Today, September 19, the 2026 Tsinghua PBCSF Chief Economists Forum took place at Tsinghua University under the theme “China and the World Economy in 2026: Review and Outlook—Global Rebalancing and the Restructuring of the International Monetary System.”
Ju Jiandong, Chair Professor at Tsinghua University’s PBC School of Finance, moderated the discussion. Four senior policy advisor joined the discussion, including Justin Yifu Lin, former Chief Economist of the World Bank; Yu Yongding, former president of the China Society of World Economics and former director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences; Yao Yang, Dean of the Dishui Lake Advanced Finance Institute at Shanghai University of Finance and Economics and former Dean of Peking University’s National School of Development; and Li Xunlei, Chief Economist of Zhongtai Financial International.
It is rare to see four key policy advisors gather and discuss the macroeconomic issue. Thus, I think it’s highly valuable. It’s just one section of the Forum, so I may consider making a series.
All four economists’ policy arguments around one central question: With domestic demand insufficient and external trade pressures mounting, where should China turn to kick-start its next round of growth?
Ju Jiandong: Three mutually reinforcing imbalances
Ju identifies three interconnected problems facing China:
Externally, a large manufacturing trade surplus points to the need to adjust the structure of China’s international assets and liabilities.
Domestically, household consumption and aggregate demand are insufficient to absorb manufacturing output.
Fiscally, local governments face substantial debt pressure, while the central government still has room to borrow.
In his view, the China–U.S. imbalance reflects the international division of labor: China has specialized in manufacturing, while the United States has specialized in finance. China’s trade surplus, therefore, cannot simply be attributed to subsidies or exchange-rate policies.
His proposed solution is for the central government to issue RMB 10 trillion in renminbi-denominated sovereign bonds to overseas investors, with the proceeds allocated as follows:
RMB 2 trillion to raise pensions under the basic pension scheme for urban and rural residents, boosting household income and consumption.
RMB 4 trillion to refinance local government debt and support local investment.
RMB 4 trillion for central government investment in strategic industries such as AI and new energy.
Ju hopes this would simultaneously rebalance China’s international assets and liabilities, domestic supply and demand, and fiscal responsibilities between central and local governments. He also sees the proposal as a way to advance renminbi internationalization and expand the global supply of renminbi-denominated safe assets.
Justin Yifu Lin: Weak global demand is the starting point; investment remains the principal remedy
Lin’s argument is that slower global economic and trade growth has reduced China’s export growth, making it harder to absorb capacity built on expectations of much faster export expansion. Competition intensifies, investment slows, employment and income expectations weaken, and consumer confidence suffers.
He argues that expanding consumption within China cannot fully offset weak demand across global markets. This should not, however, be read as opposition to increasing consumption.
His policy recommendations center on three areas of investment:
Industrial upgrading: seizing the opportunities presented by the fourth industrial revolution.
Domestic infrastructure: focusing on green and new infrastructure—what I understand as broadly corresponding to the “six major infrastructure networks.”
Overseas investment: encouraging Chinese firms to establish operations in Belt and Road countries, creating local jobs and income while supporting the development of Chinese industries and productive capacity.
Yu Yongding: Seize the window for expanding public investment
Of the five economists, Yu makes the most explicit case for expansionary policy.
He rejects the idea that a particular level of per capita income means China’s growth must inevitably fall to a predetermined rate. With the right policies, he argues, faster growth remains possible.
He also reiterates his objection to treating consumption as an independent engine of long-term growth. Consumption, in his view, is largely a function of income, expected income, and wealth. Short-term stimulus can lift spending, but cannot by itself change consumption’s long-term trajectory.
Yu argues that China’s infrastructure needs are far from exhausted. Public investment should not be judged solely by the commercial profitability of the entity operating a project; its long-term social benefits, contribution to regional development, and implications for national security also matter.
He therefore calls for the prompt implementation of expansionary fiscal and monetary policies, translating them into actual public investment. Better employment prospects and higher household incomes would strengthen confidence in future growth, encourage consumption, and reinforce the recovery.
