Transcription
[Music] Foreign. The relationship between the world's two largest economies, the United States and China, has really been more tense. China's new Ambassador in Washington, Shifung, has admitted that this is a time of serious difficulties and challenges, but insists he wants to put relations between the two nations back on track. And one person who may have an insight into how to do that is my guest, Economist and author K. Eugene, whose latest book is "The New China Playbook." Okay, Eugene, thank you ever so much for inviting us into your home. Now, in your book, you say it's designed to talk about China in the original. What do you mean by that?
Well, you know, uh, China is a far away country, has a long history, its own his, uh, his, its own culture, and it's not about translation, but sometimes it's lost in the language. It's lost in the messages, and people tend to not see China for what it is, but from the outside perspective. I think a lot of people when they go to China, they have a totally different perspective. They understand China more. So I'm trying to bring that into writing. And as an economist, I want to tell a story about China in the original, without the kind of, um, the, you know, being lost in translation and cultural and historical perspectives, but also tell a story using a framework, data, so that everybody can understand.
You also talk about your personal journey in the book and your first trip to the United States in 1997. What were your impressions?
Well, my first trip that I took alone to the US, I was an exchange student, a new worker in a New York high school, their very first, um, and I lived with an American family, and it was a totally new experience for me. I was quite mesmerized by America, by the American life. But it was very funny that every time I told somebody I was from China, and this is just, you know, not just my classmates, but also I was working for a Democratic campaign with my host family, people I met, senior officials or businessmen in New York, they only think about only two or three things when I talk about China. And, you know, it's not the real China that I know. You know, back home, we were doing so many things. We were trying to join the WTO, bid for the Olympics, build buildings were being torn down and going up, and people's lives were transformed, really, pretty much every five years. But that wasn't really much featured. And maybe that's where we kind of missed the moment in China that China was joining the WTO, but we tend to focus on other things that were important for the West, but does not depict the whole picture of China. And we're still continuing to do that. And that's how I feel that that kind of narrative hasn't changed, even though China has changed, China and the world has changed, people have known, gotten to know China better, but we're not really focusing on the right things all the time.
Are you saying then that the perception of China across the rest of the world hasn't changed much since then?
No, I think people understand about China's remarkable economic growth. They've seen hundreds of millions of people being lifted out of poverty, but they don't necessarily see that there's evolution and and all the time. And even today, and we tend to read just too much the headlines, and it's important to separate the hype from the reality, the macro from the micro. It's important to have a more complete picture of China. I'm not saying that these reports are are incorrect, but I think they're just very selective.
So why do you think it is that that China remains so impenetrable to the West?
Oh, that's a really interesting question. Um, I think the new generation, many of them have studied abroad. We're talking about half a million students every year traveling abroad, and and many of them return. 80% of the students since 2013, I believe, official statistics, have returned to China, and they see China's stores home, and they see China as in, as, you know, as a great, great place of opportunity. And I think it speaks to the strength of China, the fact that people who have options to stay abroad actually choose to come home, even those who have fantastic options, uh, in, uh, in the U.S. or in Europe. But interestingly enough, even though there's traveling, although mitigated over the pandemic, but even before then, there's a lot of information flows. You know, the first barrier is potentially just simply language. Lots of the vibrancy, the dynamism of what's going on in China, simply not really featured, translated across these these walls. And another other is that I think in the West, not everyone, but many people take to tend to use their own lens to evaluate another country, another history, but also another socioeconomic situation. And the point of my book is, let's take a different perspective. Let's use a different lens. Of course, there's unifying themes in economics, but we have to introduce the elements of culture and history into that framework to better understand China and some of the decisions that the government takes. For instance, you know, paternalism is a key theme that runs through throughout my book, but really, really important for the economy. The desire for stability, the the desire to not see too much, too too much freedom and autonomy in the financial system explains many of the state actions, which can seem a bit too much to one culture, but actually is expected in the Chinese culture and others.
