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Guo Shuqing: the revival of China is unstoppable

Translation 08:49:45AM Jun 17, 2019 Source:Central bank website
The content below was translated by Tencent automatically for reference.

SMM News: it is a great pleasure to participate in this meeting. I would like to exchange views on several economic and financial issues of common concern at home and abroad. I welcome criticism.

Escalating Trade frictions in the United States will not solve any problems

On May 10, the US government imposed tariffs on $200 billion of Chinese exports to the United States, followed by a ban on Huawei and related companies, and announced that it would conduct a countervailing investigation into the exchange rate of the yuan. The Chinese government, businesses and residents are not surprised. We continue to believe that a trade war will not solve any problems at the expense of others and harm the world.

From China's point of view, the United States can raise tariffs to the limit, but the impact on the Chinese economy will be very limited. First, the vast majority of products exported to the United States are well suited for domestic sales, and China is in a period of escalating consumption, and its rapidly expanding market will absorb a large part of it without having a "crowding out effect" on existing consumer goods. Second, great progress has been made in market diversification, the "Belt and Road Initiative" initiative is seeing results, and markets outside the United States welcome more Chinese products. Third, a considerable number of them will also be exported to the United States, either because alternatives are not available or because American importers are willing to share costs because of their high profits. Fourth, the upgrading of China's industrial structure requires a certain scale of production to be transferred overseas, which will speed up China's high-quality development. Fifth, China's financial markets have been overaffected in 2018 and are now significantly more resilient and will not have much further impact.

From the point of view of the United States, it will be hit by almost the same intensity. Exports to China will shrink, hurting many US companies, and the revenues of some high-tech companies will fall significantly. Many domestic enterprises in the United States, which have long relied on imported Chinese products for processing, combination, transportation and distribution to create added value, will be severely squeezed, some of which may face threats to their survival. American consumers will pay high costs, and low-and middle-income groups, especially farmers and blue-collar workers, will actually lose more benefits. At the same time, the United States has a large number of overseas assets and liabilities, more dependent than any other country on the international financial system dominated by Wall Street, and the trade war is bound to lead to the shock and downturn of the international financial market.

Logically, the goal of the United States to impose tariffs is to reduce the trade deficit between the United States and China, but because of China's reaction, its direct results are very uncertain, and together with the influence of other factors, the final effect is likely to be counterproductive. First, by adding Chinese high-tech enterprises to the sanctions list and explicitly banning US enterprises from selling products and technology, the United States is tantamount to directly increasing the deficit. Second, the launch of a trade war shocked international financial markets, the RMB exchange rate fell rapidly, and the US government was soon worried that the role of tariffs would be offset. Third, a sharp increase in tariffs would push up prices, making it possible for the US economy to lose the advantage of low inflation. Fourth, to curb China's exports to the United States, the resulting gap must be made up by other economies, and the total deficit cannot be reduced.

Historically, the United States has had trade disputes with other late-developing countries for more than 40 years. At first it was Germany and Japan, followed by the "four Little Dragons" of Asia. In 2000, China overtook Japan as the largest contrarian country in the United States. At present, India, Vietnam, Indonesia, the Philippines, Bangladesh and a number of Latin American countries have good growth momentum and are accelerating efforts to change the pattern of world trade in goods and services. China's exports to the United States may gradually decline, but the pattern of the US deficit is very difficult to change.

The United States benefits greatly from trade with China

Judging from the statistics alone, the United States has a large trade deficit with China and seems to have suffered a loss. But careful analysis shows that the United States has actually benefited greatly in many ways. Figuratively speaking, the benefits to the United States from Sino-US economic and trade exchanges are equivalent to peeling several skins off a cow.

First, importers and multinationals in the United States receive the vast majority of the added value in the trade balance. Nearly 60 per cent of the US-China trade deficit comes from foreign-invested enterprises, a significant proportion of which are US-funded enterprises, which ultimately generate revenues and profits from the sale of these goods. 61% of the Sino-US trade imbalance comes from processing trade, and China does not receive a high share of the real value distribution. In addition, 1/3 of the total global overseas sales growth for US-funded companies came from the Chinese market. Second, American consumers obtain a huge "consumer surplus" through Sino-US trade. It is estimated that about 1/4 of the retail goods in the US market are imported from China, such as 26 per cent of the products sold by Wal-Mart directly from China. A steady stream of good and cheap Chinese products have been imported into the United States, reducing the cost of living for American families and raising their welfare levels. Third, the products and services exported by the United States to China are areas in which China gives full play to price support. For example, the prices of commodities such as grain and energy, as well as civil aircraft and chips, would not have been where they are today without China's heavy procurement. According to US statistics, trade in services with China has a surplus of more than US $40 billion every year. Fourth, since the 1990s, the United States has experienced the miracle of "high consumption and low inflation." Even in the 10 years of quantitative easing, there has been no obvious inflation in the United States. One of the important reasons is that China, with a population larger than Europe, the United States and Japan combined, is in a period of rapid industrialization and has unprecedented increase in the supply of global consumer goods. Fifth, the United States has obtained a huge return of cheap capital. The capital accumulated by China's trade surplus is returned to the United States by buying US dollar assets such as US Treasuries, supporting US consumption and investment. By the end of 2018, China had $7.3 trillion in international financial assets, more than half of which existed in dollars. The continuous inflow of Chinese capital has made the cost of capital in the US market extremely low, creating extremely favorable conditions for its economic recovery and prosperity. Sixth, the United States has long occupied China's huge savings resources. The Chinese people are industrious and thrifty, saving a little money even when they earn more than $10 or a few dozen dollars a month. China's domestic savings rate and household savings rate have been at very high levels, while the United States has a large investment-savings gap. The huge US current account deficit with China means that the US accounts for the same amount of China's net savings.