(Yu’s position should not be reduced to opposition to consumption. It’s more accurate to describe that he does not see consumption as the initial driver. He believes investment, particularly public investment, is the key instrument for jump-starting growth and bringing consumption along with it.)
He also stresses the urgency of acting now. As U.S. Treasury yields rise, he argues, constraints on China’s fiscal and monetary expansion will multiply. If inflation picks up, further stimulus and interest-rate cuts will become more difficult.
Yao Yang: Move beyond the overcapacity argument toward global development and investment cooperation
Yao focuses on how China should respond to other countries’ growing sense of pressure from Chinese manufacturing.
He argues that it is unconvincing to discuss falling prices and “involution”—intense, often self-defeating competition—at home while categorically denying any mismatch between supply and demand abroad.
Yet China’s productive capacity and technology remain highly valuable when viewed through the needs of poverty reduction, industrialization in developing countries, and the global green transition.
If the United States and Europe want to develop their manufacturing sectors, he argues, they should allow Chinese companies to invest rather than broadly excluding them on national security grounds. He takes a relatively open view of joint ventures, ownership arrangements, and technology transfers, opposing blanket rejection of cooperation in the name of technological nationalism.
Yao’s central concern is that developing countries, too, are feeling competitive pressure from Chinese manufacturing. Ignoring this could lead to a broader coalition of restrictions on China.
His prescription is for Chinese companies to move beyond “selling products to the world” toward “investing, producing, and creating jobs around the world,” easing friction while opening up new room for growth.
Li Xunlei: The central government can borrow more, but efficiency and household income deserve greater weight
Li argues that China’s export growth over the past decade has been less exceptional than commonly perceived: it outpaced global export growth in five years and lagged behind in the other five.
Over the most recent five-year period, he notes, China’s exports grew by a cumulative 45.6%, compared with 48.8% globally—a gap of 3.2 percentage points. Export volumes may look large, but falling export prices mean China actually underperformed global growth in value terms.
His point is that, contrary to the view in some Western countries that China has squeezed out other exporters, the broader context has been a period of rapid global trade expansion.
On debt, Li argues that government borrowing has grown substantially faster than the economy. The question should therefore not be limited to “How much more can the government borrow?” It must also be “How much growth and income does additional borrowing generate?”
That does not mean expansion should stop. China’s low inflation still leaves room for borrowing, while households have begun deleveraging, making it unrealistic to expect them to take on substantial new debt to drive demand. With local governments already heavily leveraged, the central government should take the lead in adding leverage.
Li sees China’s external economic circulation as functioning more smoothly than its domestic circulation. Discussing the recent decline in the capital-output ratio, he places greater emphasis on directing resources toward household income, consumption, and “investing in people.”
His position is that additional debt and investment are not sufficient answers in themselves. What ultimately matters is whether they effectively improve household incomes and demand.
Where they agree—and where they differ
Below is a summary of the common ground and differences, prepared with the help of GPT-6-Astra.
Common ground: Active adjustment is needed; imbalances will not resolve themselves
To varying degrees, their arguments overlap on four points:
Insufficient domestic demand requires a policy response.
China’s strong manufacturing capacity needs a better combination of domestic and external demand, supported by appropriate institutional arrangements.
The government still has room to act, particularly at the central level.
International imbalances cannot simply be resolved by suppressing China’s industrial development.
Difference 1: Where should the effort to expand domestic demand begin?
Lin and Yu: Put greater emphasis on increasing investment first, improving employment and income, and thereby lifting consumption.
Li: Places greater emphasis on household income and investing in people, while warning about declining debt and investment efficiency.
Ju: Combines pension spending with central and local government investment in a single package.
Difference 2: How should investment efficiency be assessed?
Yu stresses that commercial-return measures can underestimate the social and long-term benefits of public investment.
Li emphasizes that debt growing faster than the economy calls for greater attention to efficiency and the composition of spending.
Lin focuses more on where investment goes: industrial upgrading, green infrastructure, and new infrastructure.
Difference 3: What should drive external rebalancing?
Ju: Internationalizing renminbi sovereign bonds and adjusting China’s international asset-liability structure.
