 Good afternoon, good evening, or good morning, depending on where you are. My name is Steve Sand, I'm the director of the Sours China Institute. Let me first of all welcome you all on behalf of the Sours China Institute to our annual debate. As some of you will have noticed, there was a break last year when we did not hold our debate. And this will be our first and hopefully our last or only online debate. I look forward to being able to see you physically at Sours next year. This debate is being recorded. Events in 2020, the same events that make it impossible for us to hold the debate last year point to one thing. However the pandemic might have started and look withstanding the fact that China was the first major victim of COVID-19 and the first to lock down, it has bounced back, apparently stronger. Over the last two decades or so, we have had various predictions of China collapsing. Most of them have come and gone. Another one thinks about the system in place in China, China under the Communist Party remains strong, increasingly powerful and is still growing fast, albeit not at the brignette speed of say a decade or so ago. And thrashing back to about a decade ago, one cannot but be reminded by the words of the then Premier Wang Jabao, who talked about China's economic trajectory as in his words, unstable, unbalanced, uncoordinated and unsustainable. Indeed on the challenges that China faces, there are plenty, for example, the middle income trap, the shift from having a demographic bonus to facing a demographic deficit, the unfolding decoupling between China and the West, which will substantially reduce China's capacity to benefit from globalization. And the reality that China has already developed or delivered an economic miracle longer than any country has ever done in human history and no country's ever sustained that level of growth forever, the list goes on. But on the positive side, we are also seeing that China now has genuinely globally competitive companies that are truly innovative, something that we perhaps would be what a hesitant to say, say even just a decade ago. However, we are seeing the economy slowing, the momentum of growth is still ongoing. And China under Xi Jinping has made enormous changes, trying to confront the kind of problems that we all saw and were identified by Wen Jiabao. Now whether the Xi Jinping reforms will deliver the results he has hoped for remains to be seen. But the early predictions that the very heart of Rhetarianism and his very strong focus on the state-owned sector will damage the economy has not yet come to pass, or at least not yet. Well, this is of course leads to the focus of our debate today, which is about whether China can sustain its economic rise. And for the debate, we have four very distinguished economists who have experienced not only in academia, but also in the world of financial services. Professor Yong Dingyu will open the debate speaking in support of the statement that China will sustain its economic rise. He will be followed by George Magnus and Professor Barry Norton, who will voice skepticism. Professor Shaolan Fu will make the closing remarks in favor of the statement. Each of them will have up to eight minutes for their opening remarks. I will then direct them to engage in conversations before opening the floor to everyone. If you would like to raise a question or make a comment, please use the Q&A box. Please also say who you are and where you are so that everybody knows how to contextualize your questions. Let me now introduce them one by one in the order of speaking. Yong Dingyu is a fellow of the Chinese Academy of Social Sciences. He's also a member of many government advisory committees in China, including having served as a member of the Monetary Policy Committee. He was amongst the first generation of economists from China who went to Oxford in the 1980s, and he spent his time at Oxford, I think altogether six years, and earned a PhD or rather degree in economics. He has served as the Director General of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences and has published and edited more than textbooks and countless articles, one of the most distinguished economies in contemporary China in my view. George Magnus is a research associate at the Sova China Institute and also a former chief economist at UBS. He's also a research associate at the Oxford China Center. He is in my assessment unquestionably one of the most thoughtful practicing economists in the financial services sector, and also one who has great insights on the structural and political challenges that China faces. He has been credited with having identified the trigger point leading to the global financial crisis and with helping us to understand his impact. He is the author of three powerful and highly readable books. The most recent and most directly relevant to today's debate is Red Flags, why Xi Jinping's China is in jeopardy. Barry Norton is the Sogwan Lok Professor at the School of Global Policy and Strategy University of California, San Diego. His name should be one that is familiar to anyone who has taken any course on Chinese economy because I'm sure colleagues of mine anywhere would choose to nominate some of Barry's publications in the reading list. Renowned for his insights on China's market, transition industry and technology, foreign trade and political economy, his first book, Growing Out of the Panned won the O'Hara Prize in 1996. His, I think his second book, The Chinese Economy, Adaptation and Growth, was reissued with a new edition in 2018. He is currently working on a new book on China's industrial policy. Shaolan Fu is Professor of Technology and International Development at Oxford University and a fellow of Green Templeton College there. She's also the founding director of the Technology and Management Center for Development at Oxford. She had worked in the business world in China before she joined academia and therefore able to provide reviews both on the business side and the academic side. She plays an advisory role to various governments and international NGOs. Too many for me to mention them in all. Her academic articles had won against multiple awards so I'm not going to list them all. She's the author of, as far as I know, four fantastic books, the most recent of which is Innovation Under the Raider, which came out last year. The book which I think bears most immediately on today's debate is China's Path to Innovation, which came out in 2015. Now let the debate begins. Over to you, Yong Ding, Professor Yu. Thank you. Thank you for your kind introduction. Good morning, ladies and gentlemen. It's a good honor. My opening remarks will be very short. My view is very clear. In short run, Chinese economy is quite good. Actually, Chinese economy has recovered very strongly since the last quarter of 2020. In the first quarter of the 2021, the growth rate of Chinese economy was 18.3%. Extremely high, of course, is to a very large extent, is attributable to so-called base effect. Then in the second, third, and fourth quarter, the growth rate will fall steadily to something like 8%, 7%, 6% so-so boss. On the whole, for 2021, China's GDP growth rate would be something between 8% to 9%. I think it's quite a remarkable achievement, which shows Chinese economy is quite resilient. Government actually is quite cautious, and so they are in a hurry, trying to normalize fiscal and monetary policy because they think the growth is already very strong. My personal view is that China's growth is still under its potential growth rate. So China should continue to use eventually fiscal and monetary policy to consolidate the achievement so far we have achieved. One of the very important lessons we should learn from history and from other countries is that China should not exit too early. And this is my basic position, but this is a minority view in China. Most accounts in China would argue that China's growth rate is already very high. So we must pay greater attention to inflation and assets bubble. So we should exit as early as possible, but my view is different. And we will just talk about China's long-term prospect. I think