Because the funds returned from China to the United States are mainly the purchase of securities and other assets, and the proportion of direct financing in the US financial system is very high, so the deposit creation effect is low. Both broad money and cash in the US have grown slowly over the past decade, in stark contrast to what happened in the 1970s and 1980s. This is enough to explain a new secret in the United States: the cost of printing and issuing dollars has also been saved a lot. The famous Triffin problem in international finance has found a more effective solution.

Accusing "China of stealing American Technology" is the Logic of Power

China began to introduce foreign capital 40 years ago and set up "three foreign-funded enterprises", and foreign investors have benefited greatly from China. At present, the sales of foreign businessmen in the Chinese market are as high as trillions of dollars, and the profits are as high as hundreds of billions of dollars. All this is based on the mutual benefit of enterprises, and no contract has been forced by the Chinese government to be signed by foreign investors. Strict performance of the contract has been advocated by Europe and the United States, but also increasingly recognized by Chinese enterprises and residents. Now the US side has suddenly accused China's laws and economic practices of "forcing foreign parties to transfer technology," forcing foreign parties to acquire foreign intellectual property rights, "and even directly using the word" theft. "this is not only inconsistent with the basic facts, but also a great insult to the Chinese people.

Any late-developing country will learn from the knowledge and experience of developed countries, so development economics has the concept of "tracking imitation stage". China has been ahead of the world in science and technology for more than ten centuries in history, and our intangible assets have made unparalleled contributions to the evolution of human civilization. The "four great inventions" directly contributed to the rise of capitalism in Europe. Without gunpowder, compass and printing, there would be no modern industrial economy. Francis Bacon or Karl Marx spoke highly of this. Now, it seems that our ancestors had shortcomings. They invented too many things, but they did not invent "intellectual property rights."

Looking back at the history, we can see that in the period of industrialization in Europe and the United States, it is very common for countries to imitate and plagiarize each other's technology. Some enterprises have done whatever it takes to acquire the technology of others, which is an inevitable phenomenon in a specific historical stage. Every developed country has experienced the process of standardizing the protection of intellectual property rights, but each country has made new breakthroughs through its own exploration on the basis of its predecessors and made new contributions to technological progress. Moreover, we believe that no country's modernization has been achieved by theft, including the United States, through the hard work of its own people.

The exchange of technology for market or market for technology was originally invented by Western countries. Technology transaction based on the principle of fairness is a basic market economy activity recognized by all parties. For many years, developed countries in Europe and the United States have been touting free trade and fair exchange, claiming that they will take the initiative to transfer knowledge and technology to developing countries to help the third World get rid of poverty and backwardness and achieve economic independence. If this goal can be achieved, it will certainly be conducive to the development of the world. Now it seems that the United States has no desire to deliver on its promises.

Developed countries have been relying on technology transfer to make huge gains. Through patents, franchising and other means, many science and technology in developed countries have made high profits in the application of developing countries. In addition, many technologies have been tested in the application of developing countries, and the project managers of these countries have made great contributions to the improvement and improvement of technology, which has promoted the further improvement of the scientific and technological level of developed countries.

In the name of intellectual property protection, the United States has carried out trade protection in the name of intellectual property protection, and its accusations against China are completely unfounded. In today's world, China is a staunch defender and active builder of international rules on intellectual property rights. Francis Gao Rui, director-general of the World intellectual property Organization (WIPO), praised at the 2019 China intellectual property Protection High-level Forum that China has become a model for the creation and protection of intellectual property rights in the world. Just a few years ago, the US government, institutions and dignitaries publicly affirmed the great progress made in the protection of intellectual property rights in China. Did all this change overnight?

History has long proved and will continue to prove that sanctions and blockades not only cannot stop a country's scientific, technological and economic development, but will stimulate its determination to develop its own research and development and accelerate its technological progress. In the 1950s and 1960s, we were blocked and embargoed by all parties, and under the extremely difficult conditions of "one poor, two white", we still created "two bombs and one satellite," making China gradually become one of the major scientific and technological countries in the world.

Continue to deepen the Reform of RMB Exchange rate formation Mechanism

The CPC Central Committee and the State Council have decided to continue to deepen the reform of the RMB exchange rate formation mechanism, enhance the flexibility of the exchange rate, and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level. In recent years, the RMB basket exchange rate has been stable in the global currency, and the Chinese government's efforts to strike a balance between improving exchange rate flexibility and maintaining exchange rate stability have been widely recognized by the international community.

Since the early 1990s, the US has repeatedly threatened China with allegations of "currency manipulation". According to the definition of the US Treasury Department, exchange rate manipulation needs to meet three quantitative criteria at the same time: first, the trade surplus with the United States exceeds $20 billion a year; second, the current account surplus accounts for 3 per cent of GDP; and third, the foreign exchange purchased through exchange rate intervention exceeds 2 per cent of GDP. China's current account surplus accounted for only 0.37% of GDP in 2018, did not buy foreign exchange in large quantities, and did not rely on exchange rate depreciation to gain a competitive advantage in trade. It is difficult for the US government to put this hat on China.

In the past decade, whenever there has been a large devaluation of the RMB, it is basically due to external reasons. At one point, the offshore renminbi fell more than 3 per cent against the dollar, as a result of escalating trade frictions in the US. For a long time, developed countries have been demanding that the RMB be more flexible in exchange rate, but when the degree of marketization and fluctuation of RMB exchange rate increases, some countries show the attitude of "Ye Gong Hao long" and criticize us for no reason. This way of doing things is obviously very ridiculous.

It is well known that despite the recent volatility in the foreign exchange market, there has been no panic among Chinese companies and residents. More and more people realize that it is unrealistic to obtain investment returns by buying and selling foreign exchange, and it is not safe to transfer financial assets overseas. In mature market countries, few enterprises and residents rely exclusively on "foreign exchange speculation" for investment returns. Although the so-called "Mrs. Watanabe" has appeared in Japan, the actual results are not the same as the legends of that year.

