Chen Gang Transcript: June 25, 2025
Kevin Johnson, National Press Foundation (00:00:01):
No assessment of the international trade landscape is complete without a deep dive into China, its politics and its economy. Chen Gang has devoted a key part of his career doing just that. He is the deputy director and senior research fellow of the East Asian Institute, National University of Singapore. For nearly two decades, he has been tracing China’s politics, foreign policy, environmental and energy policies, and publishing extensively on these issues. His publications are too numerous to cite here, but I’ll just mention a few. He’s the author of Politics of Renewable Energy in China, the Politics of Disaster Management in China, the Politics of China’s Environmental Protection Problems and Progress. The list goes on and on, and he’s been extremely generous with this group in recent years, having made multiple appearances here. So I want you to join me in welcoming Chen Gang.
Chen Gang, East Asian Institute (00:01:20):
Thank you very much, Kevin, for your kind introduction. Very good morning, ladies and gentlemen. I’m so happy to be here again. And I’d like to thank the invitation from the National Press Foundation and Hinrich Foundation. I’d like to thank Mr. Johnson and the Mr. Hinrich effort to bring me here again. Last year I was here to talk about China’s export strategy. Yeah, this year I’m going to talk about China’s consumption strategy. I think these are the two sides of one coin. So both matters actually contribute to the imbalance of China’s economic structure. Actually, Chinese culture emphasizes on – I think you all know that – on balance, yin and the yang, dark side and bright side for economy, production and consumption. But last year I said that actually China’s strategy to boost its export was very effective and one of its strategic goals in the long term is to have more trade surplus and also more foreign reserves because of the current international system dominated by the US dollar.
(00:02:46):
So this year is about the domestic side, the consumption. I think up to now China’s, unfortunately, China’s strategy to boost this domestic consumption has not been so effective as China’s export strategy has been. So that has caused a huge imbalance of China’s economic structure as well as the tension you have seen in international affairs, especially now between the United States and China, EU and China. So I think the global trade system is facing huge challenges, not only by the trade itself, but also by the domestic consumption issue in China. So that’s why I think today’s topic is not only related to China’s domestic economic governance, but also have huge global implications as well.
(00:03:44):
So I think China does have a strategy. I think everything in China is strategic. China, Chinese government has a plan, has a strategy, and the Chinese government does realize that it has huge problem in the domestic consumption policies. So if we look at – it doesn’t mean that Chinese government does not have a consensus on whether to boost the consumption, but sometimes on how to boost the consumption. I think Donald Trump’s high tariffs actually serves as a warning call, waking up call for China to rethink its economic strategies. So you may have a lot of criticism on Donald Trump’s high tariff policies, but actually on this point I think it does force China to rethink its economic strategy, which has been over reliant on the export for the past two decades.
(00:04:55):
And we all know that it is not sustainable. And with the high tariff, not only from the United States, maybe from the EU as well, and also from some major trading partners, China cannot only rely on the export to boost its economic growth anymore. Every year China has a 5% economic growth target. So how to achieve that, you cannot only rely on export, you have to boost consumption. But now the problem is that it’s not realistic to expect a consumption spike in the short time due to the lack of political will and consumption culture in China. So that’s a problem. On the one hand, we definitely need a consumption boost in China. On the other hand, I think we have to be pragmatic, realistic. I don’t think China’s consumption will go up significantly in a very short time because of various factors I’m going to talk about later on.
(00:06:07):
If you have the chance to go to China, you’ll see that the consumption in China now is still very, very low despite all the initiatives, despite all the announcement from the government. But I think we’re really in a critical juncture to rethink this kind of consumption strategy because China is going to make the next five year plan pretty soon. So this will be the final year for the past five year plan, the 14th five year plan, and China is going to hold the fourth and fifth party plan, and at the fifth party plan, the party is going to propose the next five year plan proposal to be passed by the parliament next year. So I do think that now it’s time for the Chinese government to hear the voices, that they should really pay more attention to the consumption expansion. Otherwise they may lose the opportunity and there may be very serious domestic and international consequences.