It's interesting there, what you're saying about how charged relationships can be. And I'm thinking about the recent G7 meeting that took place in Japan, where the language there around China, in particular, it was quite tense. The talk was of de-risking rather than decoupling. But I wonder how much of a concern you think that is.
Well, this first stems from a deep misunderstanding of China and China's aspirations, Chinese developmental model. Now, China hasn't been, hasn't been really all great and transparent, uh, and skilled in communicating its desires and ambitions and aspirations, many of which, I think, the majority of which are actually totally legitimate and aspirations to become a rich nation so that its people can live better lives. The fact that its technologies are so hugely important for 80% of the people living in this world in developing countries, they are suitable for them. Unless we're making the argument of, let's have three, three quarters of the people in the world living in abject poverty, I do not see any legitimate rationale behind trying to limit China's growth or trying to oust China from the global supply chain. I think it's just completely against our, our, you know, moral standing, not to say it's not in the spirit of collaboration since we've built post-war. But this stems from misunderstanding, I think, from on both sides, China with the U.S. and U.S. vice versa. And for, for, for one thing, uh, the U.S., or at least a common perspective, a common perception, is China is trying to displace the U.S. I don't think that at all that it's the, it's aspiration. Um, in fact, its aspiration is to become a technical and industrial power, more like, um, after the German model, a bigger Germany, and with its managed capitalism rather than free market capitalism. And at the same time, China also misperceives U.S. intention. I don't think everyone in the U.S. has the intention that we need to stop China's growth, but in fact, uh, delineate and carve out these areas of contention, hopefully try to sort them out, respect each other's national security considerations, rather than let it corrode the entire economic landscape. If we're not careful, that's what's going to happen. But also, I think a lot of this, um, this kind of communication is a bit more emotional than rational, rather than cold-headed. Lots of these policies might actually not achieve its objective. For instance, can you really stop China's technological growth? Right? Can China really surpass the U.S. in many of the key critical technologies? I think there's a lot of misunderstanding, but it's important to keep open the dialogue channels, to keep on talking. That's the first thing. And second is to see each other's perspective and understand each other. For instance, people think about China as having a centralized state model, and that it's crowding out the private sector. That's not at all the case. Just look at the data. 30 years ago, 70% of the wealth belonged to the state. Today, 70% of the wealth belongs to the private sector, which also provides 80% of the jobs, 70% of the industrial output. It is firmly in the driver's seat. So that that centralized approach is more political centralization and setting the strategic objective, but there's a huge amount of autonomy left to the local level, left to the entrepre, left to the local mayors, and they have an interactive dynamic relationship. All that is actually happening on the ground. And sometimes we get lost in these very grandiose messages on either side, but I don't think that it depicts the reality.
Those grandiose messages on either side, you talk about, have created tensions which are really bubbling between the United States and China, particularly when it comes to aggressive trade policies that appear to to want to curb China's technological growth, not least the current chip wars. But then we have, you know, China's foreign minister urging the United States to bring diplomatic relations back on track. So what's it going to take, do you think, to make all that happen?
Uh, you know, China was a small economy, has had a small imprint on the world when it first joined the WTO, and then it grew, and, um, it traded a lot, and then the impact was becoming more clear. But that was after many, many years. China had joined, but still, that's all part of the old playbook. You know, if we talk about WTO rules, the U.S. violated, uh, a number of rules, twice as many in terms of court cases as China did, and they should just take it to the court. They should resolve it multilaterally. But I think that's part of the old playbook. If you look at the industrial subsidies, now China, now the U.S. is actually engaging in some as well, with the CHIPS Act and the Inflation Reduction Act, etc. Maybe it's that U.S. understands that there's certain elements of state input for the green transition, for instance, for long-term uncertain cycles of investment, that it can play a role. And I see this as competitive collaboration. That's the way I like to define the U.S., where I like to see how the U.S. and Chinese economic relationship would be defined in the future. And on the ground again, there's a lot of collaboration, even though there's de-risking in certain critical sectors. But if we look at renewables, many, many foreign companies are investing in Chinese EV companies or setting up joint ventures so that they can bring China's technology into European, American markets, Japanese markets. Chinese battery makers are setting up shop in in Germany. Eight, some 80% of electric bus vehicles will be done with Chinese companies all around the world, and Tesla opted for a Chinese battery maker, which is making the German government want to do more in that space. But that kind of competitive collaboration also, also in AI. I think AI is a more contentious space and probably subject to certain national security issues, which I totally understand. But if you look at the U.S. in a collaboration in AI, it's far exceeding the second pair after the U.S. and China. So again, it's the people in the business that have more to say. And I think there's political motivations to try to take these two countries apart. But on the ground, I think many still want to see a competitive collaborative kind of partnership. And that competition is good. Competition is not bad. It makes you better, and it makes consumers better off.