there should be no problem for China to maintain a relatively high growth rate. There should be no problem for China to escape middle income chart unless we are stupid, unless we are going to make mistakes which are not necessary. I think even though there are lots of negative factors, which may have a negative impact on China's long-term growth, but at the same time we can see lots of positive factors, which will work to offset those negative impacts. For example, aging is a big problem for China, but on the other hand, China's urbanization rate is still low, something like 60%, compared with Japan's 90%. Most advanced countries, 80%. China still has a long way to go during urbanization process. I think China's labor productivity may improve. What I'm trying to say is that why we have to see there are lots of problems, lots of negative factors which will suppress China's growth potential, but at the same time there are also positive factors. So the key is the right policy. If we don't have the right policy, then we will fail. But as long as we are wising up the right policy, all those problems can be overcome. I don't want to talk about long-term too much, because I am a believer of China. We always remember his famous phrase, in long run, we all are dead. So I'm not going to talk about it. 20 years later, 30 years later, I'm already old enough, 70 something. So I don't think I will live so long to wait to be verified, but basically I'm optimistic about the Chinese economy. I think Chinese economy, as long as we can avoid making unnecessary mistakes, will be sustainable. It will grow. Of course, I'm not talking about China will take over the United States as a number one. I don't think that's very likely. But at least China will become a very strong country, prosperous country in the world. I have 100% confidence in this. I think I can end here. So I'm prepared to engage in debate with our friends. All these four panelists are my old friends. 20 years, 30 years, 10 years at least. Thank you. Thank you very much, Professor Yu. George, over to you. Thanks, Steve, and also for hosting today. I'd like to make three points I think about why I have a problem with the idea about China's current economic rise, as commonly understood as to why that is sustainable. So we should remember, I think, that there is no historical precedent really for countries to enjoy uninterrupted economic expansion without bumping into balance sheet constraints, or indeed for highly authoritarian governance regimes to break the so-called middle income track. And my view is that China is at the tail end of a remarkable long expansion that's already given off some warning signs in 2013, 2015, and just before the pandemic. Of course, it remains ever true as Yongding has just outlined that China could, of course, be exceptional and prove skeptics like me completely wrong. But if so, I think, as he said, it has to be on the basis of sound policy and reform and not on the basis of what spreadsheets say, or a leap of faith. So my first point really is that China is almost certainly at what I call the end of extrapolation. So there are a lot of things that China has done so successfully in the past in a crusade of pragmatic reform. But most of these things can only be done once or have limited further potential as things stand. And I'm thinking here about moving labor from low productivity agriculture to high productivity manufacturing, enrolling all your children in school, joining the WTO, basic property rights, privatization, creating the world's biggest housing market, private housing market, and importantly, introducing rules-based governance and institutions. These policies paid huge dividends for China in the form of total factor productivity. And we certainly can, looking back, associate periods of accelerating TFP with policies of reform and opening up. Unfortunately, both TFP and reform have stalled in recent years. The World Bank in a recent study estimated that TFP had only grown by about 0.7% per annum in the decade to 2018. It had held up pretty well in business, but not so much in housing, government, and infrastructure where it had actually stalled or declined. And of course, these are exactly the sectors that the government has tended to rely on and pump credit into every time the economy needed a boost. Now, of course, the asset test of the 14th five-year plan and of dual circulation strategy at its heart is really whether policy makers can bite the bullet or will bite the bullet on the kind of reform intensity required to strengthen productivity growth over the medium term. And that holds the key, I think, as to whether China can avoid the so-called middle income trap, which leaders have warned about in the past, but very few people speak about it now in China as a matter of fact. The second point I'd like to make is that China's development models also needs to overcome some important structural headwinds or red flags, as I've labeled them. And I'll only highlight them very briefly, of course. And I won't even mention the technology capacity in deference to comments which Barry and Xiaolan are going to make shortly. So the first red flag is debt. China's predominantly domestically owned and owed debt and state-owned banking system means I think that it can avoid a Lehman-type outcome or an Argentine-type crisis. But with total debt at over three times GDP and rising, the steady stream of misallocated capital and bad debt stories, bank runs, bank restructurings, a rising volume of credit events among bond issuers, SOEs, local government finance vehicles, and property developers, it's quite clear that China is facing elevated financial stress, the upshot of which will be significantly lower growth. I think this is the whirlwind with being reaped after credit and financial system assets have grown so much faster than GDP for so many years, leading to systemic misallocation of credit and now exposing the limits of debt capacity for many borrowers. So I think the growth in debt and financial assets is unsustainable and even many regulators acknowledge that the damaging effects of inadequate pricing of risk and the system of implicit guarantees are both big constraints. It's a difficult path for the regulators and officials to tread because they have to balance lower growth, rising defaults, weak funding structure of the liabilities of banks outside of the big five, and the sensitivity of the financial system to balance the two interest rates, which are possibly likely to go up at some point. So whether now or in the next few years, addressing endemic financial stability, I think is going to be a very important factor which will bring slower growth and possibly financial repression, more financial repression and downward pressure on the exchange rate. Demographics is the second red flag, there was either controversy last week over whether China's population has peaked 10 years earlier than expected, speaks to two possibilities. One is far fewer young women in the population than people thought, and the other is much lower total fertility, both possibly have been at work, and it underscores the speed of aging in China and of the working age population decline. As Scott Rosell and Natalie Hell have shown in their excellent new book, Invisible China, poor high school educational attainment levels in the labor force, much lower than in most countries that have been in a middle income track for a long time, are a major drag on the country and a warning about self-limiting progress. And the third red flag is the middle income trap itself, which I think is essentially about the quality of institutions needed to underpin productivity growth and innovation. So we know that authoritarian governments are very good at some things, but they tend not to be greater, things like competition, incentives, financial systems that harness and allocate capital efficiently. And they also tend to lack inclusive and adaptive competition, regulatory and legal institutions, that usually feature quite successfully in development models, where societies can extract greater value from investment, and workers can operate at higher