Lin and Yao: Overseas corporate investment that creates demand, eases friction, and integrates Chinese firms into local economies.
Li: International cooperation and more accurate communication about China’s economic and trade performance.
Yu: Domestic policy adjustment, alongside greater caution about the risks of dollar-denominated assets.
Below is the translation of their speech, and I have the Chinese version of the shorthand transcript; these have not been reviewed by the speaker.
Jiandong Ju: Achieving China’s Triple Rebalancing through the Internationalization of RMB Government Bonds
On September 19, the 2026 Tsinghua PBCSF Chief Economists Forum was held at Tsinghua University under the theme “2026 Review and Outlook of China and the World Economy—Global Rebalancing and Reconstruction of the International Monetary System.” Jiandong Ju, Chair Professor at the Tsinghua University PBC School of Finance, delivered a speech and proposed an analytical framework and policy plan for achieving China’s triple rebalancing through the internationalization of RMB government bonds. Ju pointed out that three types of contradictions are interrelated and mutually reinforcing, and that issuing RMB-denominated government bonds abroad by the central government is a policy tool for achieving triple rebalancing at the same time.
China’s economy faces three types of structural contradictions
External structural contradiction in manufacturing—the manufacturing surplus is large and continues to expand. In 2025, China’s current account surplus reached $735 billion, of which the goods trade surplus was about $1.2 trillion, and it has continued to expand recently.
Ju believes that both manufacturing and finance have sectoral economies of scale (externalities), meaning that the larger the sector, the more efficient firms are. According to the Ricardian logic of division of labor, decades of international market division of labor have led China and the United States to concentrate on developing their respective advantageous industries. As a manufacturing center, China produces and exports manufactured goods, thereby generating a manufacturing surplus. As a financial center, the United States absorbs international capital, and capital flows into the United States accordingly. In accounting terms, this appears as China’s trade surplus and the U.S. trade deficit. The so-called China-U.S. trade imbalance is a natural result of the market division of labor and cannot simply be attributed to China’s subsidies, exchange rate, or other policy distortions.
Domestic supply-demand structural contradiction in China—domestic demand is insufficient and cannot fully absorb manufacturing supply. China is transitioning from an industrial society to a welfare society, but old-age support and basic service guarantees for low-income households have not yet been fully established, and household consumption remains insufficient. The real estate downturn has further depressed domestic demand, and more manufactured goods need to find markets through exports. In 2025, China’s final consumption (household consumption plus government consumption) accounted for 56.9% of GDP, the lowest among major economies; the United States was 85.27%, Japan 72.72%, Germany 75.71%, Brazil 82.57%, and India 67.44%. Taking old-age insurance as an example, in 2024 the average monthly pension per urban and rural resident was 249.4 yuan. Ju estimates that raising the average monthly pension for urban and rural residents to 1,000 yuan (about four times the 2024 level) would require filling a funding gap of 1.59 trillion yuan.
Structural fiscal contradiction between central and local governments—the central government still has fiscal space, while local fiscal and debt constraints are more prominent. Local finances have long relied on land transfer revenue and debt financing. After the real estate downturn, in 2025 revenue from the transfer of state-owned land use rights was 4.1518 trillion yuan, down 14.7% year on year, and local governments relied more on debt rollovers and refinancing old debt with new borrowing. At the same time, in 2024 China’s central government debt-to-GDP ratio was 25.6%, significantly lower than Japan’s 200.9%, the United States’ 102.7%, the United Kingdom’s 100.7%, and Germany’s 44.0%. The central government still has considerable room to borrow.
However, the traditional external adjustment path is unlikely to resolve these contradictions. Ju pointed out that if China relied on RMB appreciation or trade measures to narrow the surplus, export competitiveness would decline, manufacturing employment would come under pressure, the effect of surplus adjustment would be uncertain, and the structural surplus might not necessarily disappear.