The short-term fluctuation of RMB exchange rate is normal, but in the long run, China's economic fundamentals determine that it is impossible for the RMB to depreciate continuously. China is still the biggest engine of world economic growth, with excellent market space and growth potential. With the improvement of the quality of economic development, the RMB market exchange rate will continue to approach purchasing power parity. Speculation against the renminbi is bound to suffer huge losses.

There is no so-called "state monopoly capitalism" in China

In recent years, there are international views that the rapid development of China's economy is the result of the implementation of "state monopoly capitalism", and this is also the reason why Chinese products are super competitive in the international market. This claim is groundless.

In fact, China's economic composition has become increasingly diversified, and the market share of state-owned enterprises has been declining. Coupled with the government's public services, the state-owned economy accounts for less than 40 per cent of GDP. Many of the state-owned enterprises have been listed at home and abroad, but in fact they are mixed ownership enterprises, and 100% of the pure state-owned enterprises are already very few. In large state-owned enterprises, a large number of subsidiary control has been transferred to private enterprises. Even the central state-owned enterprises are in competition with each other. When military enterprises were reformed more than 20 years ago, more than two companies were divided into two or more companies in each industry.

At present, private and foreign investment can enter almost all industries and all fields, with very few legal and policy restrictions. Enterprises with different ownership can be seen in rail transit, equipment manufacturing, energy and raw materials, and so on. We adhere to the principle of competitive neutrality, emphasize the equal treatment of all kinds of market entities, encourage them to compete and cooperate, and achieve complementary advantages and win-win results. China's industrial policy and credit policy are guiding, and the landing of all policies must adhere to the principle of marketization and the rule of law. In essence, this guiding policy is not much different from the "export doubling plan" of the United States and the "industrial recovery strategy" of the European Union. There are often complaints in the international community that the Chinese government provides huge subsidies for all kinds of goods. In fact, this criticism is logically difficult to hold. If all enterprises are to be subsidized, resources must be transferred from all enterprises.

The financial industry has also formed a diversified pattern, China's financial institutions are not only state-owned, but also private and foreign holding, listed institutions and rural credit cooperatives and other natural persons to participate in the stock. Of the 4588 banking financial institutions, more than 3000 are controlled by private capital. Most of the 170 Chinese insurance companies are privately controlled, and most of the securities companies and fund companies are also controlled by social capital. Even the five big commercial banks had a 25 per cent foreign stake more than a decade ago, when it was difficult to apply for a branch in the US. At present, the non-state-owned capital shares of large banks in and out of China reach an average of about 30%, some even more than 40%. In particular, it should be pointed out that although the efficiency indicators of China's five major banks continue to rise, but the market share has been declining, now only 37%, compared with the major economies of Europe and the United States, its market concentration is significantly lower.

Another typical example is that China's financial science and technology is in the leading position in the world. The important reason is that the government has adopted a prudent and tolerant attitude towards private Internet enterprises and created a level playing field. Large state-controlled banks have adopted a competitive and cooperative attitude from the very beginning. For example, Alipay is in the construction bank and other large and medium-sized banks with the support of cooperation, more than a decade ago began to be born and rapid development and growth. Today, all financial technology companies have strategic partnerships with large and medium-sized banks. Other banks have also made great efforts to develop financial technology, and Internet enterprises in fund raising, account opening, payment and settlement, inclusive finance and other aspects of all-round cooperation, learning from each other to make up for each other, the effect is very remarkable. Thus it can be seen that even in the most important and core areas, the Chinese government has not adopted a simple monopoly policy of state-owned enterprises.

The goal of improving the corporate governance structure will not change

In recent years, some foreign institutions and organizations have had a lot of doubts about the corporate governance of Chinese enterprises, especially the role of party organizations. Private enterprises in China have been operating independently and effectively according to the principle of marketization according to the articles of association and organizational structure, and the party organization has not intervened.

In state-owned enterprises, the leadership of the Party has been playing a central role. Integrating the leadership of the Party into all aspects of corporate governance is the most distinct feature of our corporate governance model. General Secretary Xi Jinping stressed that adhering to the party's leadership over state-owned enterprises is a major political principle and must be consistent; the establishment of a modern enterprise system is the direction of state-owned enterprise reform and must be consistent. To deepen the reform of state-owned enterprises, we must not only optimize and improve corporate governance, but also give better play to the role of party organizations, so that the two organically integrate and promote each other.

From the perspective of global theoretical research and practical exploration, there is no unified model of corporate governance, and there is no "optimal model" that can be copied completely. Chinese enterprises are in line with the general international standards in terms of the basic principles and framework of corporate governance. The G20 Hangzhou Summit held in China in 2016 clearly put forward its support for the corporate governance principles advocated by the G20 / OECD in the communiqu é. Under the framework of the general principles, in practice to adapt to specific national conditions to supplement and improve, in line with international practice.

The establishment of a modern enterprise system is fully compatible with adhering to the leadership of the Party. First, in the scientific and effective checks and balances mechanism, we promote the general meeting of shareholders, the board of directors, management, the board of supervisors to each assume their own legal responsibilities. The main purpose of the party committee is to implement the direction, manage the overall situation, and ensure implementation, and play a core role in implementing national laws and policies, cultivating a healthy corporate culture, and assuming social responsibility, and the management decision is still the responsibility of the board of directors. Second, in the protection of stakeholders, good corporate governance should fully take into account the legitimate rights and interests of shareholders, employees, customers, communities, creditors and enterprises upstream and downstream of the supply chain. Our party has always adhered to the fundamental purpose of serving the people, has rich experience in mass work and good ability to organize and mobilize, and can better realize, safeguard, and develop the legitimate rights and interests of all parties. Third, the party organization implements the system of collective leadership, and the members of the party committee, the board of directors and the board of supervisors also implement two-way entry and cross-appointment, which can better prevent the control of insiders, the manipulation of major shareholders, the inadequate performance of directors, and the non-independence of independent directors.