levels of efficiency. So I think this third point about institutional and governance set conditions is a concern, particularly with the new edgier emphasis on state institutions and the party as leading all. And of course, the example of Alibaba and Jack Ma proving or demonstrating really this very curious condition, which private entrepreneurs and private enterprise are in at the moment. So conformity and control may be very effective politically, but you have to wonder if China isn't handicapping itself when it comes to entrepreneurship and true innovation. And I think that on that note, I'm going to finish, but by only mentioning my view that a true innovation is unlike science and engineering, I think is primarily a business activity that values know-how, understanding of competitive markets, design, finance and management. And I think these are areas in which existing policies, I think, will hold China back. Thank you. Thank you very much, George. Over to you, Barry. Barry, you're unmuted. Thanks. I forgot. Always forgetting to turn the mute off. Thanks very much. This is, of course, we're in a debate, so we're supposed to argue about things, but I must say after listening to the first two speakers, I'm impressed by how reasonable and logical both of them were. And so I'm going to come in, actually agreeing with a lot of what both of them said, but then argue that when we pay attention to a few more things, it's going to tilt the balance away from confidence in the sustainability of China's growth and give us a greater awareness of some of the accumulating problems that we really see building up. And I certainly agree with Yeongding's initial point, that as long as China follows the right policies, as long as China follows common sense policies, its growth will be sustainable. And in that case, we'll see China naturally taking on a leadership role among the countries of the earth. And that's what we want to see. That's certainly what I want to see. But unfortunately, it's not what we're seeing right now. The economic policy package that China is following today is short-sighted and ineffective. Worse, it's in danger of becoming more ineffective as China steps up the intensity of its industrial policies in particular and finds itself increasingly and inevitably in conflict with the other countries of the world. Let's go back 12 years, because really, the beginning of the current set of policies starts with the global financial crisis in 2008, 2009. We all know what happened then. China stepped up. It ramped up its investment to unprecedented levels. So that China has been investing over 42% of gross domestic product in new capital every year since 2009. Now, that's an astonishing thing. Nobody has ever done anything like that in the past. It's completely unprecedented. The US and the UK both invest about 20% of GDP. There's no reason that has to be the norm, but no other country comes anywhere close to what China is doing. So in other words, the fundamental macroeconomic context of China's growth strategy is to pour resources into new fixed capital. It's to take an economy that's still quite poor. Yes, it's middle income, but just barely middle income. If you look at GDP per capita in purchasing power parity terms, China is about a quarter of the US. But remember this immense investment effort means that consumption is a smaller share of China's economy. So per capita consumption in China, even valued at purchasing power parodies, is about one seventh what it is in the United States. So there's still lots of developmental challenges, some of which George mentioned just a second ago, the fact that about half of the elementary school children in the countryside are not getting adequate education and are not in schools that are adequately funded by the government. So when we look at China's development strategy, it is overwhelmingly one of pouring in massive investment. And again, as George mentioned, productivity growth simultaneously has dropped. It's not just one World Bank study, multiple studies by Chinese and foreign economists agree that about the time the strategy shifted, China's annual productivity growth dropped by two or more full percentage points per year. That's a lot of foregone productivity growth, which builds up as capital that is unable to play its full role. Now, when we focus on industrial policy, we see the same kind of outcome in sectoral outcomes, for instance, semiconductor industry. How much has China, how much has the Chinese government spent on trying to foster the semiconductor industry? Estimates vary, but at least $250 billion in government subsidized investments and other kinds of protective support. And yet, has the gap between the cutting edge of the global semiconductor industry been reduced by China catching up? Absolutely not. In fact, by some measures, it's slightly increased. And more importantly, China has sent this crucial message that it will do almost anything to acquire semiconductor technology. And therefore, companies around the world have less incentive to cooperate. They're more worried about their intellectual property. And a whole series of problems have been exposed in the last year, including most notably the collapse of a multi-billion dollar project, the Wuhan Hongxin factory. And yet China is increasing its commitment to these policies with over a trillion dollars worth of industrial guidance funds. Now look, if China wants to waste billions of dollars, it can do so. The real problem is that this kind of developmental focus diverts attention from many other things that need to be done. Take a quick look at China's fiscal system. Five years ago, eight years ago, we were told that China was about to reform its fiscal system. And yet somehow, none of those policies actually got rolled out after the initial wave. The result is China still has a fiscal system that remarkably does nothing to improve income distribution. In other words, the tax system has no progressivity at all. Even the U.S. tax system significantly lowers the U.S. Genie coefficient. But all the studies show that the Chinese tax system doesn't lower the Genie coefficient at all. It doesn't provide adequate revenue to local governments. It certainly doesn't provide resources for the retirement system, which is going to run out of reserves in a few years. And my third and final point is that the policy orientation that China is already on is creating momentum that's pushing the country further into a dead end of increasing government control and decreasing international exchange. Yeongding mentioned that monetary policy is relatively tight right now. Why? Because it's so necessary to maintain financial discipline over these enormous number of shoddy projects set up under the auspices of industrial policy. But that has subsidiary costs elsewhere. Keeping small and private firms from getting access to low-cost capital. And when we look at the 14th five-year plan, we see all these tendencies reinforced by the steps that are being taken in the 14th five-year plan. I'm very worried about China's current policy orientation. China has the potential to do spectacularly well when it's moving in the direction of less government control and more openness. But currently, China is going exactly the opposite direction. Thank you. Okay. Thank you very much, Barry. Let me now invite Shaolan, Professor Fu. Thank you, Steve. Thanks for organizing this debate. I think this is the time we need dialogue. So yeah, thanks for organizing all this. And my argument is that despite the various challenges, China's economic development is sustainable. China has made an important change in its development strategy to transit from an input-driven growth model to an innovation-driven development strategy. I will examine the sustainability of China's economic rise from innovation and the technology perspective. I will start with some facts. China's R&D spending now ranked number two in the world and the growth at a speed of double digit. China has maintained the world's largest pool of R&D personnel since 2013, accounted for about 20% of world's total R&D manpower. Last year, 2020, China ranked