(00:07:24):
So let’s see some of the existing efforts by the Chinese government to boost the consumption. I cannot say Chinese government doesn’t do anything to boost the consumption, especially last year, I think last year Chinese government already realized that the consumption is really, really weak and if they cannot boost the consumption, they may not be able to fulfill the 5% growth target. So in September 2024, I think if you follow Chinese financial news, you’ll probably still remember that moment. The stock market, everything went up all of a sudden, just before China’s National Day celebration, the central banker announced a very big stimulus package totaling IMB 12 trillion yuan about us 1.65 trillion US dollars. Yeah, so very short time. I think the market was boosted and people thought that problem would be solved, but the reality is that it was a very short-lived spike of market as well as people’s confidence.
(00:08:47):
About one month or two months later, people realize that it is far from being sufficient to kickstart the economic recovery or the domestic consumption. So if you look at it, we can see that first, if we look at the number, it’s only about 12 trillion yuan. But if we look at the total government debt of China, I think you all know that China has huge domestic debt problem as well these days due to the downturn of property market and also the over-capacity of factories. So if you look at the local government debt size has nearly doubled since 2019, rising from 21 trillion yuan to more than 40 trillion yuan at the end of 2023. So 40 trillion yuan local debt, only 12 trillion yuan stimulus. So do you think that’s enough? Definitely not. Yeah. So I do think that the Chinese central banker knows that. He look at the numbers every day.
(00:10:02):
So when I watch the press conference held by him, I noticed that his face expression not so – quite serious. Yeah, not so happy about what he’s going to announce. Yeah, he knows that it’s not enough. So besides his underwhelming scale as compared to the package implemented by the United States in response to the COVID 19 or other major economies like Japan or European countries, the Chinese stimulus disappointed as there has been no direct fiscal injection as well into the real economy. So first there, the size of the stimulus is not sufficient. Secondly, there’s no major fiscal injection into the economy. Thirdly, it came a little bit too late. So we all know that the US stimulus came right after the outbreak of the pandemic, but for China, I think it only came last year and it is not sufficient enough. So you may ask the reason behind that.
(00:11:11):
I cannot give you the reason right now, but I have a speculation. Maybe there are some divergences at the top level on how to stimulate the economy. So this could be a compromise, a stimulus, but not so much. So what would come next? We don’t know now. It’s already June 2025. So already I think more than nine months after this stimulus and all the economic indicators indicated that the economy as well as the consumption is pretty weak in China right now. So I do think that after the next plan, fourth plan probably will be held in the next three months. There will be another round of stimulus, but there are some other structural problems to be solved. So whether they are going to address those structural problems, also we need to wait and see. So here we can look at China’s household expenditure per capita.
(00:12:27):
So last year for all the months of last year. So you can see very clearly the limited impact of the stimulus in September last year. So there was a spike in the household income, I think before September in the anticipation of the stimulus, but after September you can see that it started to drop again. So the stimulus does not have a positive impact upon the increase of household income. We know that the household income is closely linked to the domestic consumption. If people’s income has not been increased, you’re expecting them to consume to spend more money. That’s not realistic. We all know that. So here you can see that the stimulus is not enough far from being enough.
(00:13:30):
So next is reality. The low consumption and consumer confidence, I think since the start of this year, situation even got worse. Beijing’s total, the capital city, Beijing’s total retail sales in the first quarter of 2025 dropped 3.3% year on year – 3.3% despite all the stimulus, despite all the policies to boost the consumption. Shanghai, another major city in China, the economic hub, experienced a year on year decline of 1.1% in retail sales in the same period. Shanghai is not so much better than Beijing. And if we look at the luxury market, I think all the luxury brands used to love Chinese market very much. But these days the Chinese mainland luxury market shrank by up to 20% last year, 20% according to Bain and Company. Watch sales in China were down as much as 33% by value in 2024 with jewelry slipping by up to 30%.
(00:14:50):
I think you can easily sense that because you may encounter the Chinese tourist these days in other countries, including Singapore, you see the buying pattern totally changed from the years before the pandemic. So the luxury market is another very good indicator to show that the consumption is still very low. And the reason I think job insecurity and the asset value losses in China are weighing on how people perceive their financial futures, with consumers are choosing to sit on their cash instead. That has even strengthened China’s traditional culture of saving, of being thrifty. That’s a merit according to Chinese culture. I think it’s a merit for many other countries cultures as well. But now the problem is that if people over save, then there’s a huge imbalance in economic structure.
