[원음]understanding China 시진핑 정부의 중국 경제 - 도전과 전망 - Session ii - 중국의 금융·통화정책과 경제발전 - 발표자 - Zhang yuyan

Thank you, Mr. Chairman. First I will like to thank the Korea Foundation for Advanced Studies and especially President Park for inviting me here today. Today's event is a great opportunity for Korean and Chinese colleagues to interact with each other. I'll set my speech to 15 minutes. This is better for me. Because four speakers have already talked about the overalls. What I felt from here is that second runner in developing economy gets advantages while second presenter gets disadvantages. I'll move on with my presentation. The title is 'The Long-term Growth of China'. I'll talk about the financial problem at this time. So I'll add more information to the previous speeches focusing on finance. Look at this figure for the overall growth of China. This is the Angus Maddison's Historical Statistics. China took 25 percent share of the World GDP in AD year 1 and 28 percent in 1800. Generally, Chinese GDP, before 19 century, took about 25 percent of the World. As it is proposed in 'China's Dream', by considering the importance of Chinese GDP in the World's GDP, restoring the World's GDP to average means becoming a normal state and the figure will reach 25 percent. As many professors, before me, explained about this year's rate of economic growth, I'll talk no more about it. As China's economic growth is slowing down, let's discuss about the potential growth rate in this situation. Most economists of Chinese Social Science Academy predicted that the potential growth rate of Chinese economy will reach approximately 7 to 7.5 percent in the next 10 years. There are several variables that we need to consider when discussing about the potential economic growth rate. First is the population, especially the increase of the working population. According to the estimation made by economists of Chinese Social Science Academy for 10 years, from 2010 to 2020, over 30 million working people of China will decrease and this comparatively is a considerable number. Last year's working forces have decreased to 3.45 million, and by this time the sign of decrease in working force was already shown. Second is the development of technology. The stage of technology development can be variously judged, and I will just explain one of them. That is the stage of developing country. China has been doing a heavy investment in R&D field, and this covered 2 percent of the last GDP. This figure is the highest among other developing countries. The actual figure was 1.97 percent. I will continue with the third element in a minute. I will not talk more about the 'trap of developed country' as the former speaker already did. If so, what is the source of long-term growth, that is to say the source of endless growth in Chinese economy? As Prof. Fan explained about the various growth factors, and other professors also did too, I will talk about the significant financial problems in growth factors. At first, it is about Adam Smith, and his book, 'Wealth of Nations'. In his book, he gave a definition of economic growth. The economic growth is so-called the increase of labor productivity rate. There is only one reason for the increase of labor productivity rate. That is the specialization and division of labor. And the cause of this is the expansion of market size. Therefore the basic idea of this is that the increase of wealth occurs from expanding the market size. This is called, 'Smith's theory'. The growth theory, explained in the Smith's theory, fits well in China. By population, China currently has the biggest single market in the world. The reform policy of China actually expanded the size of the market inside-out. Reformation expanded the inside market, and the opening expanded the outside. Because of this, growth factors changed, and this change promoted the growth of economy. So this is the cause of growth. Second is Schumpeter's economic growth theory. He emphasized on innovation. He talked about the innovation of a businessman, an entrepreneurship, progressing and managing technology. The first half of 'Evolutionary Economics', Schumpeter's book, is about 'innovation'. The last half of the book is about financial market. Innovative ideas can only be achieved in the real world, when it is combined with the financial market. This was Schumpeter's idea. Third is Mancur Olsen. He was my academic adviser during my studies in the US, His last book was 'Power and Prosperity'. The basic idea of Prof. Olsen, shown in the book, was that economic growth is decided by political authority. In this book, he presented three conditions for carrying out the long-term growth of economy. First is respecting property rights. Second is respecting the value. Third is becoming a government, who will expand and reinforce the market. Fourth, never violate one's right. These are Prof. Olsen's conditions. 'Likonomics' is the word on everybody's lips these days This contains three main contents. First is no more offending. Second is deleverage. Third is structural reform. I would like to simply introduce this as follows and have an understanding about the China's economic growth in the future. 