Internationalization of RMB government bonds promotes China’s triple rebalancing
Ju proposed three core conclusions:
First, how can China achieve rebalancing of its international assets/liabilities? A $1.2 trillion trade surplus constitutes a $1.2 trillion increase in China’s net assets. To achieve asset/liability rebalancing, one method is for China to reduce $1.2 trillion of external assets by selling $1.2 trillion of external assets (mainly U.S. Treasuries), but selling U.S. Treasuries would shock the global U.S. Treasury market. Another method is for China not to sell the foreign (U.S.) debt it holds, but instead to issue 10 trillion yuan of RMB-denominated government bonds, increasing China’s external debt by 10 trillion yuan, thereby achieving rebalancing of China’s international assets/liabilities.
The 10 trillion yuan in proceeds from externally issued government bonds can be spent in three areas: 2 trillion yuan to raise the average monthly pension for urban and rural residents to 1,000 yuan; 4 trillion yuan to swap local government (new) debt, that is, to use government bond proceeds to purchase local government debt, with local governments using the debt proceeds to increase local government investment; and 4 trillion yuan for new central government investment.
Second, 2 trillion yuan to raise pensions will increase the income of urban and rural residents and increase consumption demand; 4 trillion yuan to increase local government investment will increase local investment demand; and the central government’s 4 trillion yuan can be invested in AI, new energy, and other strategic industries, increasing central government investment demand. New demand from these three areas will substantially raise domestic aggregate demand and achieve rebalancing of the macroeconomic supply-demand structure.
Third, using 4 trillion yuan of government bonds to swap local debt will use sound central fiscal space to ease local government debt pressure, support local fiscal expenditure, promote local government investment, and achieve central-local fiscal rebalancing.
Externally issuing 10 trillion yuan of RMB government bonds can also accelerate RMB internationalization and provide safe assets to the world. Currently, global safe assets ($40 trillion of U.S. Treasuries) have almost reached the ceiling for U.S. Treasury issuance. The internationalization of RMB government bonds is timely.
Ju believes that China’s economic rebalancing involves long-term structural reform, and resistance and difficulty are great. It is difficult to find a single policy that simultaneously balances China and abroad, urban and rural areas, and central and local governments. The internationalization of RMB government bonds is precisely a policy measure that balances the interests of all parties and is an approximate Pareto improvement.
Justin Yifu Lin:
Let me start, just to set the ball rolling. I think the biggest problem in today’s world is, on the one hand, of course, imbalance, but a bigger problem than imbalance is the recession of the global economy, and a major recession. We can see this from the numbers. For example, from 1960 to 2008, the United States grew at an average annual rate of 3.3%; but from 2008 to last year, U.S. growth averaged only 2.1% per year. The euro area grew at an average annual rate of 3.1% from 1960 to 2008. From 2008 to last year, 2025, its average annual growth was only 0.9%. For OECD countries as a whole, from 1960 to 2008, average annual growth was 3.4%, but from 2008 to last year, 2025, it was only 1.7%. From a global perspective, average annual growth was 3.7% from 1960 to 2008. From 2008 to last year, average annual growth was only 2.7%. So, after the outbreak of the international financial and economic crisis in 2008, its shockwave was somewhat like that of the so-called Great Recession brought about by the 1929 Wall Street crash. At the time, it was thought we might well enter a Great Recession. Now it seems that, indeed, almost 20 years have passed in the blink of an eye. Whether in the United States, Europe, OECD countries, or the world as a whole, economic growth has entered a long-term weakness. This is the most important reality of the current world economy.
This reality is also closely linked to what we call global imbalances, because before the 2008 crisis, the growth of the globalized world economy and trade was more than twice the global economic growth rate. After 2008, world economic growth declined, and, more importantly, trade growth slowed even more than world economic growth. For example, before 2008, world economic growth averaged 3.7% per year; more than twice that would be 8 or even 9. After 2008, world economic growth slowed from 3.7 to 2.7, and trade growth was even lower than 2.7.