(00:16:08):
So here you can see that China’s consumer confidence index actually plummeted since early 2022. There was a huge dive of the confidence index, consumer’s confidence index in early 2022, and then after that it didn’t recover. So please remember this timing, why early 2022. There was a turning point. Later on this timing will come to our discussion again, but there is a dip after that. So even today you can see that the consumer’s confidence index has not been recovered. So this is official survey data. So I think everyone in China, even inside China, agrees that the consumption and consumption confidence is very, very low right now.
(00:17:14):
So you may ask this question, is the Chinese government serious about consumption expansion according to the policy? According to the announcement, yes. Later I’m going to talk about, now I’m going to talk about this year’s two sessions. Chinese premier Li Chang, he said very clearly in his government report that boosting consumption is a top priority for this year’s government’s work. So if you like to count the frequency of keyword, he is a very strong evidence showing that consumption was mentioned 31 times in the Li Chang’s government work as compared to 21 times in his last year’s work report. 31 from 21 to 31,
(00:18:13):
Yeah, 50% increase. The Chinese government for the first time elevated consumption stimulus to the top priority for 2025, has employed a range of new tools, including an increase in the budget deficit to 4% of GDP, expansion of government bounds and a moderately loose monetary policy. So here you can see that on both fiscal and monetary aspect, Chinese government is starting to do something. First the budget deficit increased from 3% to 4% for the first time. For a very long time, every year the budget deficit is always 3%. That is like a red line, never been broken. But this year for the first time to 4%, that means the government is going to accept more deficit to boost the economy, including the consumption and also a moderately loose monetary policy. Actually this term was first raised by last year’s Pan Gongsheng, the China Central Bank governor in September when he announced the stimulus.
(00:19:31):
So this is also, I would say first time in the last decade, moderately loose monetary policy. But when we really look at the monetary policy, it has not been loosen enough to boost the economy, like the benchmark interest rate has not been lowered significantly to boost the economy. So I would say that stringent policies are still being adopted in many areas relating to China’s finance. So this is complicated. So these reports still largely support supply side activities. So this is another problem. There are more stimulus packages, but still focusing on the supply side, the production rather than the consumption. And we all know that in the past a lot of stimulus were focusing on China’s infrastructure, like bridges, highway, ports, and for this round of stimulus, it’s no exception. I once thought that the leadership has been rethinking about the over construction of infrastructure, but now we see that much of the stimulus still focusing on the infrastructure like canals, roads, and ports. So it’s very different — it’s very difficult for a government to change its mentality. Yeah, there is a momentum. If you are good at doing something, you’ll continue to do that for a very long time. So there’s longstanding mismatch between supply site oriented policy tools and the lack of direct income support or welfare enhancements that can boost consumers’ confidence.
(00:21:40):
So I do think that the government needs to pay more attention to the increase of citizens’ income. That’s the key. If you don’t have money in your pocket, you’re not going to consume. That’s very easy. Secondly, I think for social security system is far from being perfect. The pension system, the healthcare, of course that’s a problem for many other countries as well. But for China, many people do not have a sufficient cover from the government. So in contrast to the 500 billion yuan fund Beijing plan to raise to recapitalize major state banks this year, the government raised a monthly minimum pension by only 20 yuan to 143 year. That was like 20 US dollars. That’s written in the government’s report this year. So it’s far from being enough. We know that for the infrastructure investment, easily hundreds of billions of [inaudible] will be invested. But for the pension you can see that only increase from 20 yuan to 100 and by only 20, so they only increase 20 yuan, like a couple of latte. This is a increase for the pension per capita. There’s a trust gap between the population and officials on the credibility of consumer driven policies, particularly in light of government failures in reviving the property of stock market. I think that’s another big problem. The asset, some people would call it the balance sheet recession. I think probably you have heard of this term before by some economies. So China may be also facing the similar balance sheet recession like Japan has been experiencing in the last two or three decades.
(00:23:52):
It’ll be even worse because this kind of balance sheet shrink actually is even larger than that of Japan. China’s property market bubble probably is the largest asset bubble in human history. It has busted and now we have seen no sign that this kind of property bubble has been saved by the government. The property recession is still ongoing. The Chinese citizens are not willing to buy properties right now everywhere, first tier, second tier, third tier, fourth tier cities — everywhere, especially in the third tier and fourth tier cities. I think the problem is especially serious and the stock market, I think the same. If you look at Chinese stock market, it has been stagnant for it almost 20 years, 20 years. Despite the economic miracle China has been achieving, every year 5% growth, sometimes double digit growth. Despite that the stock market has been stagnant. Many people have lost a lot of money from the stock market.