Practice has proved that the corporate governance model with Chinese characteristics is completely feasible. For example, the core role of the party committees of the five major banks that established diplomatic relations between industry and agriculture has been brought into full play. Through a series of major measures, such as shareholding system reform, the introduction of strategic investors, listing at home and abroad, and so on, historic breakthroughs have been made in corporate governance and business performance. Some banks won international awards for corporate governance ten years ago. These banks have been highly internationalized, with a network of shareholders and institutions all over the world, and some key operating indicators, such as labor productivity, rate of return on capital, cost-to-income ratio, capital adequacy ratio, provision coverage, etc., are at the international advanced level. This also fully proves that while learning from international experience, we can successfully explore an excellent corporate governance model with Chinese characteristics.

Unswervingly promote the opening up of the financial industry to the outside world

The opening up of the financial sector is a general trend, and there will be no pause, let alone retrogression. China overtook the United States as the world's largest trading nation in 2013, accounting for 10.8 percent of the world's imports and 12.8 percent of the world's exports by 2018, and more than half of the world's countries regard China as their largest trading partner. Compared with the production and exchange of goods, the degree of openness of China's service industry lags behind. Finance is an important field of the service industry. In order to better serve the needs of the real economy and people's life, we must further expand the opening up to the outside world.

In 2018, we announced 15 measures to open up the banking and insurance industry to the outside world. In May this year, we announced 12 new measures for opening up to the outside world, which are now being implemented one after another. There is still a lot of room for opening up in the future. At present, foreign capital accounts for only 2% of China's A-share market value, and only 2.9% of China's bond market. Foreign bank assets account for 1.6% of all commercial bank assets, and foreign insurance companies account for 5.8%. There is still a lot of room for improvement. In particular, we welcome foreign institutions with good market reputation and credit history, with characteristics and expertise in risk control, credit rating, wealth management, professional factoring, consumer finance, old-age insurance and health insurance, to enter China to enrich the main body of the market, innovate financial products and stimulate market vitality.

In the process of opening wider to the outside world, the complexity and contagion of financial risks will also increase. For such a large developing country as ours, it is particularly important to prevent and control financial risks. We should be particularly vigilant against the large inflow and outflow of cross-border funds and the speculation of "hot money", and resolutely avoid excessive bubbles in real estate and financial assets.

China's Development should be based on doing its own thing well

No external force can change the direction of China's progress, and the Chinese nation must firmly control its destiny in its own hands. At present, the whole country is promoting the transformation from high-speed growth to high-quality development in accordance with the arrangements of the 19th CPC National Congress. The key to whether we can move more steadily lies in whether we can properly handle all kinds of contradictions and problems. This means that, first of all, it is necessary to effectively deal with the internal challenges facing economic and social development, especially the outstanding problems such as aging population, environmental pollution, unreasonable income distribution, uneven regional development and lack of innovative capacity.

The proportion of the population over 60 years old in China is about 18%. It is estimated that by 2025, the number of elderly people over 60 years old will reach more than 300 million, entering a typical elderly society. The accelerated pace of population aging has a profound impact on all aspects of economy and society. In addition to the reduction of the working population, the reduction of the savings rate, which is not conducive to long-term economic development, China's old-age health care and social security system will also face a severe test.

China's environmental pollution is still very serious, every year due to environmental pollution and ecological damage caused by economic losses as high as trillions of yuan. The CPC Central Committee with Comrade Xi Jinping at the core attaches great importance to ecological and environmental protection, and the General Secretary has repeatedly stressed that Green Water and Green Mountain is Jinshan Silver Mountain. Although the cost of pollution control is very high, it involves the vital interests of the people of the whole country. We must make comprehensive use of economic, legal, administrative and other means, keep an eye on the focus of the problem, and resolutely fight a tough battle for the prevention and control of pollution.

Unreasonable income distribution is also a prominent problem. After the reform and opening up, the income gap between departments, industries, strata and groups in China has increased, and the imbalance of income distribution caused by some unfair competition is particularly prominent. Due to the serious undervaluation of the converted rent of self-owned housing, there is a lot of room for improvement in household income accounting, but the Gini coefficient of our country is still on the high side as a whole, which requires us to attach great importance to it. At present, the battle against poverty is in a decisive period, and the task is very arduous. After the achievement of the stage goal, helping the poor and helping the poor will still be a long-term social cause.

There are also obvious differences in the development of different regions in China. There is still an obvious economic imbalance between the east and the west, the south and the north, especially some old industrial areas and resource-based cities are facing great pressure for sustainable development. To make matters worse, there has been a net decline in population in some places. If this problem is not solved properly, it will be very disadvantageous to the reasonable adjustment of China's industrial structure and to the improvement of the sustainable development level of the national economy as a whole.

The lack of innovation ability seriously restricts the economic development of our country. In recent years, we have paid more and more attention to science and technology education, and the scale of investment has been increasing, but the effect is not satisfactory. The outstanding problem is that there are still many institutional and mechanism obstacles in science and technology education, for example, the evaluation system of scientific and technological achievements and the allocation of government resources directly related to them need to be improved. There is a "bottleneck" in the transformation and application of innovative scientific and technological achievements, and there is still a "stuck neck" phenomenon in some core technologies, which seriously restricts the transformation of the economy to high-quality development.

With regard to the above problems, we must deepen reform in an all-round way, adopt a multi-pronged approach, take more measures at the same time, and make great efforts to solve them. The financial industry has made great achievements in these areas, which is also the due meaning of financial supply-side structural reform. We firmly believe that under the strong leadership of the CPC Central Committee with Comrade Xi Jinping at the core, the Chinese people will be able to successfully achieve the grand goal of "two hundred years!"