number one in PCT patent applications and accounted for 25% of the world's total PCT, which is international patent application. And the China's investment in green R&D has been number one in the world since 2013, and its publications and patents in artificial intelligence ranked number two in the world followed the US, United States. The private sector have been important and leading players in China's innovation. The famous companies most are the private ones, Huawei, Tencent, Alibaba, TikTok, Xiaomi, etc. The country now is upgrading from mainly dependent on foreign technology transfer to what I call an open national innovation system 2.0, which is characterized by knowledge core production and still keep opening up and also enhanced indigenous innovation at the same time. So all this data and effects suggest China is catching up quickly, although it's still left behind the United States considerably. Can China develop its technological capabilities for sustained economic growth? I will answer three key questions, just share with you my views. First, will China fall as a result of the geopolitical tension and technological decoupling? Admittedly, this technological decoupling will cost all countries, including China and the US. However, will China fall? My answer is no. Look at history, wherever the US imposed sanctions or restrictions in those areas, China developed its own technological capability gradually, although it's slower, much slower than the US, but it managed to achieve it. And the one example is the China's space exploration program. China's mission to the Mars, to the moon, and the recently launched space station are good example. Secondly, can China create radical innovation and break through the middle income trap? Radical innovation normally are created through two channels. One is interest and curiosity driven, free exploration, and another is problem-driven research and development. When existing knowledge does not provide a good effective answer, people have to find novel solutions. And the China is currently emphasizing problem-oriented innovation strategy, although it has limitations in the first interest, curiosity-driven free exploration. So by emphasizing problem-oriented innovation, China will be able to create some, produce some radical innovation and original knowledge contributes to the world. Through this road. And also China has, we should not underestimate some of China's capability in institutional innovation. It has created a market economy with Chinese socialist characteristics. Maybe we will see democracy with Chinese characteristics one day, because we have to recognize the cultural differences too between countries. Thirdly, is China's innovation model fundamentally wrong because China has a strong state? Innovation takes place in the innovation system, including firms, universities and research institutions, and the state. That's the national innovation system, widely framework widely accepted and also applied in most of the countries. There is a role of the state, although different countries, the role of the state may take place in different ways and to different extent. In fact, like even in the United States, the state also have played a very important role through heavy investment into the defense system through the NASA or National Science Foundation and the knowledge transfers from the public sector to the private sector, like SpaceX. SpaceX is a new company as has a bit boring in some of the competition. The capability of SpaceX does not come naturally because it has a genius, very innovative CEO, because a lot of knowledge transfer from NASA from the public sector to SpaceX. Of course, for China, it should let the market and the private sector firms to play a much more important role in its innovation. So conclude, China will become an innovative country and its economic development will be sustainable. It is on the way to development and it's improving at a speed faster than many other countries. I agree with some of the limitations that my fellow colleagues has correctly pointed out. So if China want to be the world's number one, innovator in the world, it needs, first, not only continue, but to accelerate the reform and opening up and the deeper marketization to create a fair and open market. This will make China a country that the world, many the rest of the world will like it and will follow it. This is good for China, too, to use a locator and use the resources efficiently. And secondly, China should improve the innovation environment, develop a market of ideas, and make China a place where free and creative thinking is encouraged and the intellectual property is very well protected. That's all from me. Thank you. Well, thank you very much, Xiaodan, and indeed to all four of you for your very nuanced and thoughtful presentations. Let me try to get used to engage even more with each other's pawns. If I may, I will put the first set of questions to Professor Yu and Professor Fu based on the points that were being made from George and Barry, and then I'll go the other way around. I think the thing that I pick up from George and from Barry is that, yes, China's has potential, that is accepted acknowledge and huge changes, but the current direction of travel in terms of policy is not guiding China in the right lane of policy that will take it to the destination it needs to go. If anything, it is in the wrong lane, which is creating more problems and therefore not allowing China to fully utilize its potential. So what would be your responses, Yongding and Xiaodan, and then I'll go the other way. I think we need to be more specific, and I think both George and Barry raise some very legitimate questions. Actually, I think we can answer their challenges one by one, but of course, due to time constraints, I just pick up some of them. For example, George worry about China's liberty ratio, high debt, okay. I have been worried about this for more than 10 to 30 years. Actually, I think me and George exchange notes can just go something about the trajectory of debt. I remember you wrote a paper, a very good paper, and I think yes, China's liberty ratio is extremely high, but I don't think it will stop China's economic growth. And actually, only with relatively high decent economic growth, then we can solve the debt problem, become lower the liberty ratio by increased gross rate. And there are two ways. Of course, you can cut the debt, then perhaps because you cut debt, you get a lower gross rate. Then the liberty ratio will rise rather than fall. And I'm not that worried about the so-called high liberty ratio. I will at least 10 reasons. I don't have time to name all of them. I just name a few. For example, China's very high saving country, still very high. Barry just said China has very high saving ratio, investment rate. This is the result of high saving. China's high saving country, still high saving country. And China has very high gross rate compared with other countries. China has few foreign debt. China has huge state assets. China's major banks are state-owned. We don't need to worry about the bank run. And we don't need to nationalize those banks, like in UK, about this Northern Rock. They are already state-owned. And also, China has capital control. You can't run away from China to other countries. And also, China's exchange rate has become much more flexible. This is a very good defense for maintenance stability, financial stability. And also, at least 10 or even more, I don't have time to name them. But I'm trying to say that, yes, we should worry about this. But I don't think this will become a sort of insurmountable obstacle to China's current growth. I learned this from Japan. In 1996, when I visited the Ministry of Finance of Japan, I was told at the time, Japan's public debt or gross ratio was 92%. It's too high, much too high. So they introduced a policy of the restructuring of a physical position. This is called, I forgot the name of this is a Japan's policy. They raised income tax, consumption tax. The result is the worsening of the gross ratio. So my view is that, yes, China has a problem, debt problem. But we don't