(00:25:19):
So that also hits people’s confidence of consumption. So there’s confusing. I do think that there’s confusing policy signals from the Chinese government. On the one hand, you can see that the government has been talking about consumption expansion. On the other hand, you can also see that some of the policies are not so helpful to boost the consumption. For example, immediately after the two sessions of the Chinese government, while Li Chang mentioned consumption 31 times, the Communist Party of China announced the new austerity measures in March 2025. It’s a party-wide austerity campaign to reinforce the CCP’s eight point decision that was announced more than 10 years ago when Xi Jinping just came to power. So this eight point decision is a set of rules to cut overspending on conferences, vehicles, banquets and the research tools at public expense. So if we look at the intention of this policy, I think it is a good intention. We want to have more regulation, more discipline on the public spending, overspending. But the problem is that — the problem is about the timing. Because right now I think the top priority should be the consumption boost. But if you are strengthened the discipline in the party, and we all know that Communist party has about 100 million party members in China, including their family members, this kind of suppression of consumption and spending would be huge upon the overall spending.
(00:27:15):
So the past experience 10 years ago already indicated that this kind of five — eight point decision implementation would hit the consumption and sales significantly in China. In 2013 to 2014 sales at high end restaurants and the luxury goods and premium alcohol brands plummeted. This year, the same thing happened. You go to China, a lot of high-end restaurants closed or they’re not having good businesses. You go there it’s not difficult to find out. And for alcohol, premium alcohol, even for domestic brands like Moutai. This year, the Moutai price and sales dropped significantly due to this eight point decision.
(00:28:15):
So we still don’t know why this started to re-emphasize the eight point decision again. During the pandemic there’s no need to emphasize on that because of the lockdown policies already cut off all these kind of banquets, all the trips from the government. So now I think this came back again. So don’t underestimate the scale and the impact of this austerity measures from the party. Just now I mentioned there are about 100 million party members and for civil servants about 10 million. And if we include employees hired by the public service and the state owned enterprises altogether should be about 40 to 50 million staff. So about 40 to 50 million people and their family members will be severely impacted by this austerity measure. So that’s why I said in the very beginning, it’s not realistic for us to expect that there’ll be a consumption spark in the near future in China.
(00:29:28):
So there’s a ripple effect for this kind of austerity issue. First, there will be a psychological and economic ripple effect in China. I think people all look at how the government officials behave. If they’re cutting off spending, cutting off dinners, gatherings, I think everyone else would like to follow. Yeah, so you can see that especially for the number of restaurants that closed hit a record high nationwide approaching 3 million in 2024, 3 million in first tier cities such as Beijing, Shanghai, Guangzhou, and Shenzhen. The monthly restaurant close rates sometimes exceed 15%. It’s a very alarming figure. 15%. We all know that Chinese people like to dine out just like Singaporeans here. But now the restaurant business really, really bad in most Chinese cities.
(00:30:41):
So deflation also overshadows consumption prospect. So deflation is another challenge for China to boost the consumption. According to economics theory, we all know that if you’re expecting price level to continue to drop, you may try to save your money for future consumption because in the future the consumption would be even cheaper. So first you can see that if we look at this year’s government work report, the Chinese government has lowered the targeted consumer price for the first time. The CPI increase from 3% to 2%. So every year they say we’re going to control the inflation and most inflation can hit 3%. This year is 2%, which means that no one really thinks that China is having inflation — it’s either deflation or some people use disinflation. So the price level in China is continuing to drop. That also has a huge impact upon the global economy as well. We all know that in most economies we are experiencing inflation, we all worry that inflation is too high in China is the opposite.
(00:32:07):
They all worry that the price could drop too fast. It’s true. Both CPI consumer price index and producer price index. So these are two indicators. One, measuring the prices for consumer goods. Another for the factory goods. Both actually have been dropping. So even the 2% target seems to be over optimistic. The CPI after stagnating in the preceding months fell by 0.7% and 0.1% year on year in February and March 2025 continue to drop. If we look at the PPI, actually it’s even worse. So you can see the PPI here, actually for the past 30 months, it has been in the negative zone. Negative. Means every month the factory price is lower than the level of last month. So this situation has continued for 30 months, almost three years. So here you can also see that it started to drop. Actually the PPI turned negative in June 2022. Just now I mentioned the consumer confidence index also started to drop in 2022. So 2022 was a turning point. What happened in 2022?