Key Words:  Finance  macro  investment  capital markets 

Guo Shuqing: the revival of China is unstoppable

Translation 08:49:45AM Jun 17, 2019 Source:Central bank website
The content below was translated by Tencent automatically for reference.

SMM News: it is a great pleasure to participate in this meeting. I would like to exchange views on several economic and financial issues of common concern at home and abroad. I welcome criticism.

Escalating Trade frictions in the United States will not solve any problems

On May 10, the US government imposed tariffs on $200 billion of Chinese exports to the United States, followed by a ban on Huawei and related companies, and announced that it would conduct a countervailing investigation into the exchange rate of the yuan. The Chinese government, businesses and residents are not surprised. We continue to believe that a trade war will not solve any problems at the expense of others and harm the world.

From China's point of view, the United States can raise tariffs to the limit, but the impact on the Chinese economy will be very limited. First, the vast majority of products exported to the United States are well suited for domestic sales, and China is in a period of escalating consumption, and its rapidly expanding market will absorb a large part of it without having a "crowding out effect" on existing consumer goods. Second, great progress has been made in market diversification, the "Belt and Road Initiative" initiative is seeing results, and markets outside the United States welcome more Chinese products. Third, a considerable number of them will also be exported to the United States, either because alternatives are not available or because American importers are willing to share costs because of their high profits. Fourth, the upgrading of China's industrial structure requires a certain scale of production to be transferred overseas, which will speed up China's high-quality development. Fifth, China's financial markets have been overaffected in 2018 and are now significantly more resilient and will not have much further impact.

From the point of view of the United States, it will be hit by almost the same intensity. Exports to China will shrink, hurting many US companies, and the revenues of some high-tech companies will fall significantly. Many domestic enterprises in the United States, which have long relied on imported Chinese products for processing, combination, transportation and distribution to create added value, will be severely squeezed, some of which may face threats to their survival. American consumers will pay high costs, and low-and middle-income groups, especially farmers and blue-collar workers, will actually lose more benefits. At the same time, the United States has a large number of overseas assets and liabilities, more dependent than any other country on the international financial system dominated by Wall Street, and the trade war is bound to lead to the shock and downturn of the international financial market.

Logically, the goal of the United States to impose tariffs is to reduce the trade deficit between the United States and China, but because of China's reaction, its direct results are very uncertain, and together with the influence of other factors, the final effect is likely to be counterproductive. First, by adding Chinese high-tech enterprises to the sanctions list and explicitly banning US enterprises from selling products and technology, the United States is tantamount to directly increasing the deficit. Second, the launch of a trade war shocked international financial markets, the RMB exchange rate fell rapidly, and the US government was soon worried that the role of tariffs would be offset. Third, a sharp increase in tariffs would push up prices, making it possible for the US economy to lose the advantage of low inflation. Fourth, to curb China's exports to the United States, the resulting gap must be made up by other economies, and the total deficit cannot be reduced.

Historically, the United States has had trade disputes with other late-developing countries for more than 40 years. At first it was Germany and Japan, followed by the "four Little Dragons" of Asia. In 2000, China overtook Japan as the largest contrarian country in the United States. At present, India, Vietnam, Indonesia, the Philippines, Bangladesh and a number of Latin American countries have good growth momentum and are accelerating efforts to change the pattern of world trade in goods and services. China's exports to the United States may gradually decline, but the pattern of the US deficit is very difficult to change.

The United States benefits greatly from trade with China

Judging from the statistics alone, the United States has a large trade deficit with China and seems to have suffered a loss. But careful analysis shows that the United States has actually benefited greatly in many ways. Figuratively speaking, the benefits to the United States from Sino-US economic and trade exchanges are equivalent to peeling several skins off a cow.

First, importers and multinationals in the United States receive the vast majority of the added value in the trade balance. Nearly 60 per cent of the US-China trade deficit comes from foreign-invested enterprises, a significant proportion of which are US-funded enterprises, which ultimately generate revenues and profits from the sale of these goods. 61% of the Sino-US trade imbalance comes from processing trade, and China does not receive a high share of the real value distribution. In addition, 1/3 of the total global overseas sales growth for US-funded companies came from the Chinese market. Second, American consumers obtain a huge "consumer surplus" through Sino-US trade. It is estimated that about 1/4 of the retail goods in the US market are imported from China, such as 26 per cent of the products sold by Wal-Mart directly from China. A steady stream of good and cheap Chinese products have been imported into the United States, reducing the cost of living for American families and raising their welfare levels. Third, the products and services exported by the United States to China are areas in which China gives full play to price support. For example, the prices of commodities such as grain and energy, as well as civil aircraft and chips, would not have been where they are today without China's heavy procurement. According to US statistics, trade in services with China has a surplus of more than US $40 billion every year. Fourth, since the 1990s, the United States has experienced the miracle of "high consumption and low inflation." Even in the 10 years of quantitative easing, there has been no obvious inflation in the United States. One of the important reasons is that China, with a population larger than Europe, the United States and Japan combined, is in a period of rapid industrialization and has unprecedented increase in the supply of global consumer goods. Fifth, the United States has obtained a huge return of cheap capital. The capital accumulated by China's trade surplus is returned to the United States by buying US dollar assets such as US Treasuries, supporting US consumption and investment. By the end of 2018, China had $7.3 trillion in international financial assets, more than half of which existed in dollars. The continuous inflow of Chinese capital has made the cost of capital in the US market extremely low, creating extremely favorable conditions for its economic recovery and prosperity. Sixth, the United States has long occupied China's huge savings resources. The Chinese people are industrious and thrifty, saving a little money even when they earn more than $10 or a few dozen dollars a month. China's domestic savings rate and household savings rate have been at very high levels, while the United States has a large investment-savings gap. The huge US current account deficit with China means that the US accounts for the same amount of China's net savings.