Still to come here on The Agenda, we'll hear more from K. Eugene, including green innovation. Where next for China in the global drive towards net zero? [Music] Events have consequences. Words create impact. Unprecedented scenes that we saw. The cleanup operation is now well and truly underway. Parts of southern Europe remain in a state of emergency. Context gives meaning. People make history. Far more than a thousand people have come here today, but authorities are still on high alert. So into the attention of world leaders. A complex world demands a comprehensive view. But with the cleanup efforts more or less under control, the economic impact is bound to ripple across the country. There's plastic pollution everywhere because the world today matters for your world tomorrow. This is the living area of the crew. And in these mountains, they recently finished building a power plant. Well, this is something completely different. The world today, every day on CGTN.
Foreign. We can try out the wild, crazy ideas. Nothing can stop an idea whose time is coming. This idea is coming. I feel quite comfortable in isolation. We should all be very basic when we're trying to save the world. [Music] We hope it will happen. We have to live in hope. [Music]
Welcome back to The Agenda. We can return now to my interview with Dr. Kay Eugene, Associate Professor at the London School of Economics and the author of "The New China Playbook." Okay, let's talk about the other Chinese dream. Xi Jinping talks a lot about the great rejuvenation of the the Chinese people. What room really is there for entrepreneurship, for innovation?
The Chinese dream, for me, is still about getting the 600 million people who have not reached middle income by international standards, that means with a monthly income of a little less than $300, getting them to become to be become a middle income, and getting China's average $10,000 GDP per capita to $30,000 or $50,000 when it's richer now. Um, I think that's first and foremost a priority for still for everyone. We still have a huge swath of the population that can't meet, uh, the the needs of a very dignified life and can secure a good future for their, for their children. And I think the China dream, in my mind, is that you have, uh, you can be in a country with economic opportunities, when you educate, you have better opportunities, when you invest, you have a good return, and people live happy and secure lives in a relatively, you know, healthy and safe environment. Now, the trouble is, or the challenges, as we all know, as a country gets richer, the society becomes more complex. And I think the economy, because it has run so fast, it has run ahead of society, evolution of the civil society, the new generation, and what they think. And I think there's a, there's a mismatch. But we're seeing this kind of crisis of disbelief really everywhere around the world, manifest in different ways. Ways, you know, rich countries have their own socio-psychological issues. And I think so, it's not simply just economic satisfaction, but I think that is the basis and still the core of this, you know, half of the population in China. But then, um, there needs to be, you know, there's, there's a dynamic civic, civil society with, um, you know, we see lots more community identities being formed because they have more diverse interests, you know, no longer just about having a higher income for tomorrow and being able to get their kids to school. And when that diversity blossoms, it is a challenge. It's a challenge to China's model. But we also have to remember that China also evolves along with its economy. So we're about to see what's going to happen.
Well, talking about seeing what's going to happen, how is the way that China innovates maybe different to other parts of the world, other regions, other countries?