What does this mean for world trade and for global imbalances? As everyone knows, after reform and opening up, China’s economy grew very fast, and its trade grew even faster. For example, look at China’s export growth: from 1978 to 2008, average annual export growth was 18.1%. If we look only at the period after joining the WTO up to 2008, growth was even faster, averaging 21.4% per year. Why? We reformed and opened up at the same time; opening up allowed us to use the international economy as a Ricardian division of labor, improve our efficiency, and bring about rapid economic growth. But to seize this growth opportunity, if most of our exporting enterprises are private and have very strong entrepreneurship, they want to see 20% export growth every year. How? I must invest quickly, and only then can I seize the opportunity brought by this economic growth and export growth. But after the 2008 crisis broke out, trade growth suddenly fell sharply, and our export growth also fell sharply. For example, from 2008 to last year, our export growth fell from around 20% to about 5% now. What does this create? Originally, investment was always made on the basis of 20% annual growth, forming production capacity. When export growth suddenly declines, that production capacity becomes overcapacity. With overcapacity, competition naturally becomes very fierce—that is one point. So, involution—why is there involution? Large capacity and small demand naturally lead to involution. That is the first point. Then this has a great impact on us. What is that impact?
First, these export sectors have formed very large production capacity in the past, but in the face of current market demand and expected future demand—since what they see is that the global economy has not recovered and exports have not recovered—what are we to do under such circumstances? Of course, domestically, it has been proposed that we rely on domestic consumption to absorb the insufficient demand for these export capacities. China is indeed a large economy, but our share of the world is only 18%. You cannot rely on the strength of this 18% of demand to make up for the weakness of 82% of demand. So if we want to rely on increasing domestic consumption to rebalance, first, the quantities are not commensurate: you cannot use an 18% increase in demand to make up for an 82% shortfall in demand. Second, it is not only a matter of quantity; it will certainly also affect confidence. Because these export sectors have huge overcapacity, under such circumstances, their investment slows, new job creation slows, and more importantly, their business conditions are poor, bringing pressure for employment and wages to fall. Some enterprises may not be able to keep operating and will have to close, and unemployment will rise. Under such circumstances, confidence in domestic consumption is insufficient. This is, in fact, closely related to the insufficient consumer confidence we have had in recent years.
Under such circumstances, how can our country rebalance, and how can the world rebalance? In my view, the main answer is probably still investment. On the one hand, under conditions of overcapacity, consumers will absolutely not have the confidence to increase consumption. What we can do, of course, on the one hand, is rely on investment to upgrade industry and seize the opportunity of the fourth industrial revolution. On the other hand, rely on investment to increase domestic infrastructure. Of course, traditional infrastructure has already been built quite extensively; we can increase green infrastructure related to global warming and increase new types of infrastructure needed to seize the fourth industrial revolution. This is an investment. The second aspect is relying on enterprises “going global.” Our domestic export sectors can invest in countries along the Belt and Road. Investing there can, on the one hand, create local employment and raise local incomes, and on the other hand, absorb our domestic production capacity.
So let me start, just to set the ball rolling. Having discussed the current situation, I tend to support Yu Yongding: in the end, investment is the main measure for resolving domestic imbalances, and investment is the main measure for resolving international imbalances.
Yu Yongding:
Today, I will not follow, point by point, the procedure laid out by Jiandong. I think this is a rare opportunity: the audience consists of highly educated people who understand economics very well and also possess a certain degree of influence. I would therefore like to use this opportunity to discuss more than just the issue of imbalances. Yesterday at Tsinghua University, I spoke specifically about international imbalances and the internationalization of the renminbi. Here, I would like to briefly present some of my views.
First, The decline in the economic growth rate—which, as everyone knows, is currently around 5 percent—is not necessarily inevitable.
Some scholars believe there are certain indicators, such as per capita income, and that once per capita income reaches a particular level, economic growth must slow down. But this is not actually the case. If you look at the figures for the United States, its per capita income was US$8,000 in the 1920s and had increased more than fourfold—to US$42,000—by the 1990s. Yet during both periods, its economy grew at around 4 percent, sometimes a little more and sometimes a little less. Per capita income differed by a factor of four between those two periods, but the economic growth rates were the same.
Therefore, you cannot simply select a particular indicator and conclude that, once that indicator reaches a certain level, economic growth must fall to a particular rate. I regard that as a metaphysical—or overly deterministic—view.
My first point, therefore, is that the decline in economic growth to its current level of around 5 percent was not inevitable. What is the implication? If we manage things well, we can achieve a higher rate. I cannot say exactly how high, but we should not adopt a fatalistic attitude and assume that this is the best we can do. It is not. Human actions matter.