(00:33:52):
No, the lockdown is close to an end. I cannot say, lockdown is still ongoing, but … but lockdown has been there since 2020. Yeah, so you can see that in the beginning it’s still OK. Lockdown is one factor, but another factor would be the crackdown of major businesses inside China. The Chinese government launched sudden crackdown on the high tech businesses, on the property developers. So that has influenced the confidence, the market confidence a lot since 2022, this kind of confidence loss has not been fully recovered. You can see from here that the PPI is still in an active zone. With all this, with the downturn of CPI and PPI, so we cannot expect the consumption to be boosted in the near future unless there’s another turning point to turn all this price level to positive growth again. So I think this is very, very serious problem.
(00:35:25):
So now the Chinese culture, for Chinese culture saving rather than spending. Yeah. So in the past two to three decades it was spending rather than saving. Chinese people like to spend, sometimes overspend, going to overseas to buy luxuries. Sorry? Crackdown? After I finish this, can I answer your question then? Yeah, perfect. So saving rather than — I’ll quickly conclude my presentation and come to the Q&A — So saving rather than spending now has become a culture. So first from the government apparatus and now to the society. So if we look at some of the policies, you want to promote the sales of the consumer durables like cars and home appliances. But if you look at this, it is also short-lived policy impact, this kind of policy because if it’s a durable, you know that once you buy it, you are going to use it for very long time. They’re not going to change it. So I don’t think the current policies right now to boost consumption is very effective. So that’s why we’re going to see the dip of the consumption and the confidence or the price indicators again this year. Actually the situation could be even more serious this year than last year.
(00:37:06):
So solutions, I do hope that we can provide solutions. First of all, I think since it’s a structural problem, I think China needs to reform this kind of economic structure. I do think China has a market economy, but China’s market economy is very different from many other countries’ market economy. Some economists like to use the word state capitalism to describe China’s economy in China, China used socialist market economy with Chinese characteristics to describe that. Anyway, this kind of economic structure has a tendency to focus on the supply side instead of the demand side, production over consumption. This problem has been there for many, many years. It’s not a new problem, but I do think that if China continues market reform, it can change this kind of structural problem to make its economic structure more balanced and to benefit its citizens more. OK, that’s all my presentation. I think I stopped here and we can have more discussions. Yeah,
Kevin Johnson, National Press Foundation (00:38:22):
Sure. We’ll launch it off and Christian, we will go with you.
Christian Davies | Financial Times (00:38:27):
Sorry to interrupt you, Christian Davies from Financial Times. So I’d like you to give us more detail and context about the 2022 crackdown. What was the motivation and so on, and secondly to explain why there was such a surge in Chinese exports over the last couple of years and was the government, was that one way of the government trying to address its economic issues, how it fits into this picture that you’ve described?
Chen Gang, East Asian Institute (00:38:59):
OK, thank you very much for your two very important questions. The first one about the crackdown and why there was a crackdown all of a sudden. I think one reason is that if we look at business in China before 2022, there was a huge expansion for all these big businesses and we remember that the online platforms like Alibaba, Didi, they went overseas for IPOs. Also their sales, their revenues hit new highs. From the communist party’s perspective, they think that there was a problem of over expansion of capitals inside China. So it needs to be regulated. I think that’s the main reason. Of course there are other reasons like data security, why they cracked down on the cyber tycoons. One reason is that they also, the government wanted to tighten the cybersecurity at that time. They think some of the platforms may own data that can damage China’s national security and they are not being regulated.
(00:40:13):
So there was a crackdown. For the property market, there was also a crackdown on the property developers like Evergrande or Country Garden, all these developers. I think also it’s related to the over expansion of capitals. The government thinks that some of the business has been grown too big to fall and also too big to be regulated by the government. So that’s why I say in the end that China’s economic structure is still a state capitalism. Yeah, it is capitalism, but the capitals needs to be under the control of the government. So I think that’s a fundamental reason of the crackdown at that time.
