Transcription
Hello everyone, welcome to "Clear Gold." I am the editor-in-chief, Deng Quan. Today, we continue to invite Professor Yao, former president of a university, to chat with us about the changes in the global economic landscape and Hong Kong's economic challenges.
Professor Chen, things are a bit chaotic. You see the Middle East war, and this is... for Hong Kong, a small, open economy, it might be beneficial. What do you think? Where do you stand? Well, the Middle East war, of course, we don't want to see any bloodshed. But if we compare it to... Originally, for China and Hong Kong, the mainland and Hong Kong, the Middle East war presents a crisis, but also many opportunities.
So, what are these opportunities? For example, in finance, Dubai has actually taken over some of our business. Many Middle Eastern funds, or even other funds, because Dubai's financial center is doing quite well. But after this conflict, people are realizing that the original crisis in the Middle East is significant and can change at any time. Therefore, many places like Dubai, which have already attracted their financial activities, funds, will return to Hong Kong. Hong Kong, with its Chinese roots, has a vast economic power and technological advancement. Hong Kong, combined with our... it's quite good. If your money is temporarily or long-term... So, this Middle East crisis has brought a lot of money to Hong Kong. And after coming to Hong Kong, I think because the Middle East crisis won't disappear overnight, it's not just a few days in Hong Kong. It might be long-term.
The second opportunity is related to oil. Because in the Middle East, oil is subject to many restrictions and cannot be exported easily. So, many countries have started buying natural gas or oil from Russia or other places. And they are not paying in US dollars anymore. Originally, oil and the US dollar were linked, tracing back to 1971 when the gold standard was abolished. The US was very clever to link the price of oil to the US dollar. But apart from this change, the US can no longer enforce this rule. Early on, it was possible to trade in RMB. Now, India is buying from Russia and already using RMB for transactions. So, now it has appeared that we don't need to use US dollars at all. If we don't use US dollars, the best choice is RMB.
Many times, I know that when many countries buy natural gas or oil from other places, they go through Hong Kong, which is a major offshore RMB trading hub. Selling RMB is beneficial. Because of the Middle East crisis, offshore RMB trading in Hong Kong has already accounted for a significant portion of all transactions. After this, it might be even higher, say 75% or more. In the future, Hong Kong's status as an offshore RMB trading center, in addition to oil and the US dollar, will become even more important.
But is the current capital still significant? You want to say that global trade is huge. Of course. So, this capital will increase, not just for oil trading. RMB's share in global trade is only about 3-4%. So, the internationalization of RMB is not about replacing the US dollar. The main goal is to increase the proportion of RMB in global trade to at least match China's national strength, China's GDP, and the level of China's technological achievement. It needs to be coordinated, right? So, this 4% share in global trade is very small, and the capital is not that large. But I think this is a period of change. Apart from the current Middle East crisis, oil trading, and the development of the Belt and Road Initiative, many Belt and Road projects are also settled in RMB.
In the past few years, I have seen that the US dollar is still the world's main currency. But its necessity is being eroded. We should seize this opportunity to develop more RMB wealth management products. I believe this is definitely the direction we are heading. In the future, many commodities will have large-scale transactions. For example, we have already started with gold. Especially in cooperation with Shanghai. More and more of our financial services can be developed in conjunction with the mainland. So, Hong Kong's biggest advantage is truly relying on the motherland, because Hong Kong truly lacks the economies of scale. I see this in commodities, where commodity transactions are the largest. Like oil, like all precious metals, even agricultural products like coffee. These trades can now be detached from the US dollar and can use RMB as a transaction currency. This is good for the country because RMB can increase its importance in international transactions. For Hong Kong, it is an important financial development. This is on the financial side.
I don't think there's any doubt that Hong Kong will continue to develop, continue to develop very well, and can even have a leading position. In addition to cooperation with the mainland, strengthening our cooperation. You have been studying this region for a long time. Some people say that cooperation is important, but Singapore and Hong Kong are fierce competitors. Do you think so? Are they still? I think Singapore is indeed a competitor. I don't see too many areas where we can cooperate. Because we are both financial centers. It's a competition. Of course, I don't see any particular areas where we can truly cooperate. Hong Kong's focus is on finance, and this is a direct competition with Singapore. Innovation is not important; let a hundred flowers bloom, because innovation is very broad. You do your thing, I do mine, Singapore has its own things that we can't learn. For example, they have the oil industry. We cannot have the oil industry. We have our advantages, such as the motherland's vast market and the many things the motherland can cooperate with us on. So, it's polite.
They recently wanted to develop a gold trading center. Is this also targeting Hong Kong? I think, as I've said before, in finance, we are truly in a competition. It's a bit of a "you die, I live" situation. Although this term... you don't know, it's unknown to zero. It's not necessarily a game, because global capital is so vast. Right? So, it's unknown to them. But there are some conflicts of interest, but it's impossible to... Let's put it this way, in a region, in such a close region. In fact, you think there can't be two international financial centers. Yes, that is, the international... it has existed for so long. But can there be... If Hong Kong does it, and you do it, then it's a direct competition. But it should be more beneficial for Hong Kong, because Hong Kong cooperates with... right? It's more beneficial. And in that... maybe their methods are different. It might be a virtual gold trading, while Hong Kong plans to do physical gold, with warehouses for storage, right? And I think in Qianhai, Hong Kong also has a place. And it has already started early, related to metals, gold, etc., trading. So, we should have our country to do it. Because there are many financial centers in the world, there are four major financial centers. We can't snatch business from London or New York. I think having two financial centers in a region is not a problem. If Shanghai and Hong Kong are both financial centers in China, there should still be some division of labor. But cooperation is less than competition. That's right, I think so. We have little cooperation with the mainland. But we might have some cooperation with Singapore. But overall, it's still competition.