Because the funds returned from China to the United States are mainly the purchase of securities and other assets, and the proportion of direct financing in the US financial system is very high, so the deposit creation effect is low. Both broad money and cash in the US have grown slowly over the past decade, in stark contrast to what happened in the 1970s and 1980s. This is enough to explain a new secret in the United States: the cost of printing and issuing dollars has also been saved a lot. The famous Triffin problem in international finance has found a more effective solution.

Accusing "China of stealing American Technology" is the Logic of Power

China began to introduce foreign capital 40 years ago and set up "three foreign-funded enterprises", and foreign investors have benefited greatly from China. At present, the sales of foreign businessmen in the Chinese market are as high as trillions of dollars, and the profits are as high as hundreds of billions of dollars. All this is based on the mutual benefit of enterprises, and no contract has been forced by the Chinese government to be signed by foreign investors. Strict performance of the contract has been advocated by Europe and the United States, but also increasingly recognized by Chinese enterprises and residents. Now the US side has suddenly accused China's laws and economic practices of "forcing foreign parties to transfer technology," forcing foreign parties to acquire foreign intellectual property rights, "and even directly using the word" theft. "this is not only inconsistent with the basic facts, but also a great insult to the Chinese people.

Any late-developing country will learn from the knowledge and experience of developed countries, so development economics has the concept of "tracking imitation stage". China has been ahead of the world in science and technology for more than ten centuries in history, and our intangible assets have made unparalleled contributions to the evolution of human civilization. The "four great inventions" directly contributed to the rise of capitalism in Europe. Without gunpowder, compass and printing, there would be no modern industrial economy. Francis Bacon or Karl Marx spoke highly of this. Now, it seems that our ancestors had shortcomings. They invented too many things, but they did not invent "intellectual property rights."

Looking back at the history, we can see that in the period of industrialization in Europe and the United States, it is very common for countries to imitate and plagiarize each other's technology. Some enterprises have done whatever it takes to acquire the technology of others, which is an inevitable phenomenon in a specific historical stage. Every developed country has experienced the process of standardizing the protection of intellectual property rights, but each country has made new breakthroughs through its own exploration on the basis of its predecessors and made new contributions to technological progress. Moreover, we believe that no country's modernization has been achieved by theft, including the United States, through the hard work of its own people.

The exchange of technology for market or market for technology was originally invented by Western countries. Technology transaction based on the principle of fairness is a basic market economy activity recognized by all parties. For many years, developed countries in Europe and the United States have been touting free trade and fair exchange, claiming that they will take the initiative to transfer knowledge and technology to developing countries to help the third World get rid of poverty and backwardness and achieve economic independence. If this goal can be achieved, it will certainly be conducive to the development of the world. Now it seems that the United States has no desire to deliver on its promises.

Developed countries have been relying on technology transfer to make huge gains. Through patents, franchising and other means, many science and technology in developed countries have made high profits in the application of developing countries. In addition, many technologies have been tested in the application of developing countries, and the project managers of these countries have made great contributions to the improvement and improvement of technology, which has promoted the further improvement of the scientific and technological level of developed countries.

In the name of intellectual property protection, the United States has carried out trade protection in the name of intellectual property protection, and its accusations against China are completely unfounded. In today's world, China is a staunch defender and active builder of international rules on intellectual property rights. Francis Gao Rui, director-general of the World intellectual property Organization (WIPO), praised at the 2019 China intellectual property Protection High-level Forum that China has become a model for the creation and protection of intellectual property rights in the world. Just a few years ago, the US government, institutions and dignitaries publicly affirmed the great progress made in the protection of intellectual property rights in China. Did all this change overnight?

History has long proved and will continue to prove that sanctions and blockades not only cannot stop a country's scientific, technological and economic development, but will stimulate its determination to develop its own research and development and accelerate its technological progress. In the 1950s and 1960s, we were blocked and embargoed by all parties, and under the extremely difficult conditions of "one poor, two white", we still created "two bombs and one satellite," making China gradually become one of the major scientific and technological countries in the world.

Continue to deepen the Reform of RMB Exchange rate formation Mechanism

The CPC Central Committee and the State Council have decided to continue to deepen the reform of the RMB exchange rate formation mechanism, enhance the flexibility of the exchange rate, and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level. In recent years, the RMB basket exchange rate has been stable in the global currency, and the Chinese government's efforts to strike a balance between improving exchange rate flexibility and maintaining exchange rate stability have been widely recognized by the international community.

Since the early 1990s, the US has repeatedly threatened China with allegations of "currency manipulation". According to the definition of the US Treasury Department, exchange rate manipulation needs to meet three quantitative criteria at the same time: first, the trade surplus with the United States exceeds $20 billion a year; second, the current account surplus accounts for 3 per cent of GDP; and third, the foreign exchange purchased through exchange rate intervention exceeds 2 per cent of GDP. China's current account surplus accounted for only 0.37% of GDP in 2018, did not buy foreign exchange in large quantities, and did not rely on exchange rate depreciation to gain a competitive advantage in trade. It is difficult for the US government to put this hat on China.

In the past decade, whenever there has been a large devaluation of the RMB, it is basically due to external reasons. At one point, the offshore renminbi fell more than 3 per cent against the dollar, as a result of escalating trade frictions in the US. For a long time, developed countries have been demanding that the RMB be more flexible in exchange rate, but when the degree of marketization and fluctuation of RMB exchange rate increases, some countries show the attitude of "Ye Gong Hao long" and criticize us for no reason. This way of doing things is obviously very ridiculous.

It is well known that despite the recent volatility in the foreign exchange market, there has been no panic among Chinese companies and residents. More and more people realize that it is unrealistic to obtain investment returns by buying and selling foreign exchange, and it is not safe to transfer financial assets overseas. In mature market countries, few enterprises and residents rely exclusively on "foreign exchange speculation" for investment returns. Although the so-called "Mrs. Watanabe" has appeared in Japan, the actual results are not the same as the legends of that year.