(00:41:01):
So that’s why we were seeing a turning point in 2022. Before that, China’s economy was very good. I think China performed better than many other major economies in the beginning of the pandemic. So all of a sudden there was a crackdown and also the lockdown, I agree with you, lockdown, especially the lockdown in Shanghai actually hurt a lot of people’s confidence about China’s economy. Your second question is about — there was a surge of export — because you didn’t come to my presentation last year. Last year I was focusing on the export. Yeah, I think there was a strategy to boost the export from the Chinese government. Probably you’ve heard of Made in China 2025. So after the announcement of the Made in China 2025, there was huge international repercussion. So that has caused some tension with other countries. So after that, the government does not talk much about the Made in China 2025, but actually the strategy, the plan is still there. So this year is the 2025. That’s why you’re seeing the Chinese export going up, especially during the pandemic. So we thought that during the pandemic, most of the investment or the production activities have come to a halt because of the lockdown. In reality, according to my survey or my trips, I can see that actually in many places the situation was the opposite. They were speeding up the construction, they were speeding up the implementation of new projects, manufacturing projects, many of which aimed at overseas market.
(00:43:16):
So that’s why we are seeing a spark of the new three EVs batteries and the solar panels and China is a shifting part of production lines to other parts of the world, especially in Southeast Asia, but they still want to retain the most valuable part of their supply chains inside China. So this is a strategy. So that’s why we are seeing that the export is going up rather than coming down. I think pandemic actually gave some of the industries in China more time to expand their investment and their production capacities. Yeah.
Md Mehedi Hasan | The Daily Star (00:44:06):
Hello, this is Md Mehedi Hasan. I’m from Bangladesh. I want to know one thing that you say, despite economic growth, the stock market of China was stagnant a long time. But can you explain the details why the stock market was stagnant?
Chen Gang, East Asian Institute (00:44:27):
Stock market? Yeah, the stock market is very complicated — if we look at China’s policies, stock market is very important. We always wanted to boost the stock market, but I think there are several problems. First is the corporate governance problem. If we look at the world for those countries that perform well in stock market, usually the corporate governance is more transparent and is credible. The numbers, if we look at China, I think even if the company is making profit, you cannot really trust the annual reports, the quarterly reports, the released, and there were several rounds of meltdowns in the stock market that make people scared about investing in stock market. So these days, if you want to persuade a person in China to invest in stock market, you need a lot of effort. They don’t want to do that.
(00:45:40):
Of course, there are some other reasons. I do think that the dividends level of most Chinese companies needs to further lift up. So this is also very important. In China there are so many fast growing companies, but the dividends are not so satisfactory. And also I do think that the government needs to have more positive policies to support the stock market. So in China, sometimes when people buy stocks that make them lose money, no one would show sympathy towards them. They think, oh, you’re speculating. That’s why you’re losing money. So the culture also is not very good for the stock market investors. I do think that China needs to change that. Yeah.
Rachel Cheung | The Wire China (00:46:40):
Ahead. Hi, I’m Rachel from the Wire China. I have two questions. The first I want to ask about that consistent mismatch between government statements about consumption and the actual policies and their effects. What is at the heart of this mismatch? Is it simply that the Chinese government has a loftier goal than the policy tools available or is its vision of the economy is state led, it emphasized advanced manufacturing, high tech, and it undervalued consumption? That’s the first question. The second is people are putting their hopes on lower tier cities that they’re emerging. The growth in consumption in some of the lower tier cities is actually higher than some of the first tier cities. What do you see about that phenomenon?
Chen Gang, East Asian Institute (00:47:19):
About first question, I think the central government has a vision of hosting the consumption and to some extent also to increase people’s income. But while all the policies from the central are being implemented by the local governments, local authorities, sometimes it can become very difficult. According to my research for certain policies like mercantile policies, if you want to boost the local investment, local trade, it’s easier for local government to cooperate with the central government because there’s an incentive economic incentive. Once I do this, I benefit from that. But if you want the central government want the local government to spend more on the social welfare to increase people’s income. Do you think the local officials have the incentives? I don’t think so. That’s why it has become extremely difficult for the central government to mobilize the local governments to cooperate. So I think this is a fundamental reason.
