutual respect, given the civilizational legacies of the country. And I think respect is again a cultural phenomenon. Um, again, how they talk, what do they talk about, how to approach it is really, you know, can really make for some change. And I'm not really sure that President Trump's approach right now, very aggressive, what Chinese think are bullying, is really the right strategy. But with the right strategy, I think you can definitely push China to change certain things to serve more reciprocity. And I think that given within the economic sphere, but things like Tesla, you know, by the way, Tesla's Chinese government gave Tesla a huge amount of subsidies to manufacturing his cars. I think they're actually very pragmatic. They like American companies. They'd like Americans to come into China. And reciprocity could be a right goal, but only under the right circumstances.
I think if you want to know China in the next 5 years, 10 years later, you really ought to understand about the new generation. And I think that if there's any hope of reducing US China tensions and leading to a more sustainable path, it will be the new generation who will steer that. And I say that in telling you how they are a radical break from the past because they're radically different from the previous generation in so many ways. Maybe because they grew up in an era of more prosperity. They're also more confident. Um, they also care a lot more beyond material life. They are the champions of social awareness, animal rights. They care about inequality. They care about the global environment, much like the Gen Zs around the world. And they're also highly innovative, but they're also very fluent with multiple cultures, many languages. So many students get sent abroad to study every year. But also what's relevant for the US China discussion is that they actually, all of this is really a cycle, right? Once you get to a certain cycle of level prosperity, they think about other things. They don't think about lining up the manufacturing lines and working three shifts a night to earn that a few extra dollars as the Foxconn workers did. And some of that really paved the path for this manufacturing dominance. Actually, China has 25 million vacant jobs in manufacturing. There's high youth unemployment. They don't want to do these jobs. They want to have a good time like the American young people. They borrow to spend. So China is no longer such a big saving country. In that perspective, they spend twice as much on apparel, entertainment, traveling than the previous generations. That gives a lot of opportunities for the world when they're not so focused on just making stuff, but on their local environment, on local services, on really having a better lifestyle. And I think that would reduce a lot of the tension on the production manufacturing front. But again, the baton is passed to other countries, you know, Vietnam, Bangladesh, lower cost countries that will take up a lot of these jobs if they're not completely replaced by robots.
But most importantly, you know, I think they're a great bridge between China and the world as it is, the global landscape to America. They have soft power. If you look at the TikTok founders, even the Temu founders, Pinduoduo founders, looking at the films that they're making, they really are interested in a truly more global perspective and they're less interested in just competing in the same space and driving down the prices, but they're thinking always about innovation, about how to do things better and how to solve, how to, you know, how to solve problems in everyday life. So they have that cultural fluency, they have the soft power, and they have a greater eagerness to engage with the world.