The short-term fluctuation of RMB exchange rate is normal, but in the long run, China's economic fundamentals determine that it is impossible for the RMB to depreciate continuously. China is still the biggest engine of world economic growth, with excellent market space and growth potential. With the improvement of the quality of economic development, the RMB market exchange rate will continue to approach purchasing power parity. Speculation against the renminbi is bound to suffer huge losses.

There is no so-called "state monopoly capitalism" in China

In recent years, there are international views that the rapid development of China's economy is the result of the implementation of "state monopoly capitalism", and this is also the reason why Chinese products are super competitive in the international market. This claim is groundless.

In fact, China's economic composition has become increasingly diversified, and the market share of state-owned enterprises has been declining. Coupled with the government's public services, the state-owned economy accounts for less than 40 per cent of GDP. Many of the state-owned enterprises have been listed at home and abroad, but in fact they are mixed ownership enterprises, and 100% of the pure state-owned enterprises are already very few. In large state-owned enterprises, a large number of subsidiary control has been transferred to private enterprises. Even the central state-owned enterprises are in competition with each other. When military enterprises were reformed more than 20 years ago, more than two companies were divided into two or more companies in each industry.

At present, private and foreign investment can enter almost all industries and all fields, with very few legal and policy restrictions. Enterprises with different ownership can be seen in rail transit, equipment manufacturing, energy and raw materials, and so on. We adhere to the principle of competitive neutrality, emphasize the equal treatment of all kinds of market entities, encourage them to compete and cooperate, and achieve complementary advantages and win-win results. China's industrial policy and credit policy are guiding, and the landing of all policies must adhere to the principle of marketization and the rule of law. In essence, this guiding policy is not much different from the "export doubling plan" of the United States and the "industrial recovery strategy" of the European Union. There are often complaints in the international community that the Chinese government provides huge subsidies for all kinds of goods. In fact, this criticism is logically difficult to hold. If all enterprises are to be subsidized, resources must be transferred from all enterprises.

The financial industry has also formed a diversified pattern, China's financial institutions are not only state-owned, but also private and foreign holding, listed institutions and rural credit cooperatives and other natural persons to participate in the stock. Of the 4588 banking financial institutions, more than 3000 are controlled by private capital. Most of the 170 Chinese insurance companies are privately controlled, and most of the securities companies and fund companies are also controlled by social capital. Even the five big commercial banks had a 25 per cent foreign stake more than a decade ago, when it was difficult to apply for a branch in the US. At present, the non-state-owned capital shares of large banks in and out of China reach an average of about 30%, some even more than 40%. In particular, it should be pointed out that although the efficiency indicators of China's five major banks continue to rise, but the market share has been declining, now only 37%, compared with the major economies of Europe and the United States, its market concentration is significantly lower.

Another typical example is that China's financial science and technology is in the leading position in the world. The important reason is that the government has adopted a prudent and tolerant attitude towards private Internet enterprises and created a level playing field. Large state-controlled banks have adopted a competitive and cooperative attitude from the very beginning. For example, Alipay is in the construction bank and other large and medium-sized banks with the support of cooperation, more than a decade ago began to be born and rapid development and growth. Today, all financial technology companies have strategic partnerships with large and medium-sized banks. Other banks have also made great efforts to develop financial technology, and Internet enterprises in fund raising, account opening, payment and settlement, inclusive finance and other aspects of all-round cooperation, learning from each other to make up for each other, the effect is very remarkable. Thus it can be seen that even in the most important and core areas, the Chinese government has not adopted a simple monopoly policy of state-owned enterprises.

The goal of improving the corporate governance structure will not change

In recent years, some foreign institutions and organizations have had a lot of doubts about the corporate governance of Chinese enterprises, especially the role of party organizations. Private enterprises in China have been operating independently and effectively according to the principle of marketization according to the articles of association and organizational structure, and the party organization has not intervened.

In state-owned enterprises, the leadership of the Party has been playing a central role. Integrating the leadership of the Party into all aspects of corporate governance is the most distinct feature of our corporate governance model. General Secretary Xi Jinping stressed that adhering to the party's leadership over state-owned enterprises is a major political principle and must be consistent; the establishment of a modern enterprise system is the direction of state-owned enterprise reform and must be consistent. To deepen the reform of state-owned enterprises, we must not only optimize and improve corporate governance, but also give better play to the role of party organizations, so that the two organically integrate and promote each other.

From the perspective of global theoretical research and practical exploration, there is no unified model of corporate governance, and there is no "optimal model" that can be copied completely. Chinese enterprises are in line with the general international standards in terms of the basic principles and framework of corporate governance. The G20 Hangzhou Summit held in China in 2016 clearly put forward its support for the corporate governance principles advocated by the G20 / OECD in the communiqu é. Under the framework of the general principles, in practice to adapt to specific national conditions to supplement and improve, in line with international practice.

The establishment of a modern enterprise system is fully compatible with adhering to the leadership of the Party. First, in the scientific and effective checks and balances mechanism, we promote the general meeting of shareholders, the board of directors, management, the board of supervisors to each assume their own legal responsibilities. The main purpose of the party committee is to implement the direction, manage the overall situation, and ensure implementation, and play a core role in implementing national laws and policies, cultivating a healthy corporate culture, and assuming social responsibility, and the management decision is still the responsibility of the board of directors. Second, in the protection of stakeholders, good corporate governance should fully take into account the legitimate rights and interests of shareholders, employees, customers, communities, creditors and enterprises upstream and downstream of the supply chain. Our party has always adhered to the fundamental purpose of serving the people, has rich experience in mass work and good ability to organize and mobilize, and can better realize, safeguard, and develop the legitimate rights and interests of all parties. Third, the party organization implements the system of collective leadership, and the members of the party committee, the board of directors and the board of supervisors also implement two-way entry and cross-appointment, which can better prevent the control of insiders, the manipulation of major shareholders, the inadequate performance of directors, and the non-independence of independent directors.