'Likonomics' may go some way towards explaining China's future economic trends to us. I will not explain the whole contents but will just briefly talk about it. What I'm going to say is based on several views of colleagues. First, no more stimulation. It mostly means the investments of the government. Government investments are only possible in times of financial crisis. But now is not the time. Because, there are several problems and risks to be solved. Overproduction, especially, is one of the problems. In 'no more stimulation', there are three indexes that especially need to be noticed. The three indexes are economic development, price, and unemployment rate. If these three indexes were within the certain range, then the government would not have announced a new policy. There is nothing wrong with China maintaining 7.5 percent of growth rate this year. It is 7 to 7.5 percent in the long term. Second is 'Deleverage'. There are three contents in here. First is using the existing credit funds in more appropriate places, second is controlling financial risks, and last is strengthening the market rules. In here, there are interest rates of marketing and opening of capital problems. When comparing this to GDP, the current overall credit loan scale in China has already been expanded. It has increased from 75 percent to 200 percent between 2008 and early this year. Therefore, proceeding the deleveraging of the whole nation is important. In the contents of Likonomics, the third, structural reformation, is also important. Structural reformation contains lots of contents. There are financial system of marketing finance, reforming factor-price, land use rights lessening the interference and control of the government, monopolization, the problems of state-owned enterprise presented by the former speaker, and of course, the distribution of income problem. Lastly, the Family Registry System, comparatively close related with the movement of factors. Also, I want to add some more to the financial section. First, I want to emphasis on finance marketing, as Prof. Chen just explained, and also explain that this is closely related to my research. Finance marketing connotes the mechanism of forming internationalization exchange rates in Chinese renminbi and problem of opening capital. Currently, many arguments are breaking out in China about capital problems. More and more economists are wanting the opening of capital and the expansion of the permissible range of free rate. A great number of people are accepting this trend naturally and also are wanting to follow this progress. However, there are other opinions about this. In the Institute of World Economics and Politics, where I'm at, mostly wants this situation to be regulated. As every other economic reformation happened in China, they don't want all of it to be opened at once but wants it to be gradually proceeded. There is a precondition in China for the goal of opening capital. It is establishing what to do first and afterwards. For example, completing the domestic managing and overseeing system and achieving the marketing of domestic interest rate in some extent, before changing the mechanism of exchange rate formation and converting currency. After that, we need to take a step forward, one at a time, to the opening of capital. My opinion is doing this not in an unexpected way but in a progressive way. Then, which currently is possible for us to do? It is the marketizing of interest rates. This has already begun. The other one is the up and down of renminbi. In other words, the movement of exchange rate has become active. This is related with the opening problem of capital. We also need to pay attention to the internationalization of renminbi. This can be seen through the measured value that came out this June. It means that, in the process of internationalizing renminbi, we have taken a major step forward. Then, what is the internationalization of renminbi? Is there a standard for it? What is the internationalization of renminbi that Chinese think? That is the general GDP of China and export volume, such as price settlement of products or services and the rate of saved foreign exchanges that RMB should result in foreign trade, being the same as the World occupation percentage. When the RMB reaches this level, we can think that it has arrived at an international standard. In the current trading sector, situation as paying with the RMB has increased and the speed is getting faster. However, the gap between fixed price and saved foreign exchanges are still large. This is closely related to the opening of capital items. I think that the process of opening capital should not be done right now but should be gradually proceeded with internationalizing the RMB. Let me say about the external marketizing problem of finance once more. Although Prof. Chen talked about the local bond just now, I want to redeem some features into it. Our research institute has been studying about the local bond, especially the shadow banking. The overall scale of the shadow banking is approximately between 1.5 to 2 trillion. Many disputes have happened over this that occurred several financial risks and, at the same time, it actively operated the interest rate marketizing and district loan, in some degree. This is what I wanted to add. We have various hopes for the growth of China in the future. Personally, I think that the long-term growth rate of China, that is to say the growth rate for the next 10 years, will be about 7.5 percent. The reasons, as I just explained before, the actual problems that Likonomics should take care of, are market scale, technology development, factor movement, and the relationship between the government and market. All of these will be the driving force for long-term growth. This is all I have to say for today. Thank you.