Yeah, I think there's, also some misunderstandings about China's innovation. Just a few years back, people are still discussing, was China really an imitator rather than an innovator? I think not many people would argue that China is just a copycat anymore. Instead, it's seen Chinese technologies everywhere. In fact, one striking statistic is that four out of five most downloaded apps in the U.S. today are Chinese, including TikTok and Shein and Temu and others. And I think there's something about China's business models, uh, uh, China's, you know, very creative ways of engaging with customers and feedback that is really at the frontier. But it's not just that, it's not just applications that China does well. China is also mastering cutting-edge technology in high tech, because some of many of it is skill, many of accumulation and learning. China has a host of very proficient engineers and many, many good STEM students. So the mastery of high tech is something I'm, uh, cautiously optimistic about for China. But is high-tech really groundbreaking technology? You know, the ones that go from zero to one, these creative breakthroughs? I think there's some way to go on on that front, because for well, really for a variety of reasons. And I think one of the key issues, apart from, you know, China's still very centralized state innovation system, the whole, the nation system, is the, is the impatience of the nation. It's kind of interesting that many people think about China as really patient in the government because of the long-termism. In fact, it's, it's not a paradox, actually, that in some aspects, it's a very impatient nation, a country with the people that have seen really remarkable growth that want to really capture the moment and do things often quickly and want to see fast results. And that kind of spirit, the short, flat, fast attitude, which I talk about in my book, which was originally used to describe a winning volleyball strategy, but then used to describe winning investment strategies to these people's mind, is is impatience. But if you think about creative breakthroughs, think about basic research, people, the fact that people need to be intrinsically motivated by intellectual passion, that's what is needed to have that long-term knowledge economy. But today, the reason that that China's business models are so successful is that they're very fast, and these companies become very successful in a short period of time.
What about China's commitment to the green transition and the pace it's going with that?
Yes, again, it's that, you know, the that ambition. And I think there, China has fully showcased that unique model, which I describe in my book, which is political centralization, economic decentralization, where local mayors are motivated to work with local entrepreneurs and build many Silicon Valleys all around China. Um, uh, you know, help the entrepreneurs build supply chains, find them talent. And if you look at the distribution of unicorn companies in China, it's all over the place, not just in one or two cities, but in second-tier cities like, you know, Chengdu or Orafe or Wuhan, Guangzhou, etc. They're all over China. And then these local mayors compete with each other.
You mentioned Jose there, and there's a, there's a nice story about an EV company isn't it that became risky because of this memorial system?
Yeah, so Nio is one of the top three EV companies in China, and it was on the verge of bankruptcy, bankruptcy. It was on the verge of bankruptcy after it went public. And the Jose government invited to move the headquarters there and then took a 25% stake. But most important was not the financial support. It was that it built an entire supply chain around Nio and helped its production grow about 81% within a year, all thanks to the government. And then it cashed out within a year. And that, you know, that same government built the Global Quantum Avenue with the global leading quantum communications companies there. And even in, I think 2009, when I was supposed to build a subway, instead of building a subway, I'm not sure it's the wisest decision, but still, it illustrates the point. In an estate, in a company that now today produces something like a quarter of LCD screens and has overtaken Samsung. So you wouldn't think the local government would be the venture capitalist. But there, it's important to point out that there's an iteration every time, and they're becoming smarter because there have been ways, there have been inefficient investment, wrong bets. So all that, those problems exist. And also local protectionism, where I want to protect my own company, so whoever comes into my local region, I'm going to block them. These are all problems of the model. But I think by and large, they did overcome some significant barriers for entrepreneurs, especially in a developing country. And that's the same model that China's using to build EVs, do the grand tradition, and for instance, state put, you know, 4 million EV chargers around the country as opposed to 140,000 in the U.S. And that's the thing that only a state can do.
That's jaw-dropping, isn't it? So that big difference there. Look, you've talked a lot too about the private sector as being in the driving seat. Let's talk about that a little bit more. In the driving seat in China today, I mean, where are they really doing the heavy lifting? Is it in the green sectors? Is it renewables? Is it in electrification? And how does that fit into President Xi's modernization drive?