need to worry too much about that. And more importantly, the right way to solve this is to maintain a high gross rate. And I think this is the one response to George's worry. And just now, Barry mentioned about China's extremely high investment rate. Actually, I think we need to check figures. My memory is that since 2002, the growth rate for China's fixed assets investment has been dropping gradually, steadily. All the past few years, the growth rate of fixed assets investment is much less, much lower than those of GDP. So the share of the fixed assets investment in GDP is not that high. We can check that. Maybe we have different source, we have different source of data. But my understanding is that China's fixed assets investment is not that high. You are right, 10 years ago, but not right now. And there are others, but for the time being, I stop here. Well, thank you, Shaolan. I will just build upon what Yongding has mentioned. First is about current direction of travel. I think one direction, I think, is the one that everybody expects and is really what the Chinese government has done and stick to is opening up. Opening up, although may not to the very high speeds that others expect, I think opening up the economy, opening up trade for investment, and also international collaboration. This has been, I think, looking at the policy changes and the Chinese continue to host the import exhibition and also China's efforts in promoting research collaboration. I think this is something that they are very firm in pushing forward. And the one thing that both Barry and George have mentioned is the increasing government control. I think in practice, what I have observed is that people are trying to promote innovation and the variety of ideas under the current institutional framework, like they are encouraging problem solving innovation strategy. So overcome the global challenges and the various challenges, including the trade sanctions, etc. And all these problems become questions that will motivate the researchers to keep on innovate. And about the industrial policy, I think Barry's worry about semiconductor sector. I actually, I very much worry about it too, about this industry. I don't think semiconductor industry, China's capability, will be built upon by heavy investment. I also worry, however, I also observe that most of the China's S&T, the science and technology innovation policy, now focus on research and the development, on promoting basic research, on building the scientific and the research infrastructure. They are in other sectors, they are more kind of, you know, moving towards let the market to locate the resources. At least they are very clear in their mind. However, pushed by the trade war, sometimes people, you know, lose, forget about this principle, especially like in the semiconductor industry. But overall, I see government more and more moving to the public research area. And about China's overall growth, the GDP, TFP growth. George and Barry both mentioned the decrease of the TFP growth. I also read, I have also read the World Bank report. I think this is an outcome of versus the stimulus package since 2008, 2009. And this heavy investment dragged down the TFP growth. However, if we really look at the individual firms, then we can see, you know, at the individual firm level, rather than macro level, we will see the TFP growth in many of the Chinese firms have increased and driven by technological innovation. However, I think diffusion, diffusion of technology and innovation from the leading firms to the rest of the economy, still a very important task for China. Although now people focus on groundbreaking innovation, I think this diffusion of innovation for government, they still need to pay a lot of attention to the diffusion. Thank you. Let me now put the something I pick up from Yongding and Shaolan's presentation and put it to George and Barry. I think the underlying is that China's actually is underutilizing its potential, one of which that Shaolan has picked up is in terms of the innovation side of China's potentials and investment. And I think implicit in there is perhaps any kind of potential new paradigm, which is that the concentration of power that Xi Jinping has brought about will give China more scope to implement policies that other systems simply could not possibly do. Now, I'm not quite sure whether Shaolan and Yongding would push quite as far as that, but that is implicitly there. So the question I want to put to you, Barry and George, is do you see that? Do you see the innovation as a salvation to China's economy? Shaolan having acknowledged that decoupling will have negative effect, but it will be having negative effect across the board, not only on China, and that capacity is to mobilize resources and put them all at the disposal of the innovation part of the economy would be the ones to break the lock jamb for China. Do you buy that or not? Who would you like to come first, Barry or George? I'll go first, because we started off so congenially, but now I think now is the time to disagree. So first, let me start with you, Steve. No, I completely disagree with that. The idea that big centralized control over industrial policy, over research and development is going to be good for the Chinese economy, absolutely not. It's the opposite. Shaolan mentioned a couple of times that China has these very excellent private firms. That's absolutely true. And when you look at every one of these most dynamic, most innovative firms, what you discover in their background is intense collaboration with foreigners, whether it's in capital raising, venture capital, key scientists who come in. I'm not saying that makes China passive, quite the contrary. It's a mutual collaboration that is just so productive, was one of the most dynamic things shaping the global economy in the 20th and early 21st century. Those are the kinds of activities that are being squashed by this over-concentration on government activity. Shaolan points out, hey, government has a legitimate role in innovation. Of course, that's absolutely right, right? Funding basic research, procuring things like spaceships in both countries. Absolutely, I don't think there are any. There are no atheists in foxholes. There are no neoliberals on this particular debate. Nobody is saying the Chinese government doesn't have a role. But the problem is, the role the Chinese government is playing today is clumsy, heavy-handed, and squeezing out genuine innovative activity, as well as squeezing out consumption. Yongdae, you question the investment data, but I think it's absolutely unambiguous. The reason the fixed asset investment figures appear to be not increasing year-to-year is because the figure had become so inaccurate that the statistical bureau has started successively revising them. And they specifically say that the year-to-year data are not comparable. But you go to the GDP accounts and you see the net fixed investment, net capital, new fixed capital growth and inventories. Then the new fixed capital has been above 42% every single year since 2009. I don't think there's any ambiguity in that whatsoever. And so I would just say the last thing, opening up, you think China is opening up? I mean, the 14, five years plan is very, very clearly. Number one, science and technology, self-reliance in science and technology. Is that consistent with the global enterprise of science? They say, we're going to examine, audit all of our production changes. And therefore, we're going to invest in the weak links so that we can be independent of global manufacturing production networks. That's not a message of opening that China is sending to the outside world. It's sending a message of self-reliance and security above everything else. George. Yeah, I don't want to over repeat what Barry just said. I mean, I would say this is a general point. I mean, I think we do agree, I think if I could speak for both of us, with Xiaolan and with Yongding there. Of course, if China pursues the right policies, emphasizes markets, encourages. I think Xiaolan talked about free and creative thinking, opening up. Of course, these things we would