Let's take a break and continue our discussion. One perspective, helping you understand the situation. How to innovate, how to progress. News, Liancheng TV. Everyone, we are here to talk about the dual impact of television and... Tianlian, jointly producing a cross-border review program, "Clear Gold." I am Deng Quan, editor-in-chief. Every week, we invite top financial professionals to discuss the future development of the economy and the market. Guests are truly welcome. In this program, we continue to chat with Professor Chen. You were once the president of a university. During your tenure, you strongly promoted something called... the "liberal arts" study. Many students now, after graduation, are still very... I almost eat with different students every day, have breakfast. So, to build this teacher-student relationship. I want to ask, in the era of AI, does it still exist?
Actually, Vincent, people generally misunderstand education. Little Arts is a short name. It should be Little Arts and Sciences. It's about well-roundedness. The essence of education is a small-scale university with close teacher-student relationships, using intensive methods to learn. It requires students to constantly write homework, constantly do presentations, constant discussions, brain stimulation. Because when the class size is 30 people, the teacher-student relationship is very close. Peer relationships are very close. Discussions, arguments, opportunities for debate are many, stimulating the brain. And most importantly, residential education is about human relationships. Living together. It leads to a lot of learning and influence on human relationships. So, we should not misunderstand liberal arts education. It's about cultivating people. It's a teaching method. Because the scale is small, the school is small, but the people who come out are outstanding. What can AI not do? In liberal arts education, two points are very important. We hope they have... AI can give you a lot of knowledge or analyze it for you. But what we get are insight and judgment. That is, you need insight and judgment. This is called wisdom. It's wisdom, not just data analysis. How does a person develop insight and good judgment? It's through education. Through different educational methods. In the AI era, you give me a lot of information, but I can't see its essence. You analyze it, but I don't have the judgment to choose which one, or the answer you give might not be ideal. So, I think in the AI era, we need to look at education more, and we need people with ability and judgment more.
We are now facing an era of economic transformation. This economic transformation, the new economic form, does it require more generalists than specialists? Of course, specialists are needed. If you don't know AI, then you lack technical support. But with technology, your creativity... If you only train a technical person, you lack creativity. Creativity requires brain stimulation. So, the subjects studied in education are more general. The educational method can stimulate it. So, I don't think everyone should accept it. In the AI era, we still need educated people to create a greater... to generate greater productive power or greater strength. Long-term growth really needs creativity. Many former university presidents, I have interviewed them. Because in the US system, as you know, there is first a liberal arts foundation, and then specialization. Often, this liberal arts college... you know, it's a pity that this concept is not... it's about technology, technology, technology. But there is a need to break through this limit with creativity. Judgment, insight. These are needed. Professor Chen, you have been studying economics for decades. In your daily life, are there any economic concepts that you apply to yourself, your investment philosophy, or your lifestyle habits?
There are a few simple economic concepts. The first one, which many people don't use, but I think we should always remember, is what the classical economist Ricardo talked about: comparative advantage. We all know about competition. But often, ordinary people confuse comparative advantage with absolute advantage. If someone is better than me in ten things, it doesn't mean you should do all ten things yourself. You should always think about your advantages, your strengths. What are you best at? Do that. Never try to do all ten things yourself, because you will spread your abilities too thin. We only need to focus on our comparative advantage. We don't need to pursue absolute advantage. If I'm better than you in five things, but I'm ten times better in one of them, and only twice better in the others, then I should focus on the one where I'm ten times better. We constantly need to examine ourselves, our comparative advantage in a work environment. What is my comparative advantage? What can I do? What can I create? It depends on my comparative advantage, not absolute advantage. Just looking at myself is useless. In a work environment and with the people around you, where is your comparative advantage? This is what I always need to remember.
Another concept, also from economics, is marginal utility. This means that as you consume more of something, your satisfaction or utility from it decreases. The conclusion we draw is that a rational person will stop when the marginal utility equals the price. But some people are irrational. When the marginal utility or satisfaction is already lower than the price, they continue to buy. That's a waste. So, we need to be content, to know when to stop. This economic principle tells us... The comparative advantage we talked about earlier, can it be applied not only to individuals but also to... you can't want to do everything. For example, in finance, we have a comparative advantage. We don't have technology yet, but we can try to do it. But we can't want to do everything. Right? For example, in tourism, we have some advantages. We might have absolute advantages, but do we have comparative advantages compared to other places? We need to think about it. Yes.
We have some advantages. But are they our absolute advantages? Are they our comparative advantages? Because our resources cannot be spread across all advantages. We need to focus on industries or investments where Hong Kong has a comparative advantage. But this advantage will also change. Of course, we need to constantly re-examine it. Advantage does not equal future comparative advantage. So, businesses and governments need to constantly re-examine the situation and see what their comparative advantage is in the current circumstances.
We are nearing the end of the program. Can you give us a concluding remark, a golden quote, for our program "Clear Gold"? In the future, whether it's regional economies or human relationships, there will be competition. Competition with humans, with machines, with AI. Do you have a word of wisdom for our audience to navigate this changing world?
I think in this business world, or in this changing world, the last thing to remember is to know your own strengths and weaknesses. I think that's it. You must know your strengths and the strengths of others. So, in this entire economic world, I can stand firm.
Okay, thank you. Thank you for being on our show. This episode of "Clear Gold" has come to an end. We will see you next week.