Well, it's primarily in manufacturing, hopefully eventually in services. I think some of the strategic sectors are still SOE dominated, and that is true, but that's in communication and resources. But, you know, the most innovative companies, uh, the most competitive and dynamic ones are, are, you know, our private companies, that, you know, shot from zero to 20 million private companies in a matter of a few decades because of the blossoming. But that's not to say that they don't have challenges. It is a very challenging environment to be a private entrepreneur in China. The one on the one hand, you have this huge lucrative market. Under the other hand, policies can sometimes change, can sometimes be erratic, and it's hard to predict the macro stability in the future. But, you know, entrepreneurs are highly, highly resilient in China. That's kind of the condition to success, and they have to constantly reinvent themselves. They have to constantly know how to interact with local officials, even though now local officials need them as much as they need local officials. So I'm not trying to say that this private make, on entrepreneur landscape is all that easy and great. It is fantastic, but they have their own challenges. But they're marching forward regardless.
But you say that China doesn't want to be like the U.S. when it comes to the private sector driving the economy. China does not see the American-style capitalism, especially the relationship between capital and politics, where politics sing to the tunes of capital, as kind of a model of inspiration. In China, politics, it's probably fair to say that politics is above capital. So they will continue that kind of relationship where capitalism drives the economy, but in the future, we're probably going to see more regulations, more, you know, monitoring, because the American-style capitalism, at least to the Chinese, you know, there's a bit more, there's not enough, enough protection of consumers, there's a lot of inequality. And China wants the olive shape income distribution kind of fat in them. Explain the olive shape distribution. Explain that.
Well, China wants to see an income distribution where the top two end, top and end bottom are are narrow, so small share of the people extremely wealthy, but the majority of wealth being accounted for by the by the vast majority of people. And as we all know, inequality, especially the 90-10 percentile for the U.S. has risen substantially, so wealthy getting incredibly wealthy. Now, it's trying to be going to be able to achieve that and at the same time, preserve its economic dynamism is really the key question here, because there are trade-offs. You want the smartest and brightest and most productive people to work more, not to incentivize them. So that's always kind of the key question. But I think we all have to read China as as some a place where policies can change and adjust and be recalibrated and fine-tuned to kind of be fit for purpose. And that might look different in different periods of time. So never take anything as permanent.
Talking about things looking different in different periods of time, demographics are a big topic. China's population growth might be slowing, but in general, people are living longer, and that means they're going to be working longer. So we've got a shrinking population and an aging population. What then are the challenges and opportunities you see for the next generation in China?
Yeah, I think aging is, is an important issue. I just don't think they're going to be the dominant economic challenge for China. There are others that come beforehand. And if demographics didn't explain China on the way up, it's unlikely going to explain China's economy on the way down, is my view, because I think, you know, technology adoption and demographics are all endogenous. They they evolve and they co-evolve. And a reduction in labor force growth, I don't think spells a disaster for China. I think that the pressure on pension is, is going to be an issue. But I, I like to focus more on productivity rather than the number of people working in the labor force. And productivity has still a substantial room to improve. But really, the issue today is not really demographics in my view. The pressing issue today is that you have the most productive, highly educated new generation without jobs. So on the one hand, we're afraid of too few labor force, too few people working on their head. There, and we have 25% of people with bachelor's degrees without a job. And at the same time, we have a 30 million gap in manufacturing that needs to be filled, or in the high-tech sectors, 300,000 talent gap in semiconductors. I mean, so, so that's the mismatch. It's the mismatch. Are you, do the students have the right kind of skills and experience to adapt to China's changing technology, talk, technological society? Are they equipped with the right kind of tools and skills to be able to be attractive to private businesses? So taking care of that mismatch, reducing that mismatch, for me, is more urgent because the new generation is so important for China. It's really the bridge, the positive force between China and the rest of the world, as I think there's more convergence and values between this generation and the same generation and their peers around the world.
Coaching, absolute pleasure talking to you. Thank you very much.
Thank you. Great pleasure. [Music]
Gender in full on CGTN Europe's YouTube channel. And for exclusive extra content from me, my guests, and the rest of the team, don't forget to check out @TheAgendaShow on TikTok. Coming up on a future agenda, Turkey decides. We'll consider the nation's future following the presidential elections. But for now, from me, Juliet Mann, and from all of The Agenda team here in London, goodbye. [Music]