Practice has proved that the corporate governance model with Chinese characteristics is completely feasible. For example, the core role of the party committees of the five major banks that established diplomatic relations between industry and agriculture has been brought into full play. Through a series of major measures, such as shareholding system reform, the introduction of strategic investors, listing at home and abroad, and so on, historic breakthroughs have been made in corporate governance and business performance. Some banks won international awards for corporate governance ten years ago. These banks have been highly internationalized, with a network of shareholders and institutions all over the world, and some key operating indicators, such as labor productivity, rate of return on capital, cost-to-income ratio, capital adequacy ratio, provision coverage, etc., are at the international advanced level. This also fully proves that while learning from international experience, we can successfully explore an excellent corporate governance model with Chinese characteristics.

Unswervingly promote the opening up of the financial industry to the outside world

The opening up of the financial sector is a general trend, and there will be no pause, let alone retrogression. China overtook the United States as the world's largest trading nation in 2013, accounting for 10.8 percent of the world's imports and 12.8 percent of the world's exports by 2018, and more than half of the world's countries regard China as their largest trading partner. Compared with the production and exchange of goods, the degree of openness of China's service industry lags behind. Finance is an important field of the service industry. In order to better serve the needs of the real economy and people's life, we must further expand the opening up to the outside world.

In 2018, we announced 15 measures to open up the banking and insurance industry to the outside world. In May this year, we announced 12 new measures for opening up to the outside world, which are now being implemented one after another. There is still a lot of room for opening up in the future. At present, foreign capital accounts for only 2% of China's A-share market value, and only 2.9% of China's bond market. Foreign bank assets account for 1.6% of all commercial bank assets, and foreign insurance companies account for 5.8%. There is still a lot of room for improvement. In particular, we welcome foreign institutions with good market reputation and credit history, with characteristics and expertise in risk control, credit rating, wealth management, professional factoring, consumer finance, old-age insurance and health insurance, to enter China to enrich the main body of the market, innovate financial products and stimulate market vitality.

In the process of opening wider to the outside world, the complexity and contagion of financial risks will also increase. For such a large developing country as ours, it is particularly important to prevent and control financial risks. We should be particularly vigilant against the large inflow and outflow of cross-border funds and the speculation of "hot money", and resolutely avoid excessive bubbles in real estate and financial assets.

China's Development should be based on doing its own thing well

No external force can change the direction of China's progress, and the Chinese nation must firmly control its destiny in its own hands. At present, the whole country is promoting the transformation from high-speed growth to high-quality development in accordance with the arrangements of the 19th CPC National Congress. The key to whether we can move more steadily lies in whether we can properly handle all kinds of contradictions and problems. This means that, first of all, it is necessary to effectively deal with the internal challenges facing economic and social development, especially the outstanding problems such as aging population, environmental pollution, unreasonable income distribution, uneven regional development and lack of innovative capacity.

The proportion of the population over 60 years old in China is about 18%. It is estimated that by 2025, the number of elderly people over 60 years old will reach more than 300 million, entering a typical elderly society. The accelerated pace of population aging has a profound impact on all aspects of economy and society. In addition to the reduction of the working population, the reduction of the savings rate, which is not conducive to long-term economic development, China's old-age health care and social security system will also face a severe test.

China's environmental pollution is still very serious, every year due to environmental pollution and ecological damage caused by economic losses as high as trillions of yuan. The CPC Central Committee with Comrade Xi Jinping at the core attaches great importance to ecological and environmental protection, and the General Secretary has repeatedly stressed that Green Water and Green Mountain is Jinshan Silver Mountain. Although the cost of pollution control is very high, it involves the vital interests of the people of the whole country. We must make comprehensive use of economic, legal, administrative and other means, keep an eye on the focus of the problem, and resolutely fight a tough battle for the prevention and control of pollution.

Unreasonable income distribution is also a prominent problem. After the reform and opening up, the income gap between departments, industries, strata and groups in China has increased, and the imbalance of income distribution caused by some unfair competition is particularly prominent. Due to the serious undervaluation of the converted rent of self-owned housing, there is a lot of room for improvement in household income accounting, but the Gini coefficient of our country is still on the high side as a whole, which requires us to attach great importance to it. At present, the battle against poverty is in a decisive period, and the task is very arduous. After the achievement of the stage goal, helping the poor and helping the poor will still be a long-term social cause.

There are also obvious differences in the development of different regions in China. There is still an obvious economic imbalance between the east and the west, the south and the north, especially some old industrial areas and resource-based cities are facing great pressure for sustainable development. To make matters worse, there has been a net decline in population in some places. If this problem is not solved properly, it will be very disadvantageous to the reasonable adjustment of China's industrial structure and to the improvement of the sustainable development level of the national economy as a whole.

The lack of innovation ability seriously restricts the economic development of our country. In recent years, we have paid more and more attention to science and technology education, and the scale of investment has been increasing, but the effect is not satisfactory. The outstanding problem is that there are still many institutional and mechanism obstacles in science and technology education, for example, the evaluation system of scientific and technological achievements and the allocation of government resources directly related to them need to be improved. There is a "bottleneck" in the transformation and application of innovative scientific and technological achievements, and there is still a "stuck neck" phenomenon in some core technologies, which seriously restricts the transformation of the economy to high-quality development.

With regard to the above problems, we must deepen reform in an all-round way, adopt a multi-pronged approach, take more measures at the same time, and make great efforts to solve them. The financial industry has made great achievements in these areas, which is also the due meaning of financial supply-side structural reform. We firmly believe that under the strong leadership of the CPC Central Committee with Comrade Xi Jinping at the core, the Chinese people will be able to successfully achieve the grand goal of "two hundred years!"

Key Words:  Finance  macro  investment  capital markets