(00:48:24):
Also for the policy targets, I think there’s also a problem because many of the policies are targeted on export, supply, how much you have produced this year. That’s a KPI for many companies, especially state-owned companies. They don’t ask you, ‘Hey, how much you have sold in the domestic market?’ No, there’s no such KPI in Chinese economics. So I also think that they also need to change the KPIs. Now the KPI is still almost the same as previous set of KPIs only including one — the environmental — yeah, that has been added, like the cut off carbon emissions. For others, KPIs to evaluate the local officials’ performances still the same set of KPIs. So your second question is lower tier cities? Yeah, that’s actually one of the government’s focus. They want to change the imbalance of different regions. I think these years, if you go to lower tier cities, you do see the significant improvement of the infrastructure there. But in terms of income level for lower city, like third or fourth tier counties — still very low. That’s why you’ll see a lot of new shops in the lower city cities, lower tier cities, but the consumption is not there. So I think that’s another problem. Yeah, they need to address
Kevin Johnson, National Press Foundation (00:50:23):
Right up here. Right?
Franc Han Shih | Thai Public Broadcasting Service (00:50:27):
Hello? OK. Franc from Thai PBS, Thai Public Broadcasting Service. Just want to understand with all the dire data, you talk about low consumption, deflation right now, trade wars with the United States, what’s the possibility of China facing economic, of course, slow down and crisis now because according to World Bank, as what you said, Chinese government talk is at 5% of growth each year, but World Bank already said that this year, 4.6%; next year, 4%. So do you think Chinese government has the confidence to maneuver a soft lending if there’s any economic crisis coming?
Chen Gang, East Asian Institute (00:51:13):
It depends. It depends on what kind of strategy Chinese government is going to take. I agree with World Bank that without significant or effective policies, this year’s 5% growth target will not be reached, will not. So it’s just a matter of time for the central government to realize that whether they need to take more stimulus, I do expect that there’ll be more stimulus before the end of this year, maybe similar or even larger than last year’s stimulus. Otherwise, the 5% target will not be fulfilled. And I said this year is the last year of the past 14 five-year plan. The five year plan in China is very, very important, is the most significant KPIs for all government officials, including the top leader. So I don’t think they want to bear this kind of economic consequences.
Ravi Dutta Mishra | The Indian Express (00:52:25):
Right here. Hi, this is Ravi from The Indian Express. China has always been export led economy, but have you seen such levels of pushback from European Union, US, India, and anti-dumping measures? And do you think in this kind of global environment that Chinese export story will continue? Will there be a hindrance? Because conventional economics says that if there’s a demand, there will be a supply, even if you use any measure, anti-dumping, whatever. So what is your take on the exports?
Chen Gang, East Asian Institute (00:53:01):
Yes. I also think that these kind of export expansion strategy is not sustainable in the long run. Yeah. That’s why I think Chinese government need to focus more on the domestic consumption. You are right. The tension is not only between US and China. Even EU. Yesterday I talked to a European expert. He said European Union is very, very angry at the economic situation between EU and China right now. So even though some of the dialogues may be canceled. So we can see from here that especially with the global economic situation getting worse, I think more countries may have disputes with China on the trade issue, EU, India, or even some southeast Asian countries. The trade imbalance is continuing and there’s no sign showing that this kind of trend is going to reverse. So I do think that China needs to consume more and also to import more. Both are important. Yeah.
Kevin Johnson, National Press Foundation (00:54:15):
Kimberly, right over here.
Kimberley Kao | Wall Street Journal (00:54:18):
Hello. Hi, Kimberly from the Wall Street Journal. Just a couple of questions. Do you see their focus on AI helping to boost domestic consumption? And the second question is in terms of the Hong Kong stock exchange, because they’ve been boosting measures to try to get more investment to Hong Kong, invest into China companies, you still see the strategy going from
Chen Gang, East Asian Institute (00:54:41):
Hong Kong investment in Hong Kong.
Kimberley Kao | Wall Street Journal (00:54:43):
Yeah. Like foreign investors investing into the Hong Kong stock exchange
Chen Gang, East Asian Institute (00:54:48):
Hmm.
Kimberley Kao | Wall Street Journal (00:54:49):
Then they have the stock connect. Do you see this an effective measure to try to boost interest in the Chinese stock market?
Chen Gang, East Asian Institute (00:54:57):
I think the Hong Kong market I think is important financial market for the Chinese government because you see that the China’s opening up strategy now is also facing some challenges. Also it wants to expand opening up because some foreign investors may lose the confidence in investing in mainland China, especially the financial market. So Hong Kong is getting more important to play such a connector’s role. So I do think in the future, and also you see that Hong Kong’s economy is also not good, consumption as well. So I think there may be more measures from the government to boost the Hong Kong consumption as well as the financial market. But as I said, all the policies may have short lived impact, positive impact, but in the long run, they need to fix the structural problems. Yeah. Your first question? AI. Yeah. So I don’t really think AI can have a very positive impact upon boosting the consumption. And with the application of more and more advanced technologies, you go to many of Chinese production lines, you see manless factories, production lines, actually that would even hit the employment market more. And AI, sometimes AI is just a tool. It’s not consumption, usually it’s not a consumption itself. So that’s why I think they still focus more on the consumption of commodities as well as services. Yeah.