Second, I want to emphasize that there is no such thing as a consumption-driven model of economic growth.
Many people say that China needs to shift from investment-driven growth to consumption-driven growth. This proposal has been advocated most strongly by American economists, such as Grossman and Summers. Yet in the United States, these same economists emphasize the need to strengthen infrastructure investment. Summers, in particular, has recently made very strong recommendations to the U.S. government in this regard.
In fact, throughout the history of economic thought—from Marxist political economy to orthodox Western neoclassical economics—there is no theory that supports the idea of a consumption-driven model of economic growth.
What, then, drives economic growth? These figures come from the Conference Board, which I consider a relatively authoritative source. They are recent figures. Looking at average global economic growth over several decades, which factor made the largest contribution? Without question, it was the capital stock. Average economic growth was slightly above 3 percent, and the capital stock contributed 2.8 percentage points. That is its contribution to growth, not its proportional share.
People are very fond of discussing total factor productivity. However, there is a widespread misunderstanding of total factor productivity in terms of growth theory. Textbooks on economic growth make it very clear that it is a residual category: when there are economic changes that you cannot explain, you classify them as total factor productivity. Yet we treat it as something mysterious and extraordinary—something we must pursue. I believe this reflects a misunderstanding, and the issue requires further study.
Look at its contribution: it is the smallest component. That is my second point.
Third, China’s productivity and productive efficiency are not as poor as we ourselves sometimes imagine. Whenever the subject comes up, people immediately say that China is inefficient.
There are three principal measures of productive efficiency: labor productivity, the capital-output ratio, and total factor productivity.
If you make horizontal international comparisons, labor productivity is straightforward. China has experienced one of the fastest rates of per capita income growth in the world, so its labor productivity cannot possibly be very low.
Some may say that China’s labor productivity is high only because it uses a large amount of capital. In that case, look at the capital-output ratio. China’s capital-output ratio is in the upper-middle range internationally. For this indicator, a lower figure means higher efficiency. In developed Western countries, the figure is generally above 10, whereas China’s is around 7. Japan’s is even higher.
Therefore, whichever indicators you use to measure productive efficiency, China ranks in the upper-middle range worldwide.
Why, then, do some people insist that China’s productive efficiency is low? Their argument is that China invests too much; because of diminishing marginal returns, excessive investment must result in low efficiency. But if you examine the data, you will find that this argument is incorrect.
Fifth(there’s a jump here), China’s infrastructure investment is far from saturated.
You may remember that, over the past ten or twenty years, the most popular view has been that China’s infrastructure was already saturated—that we should not invest any more because the investment would be inefficient and unprofitable. This view is completely wrong.
The 15th Five-Year Plan has already established very clear objectives for infrastructure development. Everyone is familiar with the six major backbone networks. The 15th Five-Year Plan constitutes a rejection of our previous belief that infrastructure investment was completely saturated. I fully support this position.
Sixth, Many people strongly emphasize that infrastructure is inefficient and produces no commercial return. This is also a seriously mistaken view.
Infrastructure investment—which, in my discussion, includes public investment—should primarily be evaluated in terms of its social and long-term benefits. These benefits often cannot be measured.
Suppose I build a lighthouse. Every passing ship benefits from it, but how do you collect payment from those ships? Where is the financial return? Such a project can only be provided by the state.
To give a more extreme example, national defense is extremely important. But what is the rate of return on national defense? How would you calculate it?
We must therefore develop a comprehensive understanding of the “rate of return” on infrastructure and public investment. Suppose I build a high-speed railway. The railway company itself may continue to lose money, but the provinces, cities, and counties along the route can all develop as a result.
I now travel around the country every month. The cities have been developed very well, and I find the experience extremely pleasant—but I have not directly paid for all those benefits.
You cannot use a simple measure of commercial returns to determine whether an infrastructure project should be undertaken. You should consider whether it is necessary from the perspective of the country’s long-term development and national security.
Put simply, our infrastructure remains grossly inadequate. It is by no means saturated.