all be seeing from the same hymn book. I think our problem is, or my problem certainly is that politically, something has changed very dramatically in the last decade. And the China that we see today and that we're trying to think about for the coming years in the future, it's not the same China that we knew before 2010, 2012. So, when we look at, say, for example, the dual circulation strategy, which is, it appears to be a very organized structural approach to an economic strategy in a very different and very harsh external economic environment. But it is about the same kind of domestic focus on supply chains as maybe the Americans and the Europeans have now. It is about import substitution. It is about emphasizing domestic production and de-Americanizing or certainly decoupling from some of those external relationships. The opening up, I mean, where I would say the same kind of rhetorical questions, where the opening up is set maybe for some limited opening up to American funds in finance. There's no real opening up in services, no opening up in terms of outward capital controls, no opening up for tax reform, income distribution, none of the emphasis of inclusive institutions, which we think are kind of necessary to sustain growth. And my final point really is to re-emphasize what I thought was a point I only briefly made before, which is to avoid the conflation of invention and innovation. So research and development, patents, by the way, China is also now a world leader in patent retraction, not just creation, but patent retraction. So these things, and nobody denies that China is very good at doing science and engineering, to send spaceships to the dark side or the far side of the moon. I mean, let's not be cherished. That's a huge effort and major kind of scientific achievement. But innovation, I always think is something that's completely different from that. Innovation is about businesses and markets and extending the thrust of new product processes and scientific processes to the boring bits of the economy that you rarely get a mention. And of emphasizing things like commercialization and branding and trying to sort of leverage, really, reputation, not reputation, but I mean obviously economic success from doing all of these things. So my issue in kind of putting into the bottom line context, really, is that I don't believe these things can't be done. They're not beyond the wit of anybody to try to do this. It's just that I think the political structure and the governance structure that's now in place, I think is a huge drag on its capacity to do this. So in my book, I talked about red flags being about seized China in jeopardy. Anybody else's China might be just fine, but I just think this one is not the right one. Thank you, George. Yung Deng, I think you'd like to come in. I will invite you to do so and then I will open it to the questions from the floor. Professor Yu. I think I should respond to the claim by George and Barry about the China's tending into inward-looking or closing up its door. I think we need to study the causality. I think in 2007, China's total trade over GDP ratio is 64 percent. China's export to GDP ratio is 35 percent and China's trade surplus is something like 9 percent. That's a big time, extremely high. So at that time, I argued that China's growth is imbalanced. China cannot pursue this kind of a blindly export-led strategy, because the Chinese can't become larger and larger. So if you export, that means you will shock the global market. So you should try best to run a more balanced trade account. I've been arguing this for more than maybe something like 20 years. And actually, I think the Chinese government started to make this kind of arrangement. In the early 80s, its right policy was export-led, because the Chinese economy is very small. Elevens behind Holland, the Netherlands were very small. Accounts just a few percent of the global economy. But now you become very large. So you have to make an adjustment. So actually, China's adjustment or its development strategy started a long time ago, more than 15 years ago. So in 2019, China's total trade of GDP ratio dropped to 32 percent. China's export to GDP ratio dropped to 17 percent. China's trade surplus less than 1 percent. Everybody held China's success in rebalancing its economy. This is China's try to do. But now we have a new element in all this picture. That's Trump administration. Starting from 2017, they argued that China's not enemy number one, but anyway is rival number one, competitor number one. And they tried their best to stop China's continued overnight. They raised tariffs. They stopped Chinese government, Chinese firms to listed in New York Stock Exchange. They stopped their company to invest in China. They have done lots of things to try to kick China out of this global value chain. This is US government's policy. You remember Secretary's open statement, Pompeo, he said that we should kick China out of this volume chain. This is what Trump administration has been doing for four years. So facing this kind of digital situation, of course, China has to make further adjustment. Of course, so why we emphasize the industrial policy? Why we started to emphasize rely on domestic market? Not because we like it. We were forced to do that. So if US really open to China, if US welcome China to join global value chain, China will embrace this global value chain because we suffer greatly. We don't like it. This is a very, very bad political reality. So how can we ask China to still embrace US economy, global value chain? How China to rely on supply of chips from US companies? We want to buy, but you don't sell. So this is a geopolitical problem, not as China's policy. So unfortunately, some, I mean, fortunately, I should say, lots of American countries argue for a lot of China to continue its open policy. That's the right approach. People within China to argue for opening up was in very bad situation, just because US government's policy. Okay, I should stop here. Can I comment right on this precisely? Very, very quickly, Barry. Yeah, I mean, first of all, let me give absolute credit to Professor Yu, who's clear argumentation against the undervalued currency and excessive surplus. Back in 2007, we all remember very well and respect very much. It was an important part of correcting that serious imbalance. The Trump administration did a lot of bad things. But China's so-called innovation driven development strategy was adopted in the middle of 2016 before Trump was elected president. And you read the preface to that strategy. What it says is we're in a life and death technological competition, and we're going to push ahead in that life and death competition in order to prevail in the global struggle. So to say that that started with Trump, I'm sorry, it's disingenuous. Okay, can I? Now we very brief, Shauna. Yes. First, I fully agree. I always call this dual circulation as rebalancing. I think the dual circulation cost a lot of confusion. It is, in fact, I think serves as rebalancing. And it creates a domestic consumption that economic growth. It does not say consumption level. The 45-year plan never says consumption level. So I think that's, you know, in China, sometimes people like to create new terms, but the nature are rebalancing. And also about China's development of innovation-driven development strategy because it has for long been blamed as a copycat, you know, or even steal other things, other IPs. China want to be innovative and create knowledge and contribute to the world. And sometimes I think some re-tology especially put in the in the media, in the official media may not really truly reflect what's the main objective or motivation. And for China to develop its innovation strategy really to contribute to the world. And rather than, you know, they don't want to be always a imitator. So it's not really to beat others and become the world's number one. It's really improve itself. But I think sometimes the re-tology in the media kind of distorted. I honestly think that's just not right because, you know, I mean, there was a paper that the People's Bank of China wrote last week