Surya Dua Artha Simanjuntak | Bisnis Indonesia (00:56:49):
Ready? Hello? Hello. Surya from Bisnis Indonesia. So China is Indonesian’s largest export destination country in the last five years. If the household consumption remains low, will it be hurt Indonesia or any other countries economically? That depends on Chinese import.
Chen Gang, East Asian Institute (00:57:17):
Yes. So you are talking about the reliance of —
Surya Dua Artha Simanjuntak | Bisnis Indonesia (00:57:25):
If the consumption remain low in China will be hurt that Indonesia or any other countries that depend on Chinese import? Because if the consumption low, it will be Chinese import will be done, right?
Chen Gang, East Asian Institute (00:57:52):
You mean import from China or
Surya Dua Artha Simanjuntak | Bisnis Indonesia (00:57:55):
No? Yeah, import
Chen Gang, East Asian Institute (00:57:58):
From China. OK. Yeah. Up to now, I don’t think there’s a worry for that because first of all, China’s production capacity is still pretty large. Secondly, as I said, the price level is still coming down, so Chinese products is getting even cheaper. So I do think that if China has an economic recession, if they didn’t listen to what I just now said, continue to boost the export, they may try to export more to Indonesia or to countries like Indonesia. So the import from China is not the problem. The problem may be Indonesia’s export to China. China may reduce the import more. Yeah, because of the low consumption.
Kevin Johnson, National Press Foundation (00:59:02):
I think you need to turn it on.
Yujie Xue | South China Morning Post (00:59:04):
Yeah. I covered the new three industries you mentioned boosting production, boosting domestic consumption definitely helps. But my question is to what extent, because besides consumption, there’s already an even bigger over-capacity problem and consumption is not going to pick up overnight. And since there is tariffs and trade restrictions, what do these manufacturers do in order to avoid consolidations and bankruptcies?
Chen Gang, East Asian Institute (00:59:33):
Thank you. First of all, I do think that China needs to have more monetary stimulus to change this kind of balance sheet recession. Yeah, you’re right. The debt problem is so serious, over capacity is so serious. So people need to have more income, first of all. Second, as you said, why there’s over capacity because people overwork. When you overwork, you don’t have time to consume. So I think they need to cut the working time and to have more time to consume. This is also pretty important. If we go to China, we can still see that the China’s working culture pretty much the same as 20 years ago. People worked very hard seven days a week and maybe more than 10 hours a day. So I think the culture needs to be changed as well. But it needs the government’s policy as well to direct. Yeah.
Kevin Johnson, National Press Foundation (01:00:37):
Anybody else? OK, time for one more.
Nilantha Ilangamuwa | Sri Lanka Guardian (01:00:45):
Nilantha from Sri Lanka. Guardian. This may be a hypothetical question. I just want to have your take. If this predicaments continue in Chinese economy, are we going to witness a kind of great depression kind of situations in the future?
Chen Gang, East Asian Institute (01:00:59):
So it’s very hard to say because all recessions actually are led by the over production, over capacity and insufficient consumption. If we look at 1929, the Great recession starting from US, the same problem. So I think the possibility is there, but of course it’ll not happen probably this year. But if the trend continues and if the tension with other major trading partners escalated, escalate, that would trigger this kind of recession, as you said.
Kevin Johnson, National Press Foundation (01:01:45):
Professor, I warned you that there would be a lot of questions, but all very good ones. And I can’t thank you enough for your presentation today.
Chen Gang, East Asian Institute (01:01:53):
Thank you very much.
Kevin Johnson, National Press Foundation (01:01:55):
Extremely instructive.
Chen Gang, East Asian Institute (01:01:57):
Thank you very much for all your wonderful questions. Yeah,
Kevin Johnson, National Press Foundation (01:02:00):
Well, please join me in thanking Chen Gang.
Chen Gang, East Asian Institute (01:02:03):
Thank you.
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