or the week before last. It was basically a paper on China's demography. I mean, it is a big kind of important issue. But in it, it's quite explicit to say the authors say, and I assume they speak for the bank that China should specifically not follow a consumption strategy. That it actually is very important to be to continue kind of what I think is a kind of a Leninist influence of production and supply. I mean, that does describe the whole of the basis of China's macroeconomic policy. I mean, if you really wanted to have a consumption strategy, you'd have extensive tax reform, you know, because of the marginal role, peripheral role that income tax plays, for example, which Barry referred to before. So I think this dual circulation strategy is not about rebalancing. I mean, I thought when I first saw it, it was a sort of an echo of what Wenzhou and basically spoken about 10 years ago. But I don't think it is that at all. It's about very much about industrial policy and about, you know, self-reliance. I mean, we've already spoken about this, but anyway, that's fine. I think we need to move to move on. This is a really good engagement in conversations. Thank you for that. I would like to give a bit of chance for some of the questions that we have collected to be to be air and some of the issues may grow come back. The first question I pick comes from Jane Du, who is a Social Research Associate. Jane says, since the mid-19, since the mid-2010s, Chinese society has adopted the new normal with a slower growth rate as a normed in the economy. If China is going to bypass the middle income trap, China will need a faster rate of growth than the new normal suggests. So she wonder how you feel China can actually break through the middle income trap under the policy of the new normal. Would either Professor Yu or Xiaolan want to get first? Xiaolan first. Thank you. I think the transition to a new normal I think means suggests that Chinese government has recognized the importance of the quality of growth, rather than purely pursue the GDP growth, the growth figure. And it's also behind this is a structural change, transition to a high quality growth, knowledge, innovation driven and also sustainable, environmentally sustainable growth. And for China, even this year for the government, the prime minister's government report, it did not set up any GDP growth target. I think this all suggests that the government is pursuing a more sustainable growth rather than purely pursue the GDP growth ratio. Okay, my response is that according to World Bank, middle income countries economy with a growth national income per capita between 1000 to 12,000 something. This is by definition of World Bank and China now is about 10,000. Okay, so just 2000 left for China to overcome this mid income trap, according to the definition of the World Bank and China's per capita income in 1979 was 200 US dollar, 200 year dollar. Okay, now I think it's more than 11,000 US dollar this year, I guess, I guess if I'm right. So this tremendous progress. So with three or five years, definitely, I think a chance per capita income will be more than 12,000 US dollars. According to the World Bank's definition, China has China view escape, so-called mid income trap. I'm serious. Okay, I haven't finished. But my personal view is that I do agree with the phrase of a new normal. I think China should continue to try its best to achieve its achieve a high gold rate, which is incompatible with its potential gold. My view is that China's potential gold rate is 6%. Why? Because we have China now is suffering over capacity. China's inflation rate has been low for many years and China's PPI has been in negative territory for many, many months. For example, from 2012, 54 months in negative territory. Also, since the year before last year, when into negative territory, only recently it's going out, become positive. So China definitely has higher potential gold than 6%. But okay, I mean, on the safe side, let's assume that China's potential gold rate is 5%. I don't think that there's anyone within China who against this assumption, 5% or 4%, you can calculate by how many years chance per capita income will surpass the definition given by World Bank. So it's not a question. But I entirely agree with George's argument. China needs physical reform. China's coefficient is too high. There are lots of problems. I think this is something China really has to do. I agree with you entirely in this regard. Okay, thank you, George. Just briefly, I mean, I don't think that, well, obviously I don't think that's right. I think that China's potential growth rate, if it is 6%, is dependent on rates of debt creation, which are just unsustainable. So if you, you know, it's important not to disentangle the relationship between growth and debt and the occurrence of debt. Because if you slow down the occurrence of debt, you're going to slow down economic growth. If you slow down, and that's kind of what we want to see. We don't want to see China kind of erupt. Higher delivery to racial debt. The other thing is of course that, you know, it's not going to be kind of a smooth transition. As I said, I mean, we talked a little bit about bound sheets constraints, which are something, which are things that all countries run into at some point. If they have, you know, continued economic expansions and over leverage and China exhibits, many of these attributes. So there will be a period of time when things will kind of grind to a halt again. I suspect that that will have some bearing. But my main point really about the middle income trap, which is obviously the numbers move over time, because middle income today is not the same as it was 25 or 35 years ago. But I mean, the point about, I make about middle income is that it's, to avoid the trap, it's really about having good institutions, flexible institutions that allow productivity and to rise and allow companies and workers to operate at higher levels of efficiency. So it's not really about GDP growth specifically. You could presumably have very high GDP growth, which is a lot of it is un-commercial, and it really won't do, as a country, it wouldn't really do you any good. So I want to see more political reform. I mean, I'm not terribly optimistic to be honest, but I want to see more political reform to be more optimistic about China being able to avoid getting stuck in this middle income area. Okay. Okay. Let me, we have, I think, about 12 minutes left, and I would like to keep sort of the last five minutes so that I can ask you to each one very quick question response for one minute. Let me move on to the next question, which is a bit more on the political side. It comes from Jonathan Fenby. Jonathan would like to ask, will the Communist Party's political power priority always stand in the weight of economic liberalisation and the strengthening of institutions? Who would like to go first? Okay. Even though I'm not a student for political science, science, but I think I can answer this question very frankly. I don't think really China's economic growth, economic growth, or the question of whether China will be able to escape so-called middle income trap really depends on whether there's so-called democracy. Actually, of course, we like freedom and so-of-the-force, especially me as a person, educating us for the so-and-so, understand all these little things. No question about that. But we should not forget that. So far, there's only one country which you may call a democracy that was able to break through the middle income trap. This country, guess what, is Korea. However, we should not forget the fact that this democracy was ruled by three generals in a row for 32 years, who seized the power by military coups. It was these unpopular generals rather than elected partitions, civil servants like Mr. Jim Hacker or Sir Humphrey, who enabled Korea to escape the middle income trap. I think we should remember all those things. The situation is not that simple. I think 10 years ago, 20 years ago, I was very simple. Red, black, and white songs was. I think for country, for different country, conditions for escape middle income trap is much more complicated. Nuance and the country specific. I think that's very important. I'm not going to draw any conclusion, but I want to say that when we are checking these sort of things, we must be very, very careful. So let me disagree with that completely. I do think the Communist Party prevents the growth of the institutions that George is talking about. And Korea is a perfect example. When Korea got to the stage where China is now, it democratized. It shifted the initiative for technological change and market development away from the government and towards companies. Now, of course, they had very big, robust, strong companies, but you can't help but notice that the timed pattern is exactly the opposite in this successful, earlier developing economy of Korea. And I guess I would want to just plug it in directly to a very, very practical question. Let's look at electric vehicle industrial policy. How does that relate to these big issues about Communist Party civil society? Well, China had five years of electric vehicle industrial policy that failed completely. $100 billion was wasted. Targets weren't met. People were unhappy. So China revised its EV industrial policy. It lowered subsidies, made it more fair, allowed foreign companies to participate. That's great. China can have a more inclusive industrial policy that people in the world can be happy about. But what's going on right now? A propaganda campaign against Tesla because supposedly their vehicles aren't high enough quality, even though independent surveys in China show that consumers in China think Tesla has the best quality of every EV that's sold in China. The political power of the Communist Party is distorting the ability of the government to run a fair and effective industrial policy. Sorry, Barry. I entirely disagree. I entirely disagree. Who introduced this? Be very, very quick. This is the Communist Party of Shanghai government. They introduced it. Who accused this car industry, car maker? Some netizens, netizens. They are not representing the government. Actually, they were criticized by lots of government agencies. I didn't say government. I said party. Very complicated. The party apparatus. Megasome. I don't agree. I'm in China. I'm in China. I think I know better. That's very complicated. Some other members dislike it. Other like it. We are debating at this moment. Okay. I don't get either Yongding or Barry to agree on this point. But let me bring Shaolin in. Yeah, my first point is that China is a big country. It's difficult to use one case to represent the whole country or one group or one region. I think that's the complication of China. It's like there was someone asking me who owns China. It's state capitalism. As I definitely know, we also see the private capital. We see global capital in China. They just strive in different parts, different industries, different regions. I think that's the complexity of China. I agree with Barry that China should forget the old fashion industrial policy and adopt a more modern horizontal industrial policy that built infrastructure networks and capabilities, et cetera. And however, I disagree about concentration of government power in R&D. Barry is a great expert about China. But I think this still kind of captured some super surfaces, especially those come from the media propaganda. But actually looking at China, there are very vivid, the private sector. We see the venture capitalists very vivid. And also we see the new startups like in Shenzhen or in Shanghai, the Yangtze River Delta, et cetera. So China has a mix of different sectors are playing there. And in terms of R&D and the innovation, although the state, now we see the state have two roots to engage. One is investment in basic science and the R&D infrastructure in research and development and another way through SOEs. However, a number of SOEs in the Chinese economy, I think Barry knows better than me, is now a very small proportion. And also they are highly concentrated in a few sectors. Like those are natural monopoly sector, banking or energy or telecommunication, et cetera. So but in many of the natural competition, more perfect competition industries, like in textile or parallel, you cannot find any SOEs in those industry. So I think in China, we cannot overestimate the role of China, the government played in innovation and R&D. Although from newspaper, you may see only more is dominant. However, on the ground, the private sector and also the multinationals, despite the trade war, the US multinational, German multinational, European multinational, they all still are very active in China and the private capital going into China, China received the largest amount of foreign direct, foreign direct investment last year. So this private sector, we should not underestimate it. That's all. Okay. Thank you. We have less than three minutes left. So if I may, I will go around the panel and ask each one of you. In the course of the last hour and a half or so, having heard the arguments from your colleagues, have you in any way changed your assessment about the economic sustainability of China and China's capacity to rise further economically? I'll go with Barry first and then I'll ask each one of you to exactly the same questions and if you could respond in say 30 to 40 seconds. Thank you. Barry. No, I haven't heard anything that changed my views, but I do recognize that there is an existing trade war and it's not simple for China to do things that would seem like concessions. So the best we can hope for is a gradual process of signaling trust building and moving back towards some opening, which would not be easy. Okay. Shaunan. No, I have not changed my basic conclusion. I think China can do better if they can address the challenges that George and Barry pointed out. China can do even better. And I think China's rise, I really think so, is the will of history. Yeah, I think that the direction is going this way. Yeah. Okay. Thank you. George. Josh, if we knew what the will of history was, then we'd all be very clever and rich. But I think, no, I haven't, you won't be surprised to me that I haven't changed my mind. I think I've come back to something that we kind of talked about right at the very beginning, which is that I think certainly from kind of an economic and kind of commercial background, I think we all understand what makes things work and how systems function and how they've become dysfunctional. But I think that what's really missing in terms of what I've heard from my opponents, shall we say, on this discussion is a convincing argument that the political and governance system which is leading towards this dysfunction is something that we don't have to worry about. I think we do have to worry about it. I think China should worry about it. Thank you. And Yong Ding. My view is similar with Xiao Liang's. I haven't changed my mind at all. But I appreciate the criticism given by Barry and George. I think their voice is really important for us to listen, to learn, to try our best to accommodate. But I also want to emphasize that China now is facing a very different international environment compared with, say, 10 or 20 years ago. So even though China want to continue the policy adopted by Deng Xiaoping, by Jiang Zemin, by Hu Yaowang, China has to make some adjustment. Not because we want to make or not just because we are facing different United States. Well, thank you very much. Professor Yu from Beijing, George from London, Xiao Liang from Oxford and Barry from San Diego in California. It's been fantastic to have your discussions. I think none of us were surprised that you have not changed your views on the subject. China is going to be a very big subject that will continue to engage us and will divide us in terms of how we understand it. The more reasons that we need to have a lot more conversations and a lot more debates about different subjects of China. So thank you all very much. I look forward to seeing some of you again, hopefully physically, at SOA's next year at our next China debate. Thank you. Goodbye. Good night. Thank you. Bye-bye. Thank you, Steve. Thanks, everyone. Bye. Bye-bye. Bye.