Seventh, I particularly want to emphasize that consumer demand is an endogenous variable.
Everyone here has studied economics and knows how the consumption function works. Short-term fiscal stimulus can help increase consumption, but it cannot change the long-term trend of consumption growth.
Consumption is a function of income, income expectations, and wealth. Put simply, it is a function of expected income. If income expectations do not change, the effects of stimulus will be limited, no matter how much stimulus is applied.
Last year, 700 billion yuan was spent. Yet, as we can now see, the growth rate of consumption has been declining year after year.
The point I want to emphasize is that because consumption is an endogenous variable, short-term fiscal stimulus can have some effect, but its effect is limited. Experience has already demonstrated this.
Eighth, Increasing infrastructure investment is an effective way to restart the economy.
Let me return to macroeconomic regulation. I joined the Chinese Academy of Social Sciences in 1979. At that time, every year someone would say that China was facing a severe economic crisis and that major problems were about to occur. Yet every time, we managed to overcome them.
Why? The basic prescription was infrastructure investment.
Infrastructure investment is an area in which China possesses an institutional advantage. After we undertake infrastructure investment, economic growth accelerates. Once growth accelerates, consumption rises. Rising consumption then further consolidates economic growth. Ultimately, the economy often grows faster and faster and becomes increasingly overheated, until policy has to be reversed to cool it down.
This was basically the pattern from the 1980s and 1990s through 2008 and 2009.
I am not opposed to increasing consumption. Marx said that the purpose of production is consumption. Without consumption, production has no meaning. But how do you make consumption grow? Investment is a key factor—especially infrastructure investment.
Why do I emphasize infrastructure investment? Does that mean we should not emphasize semiconductor manufacturing or other industries? No. I emphasize infrastructure because it is a form of public investment, and the need for it is relatively easy to assess. If you possess all the relevant information, you can identify what China lacks.
For example, China currently relies on imports for 72 percent of its oil. This is highly unsafe. If the relevant straits were blockaded for six months or a year, the consequences for us would be enormous.
The state recognized this problem long ago and therefore made major efforts to establish strategic petroleum reserves. Without this work, we would have run into serious problems long ago. Many Western countries are now experiencing severe inflation and are highly vulnerable to oil shocks.
My point is that individual microeconomic actors cannot clearly perceive these issues, but the state should be able to see them. It should formulate the necessary plans. The network—the six major backbone networks—is extremely important.
Ninth, China’s fiscal position is sustainable. You can make the comparisons yourselves, so I will not elaborate.
Tenth, we must not miss this opportunity.
Why? Because global price conditions are changing. Oil shocks are pushing prices up everywhere. China has the lowest price level—or lowest inflation rate—while the figures in other countries are much higher.
The United States is also facing increasingly serious problems. The yield on its government debt has already exceeded 5 percent. Under such circumstances, there are many constraints on our ability to adopt expansionary fiscal and monetary policies.
This window of opportunity must not be missed. Once it is gone, it will not return.
If inflation rises and prices increase, it will become extremely difficult to introduce expansionary fiscal and monetary stimulus or to cut interest rates.
We have had this opportunity for many years, and we must not squander it. We still have the opportunity now.
Eleventh: The current-account balance, The current-account balance is equal to domestic savings minus investment. But my view differs somewhat from Jiandong’s. You were not entirely explicit about whether we should reduce the current-account deficit [possibly “surplus” in the intended meaning].
To a large extent, your proposal is that, for the sake of restoring balance, we should increase our holdings of foreign assets. Yet at present, we are doing precisely the opposite: we are reducing our holdings of U.S. dollar assets.
Why? The United States faces three problems.
First, its government debt is increasing. The United States has accumulated too much government debt, and its government-debt-to-GDP ratio is already extremely high.
Second, from a stock perspective, the United States’ international-payments position is excessively imbalanced. Its net foreign debt stands at US$21.27 trillion, equivalent to 66 percent of GDP.
In 2006, people were deeply concerned that a balance-of-payments crisis might occur when U.S. net foreign debt was US$1.8 trillion, or 18 percent of GDP. It has now increased many times over—from US$1.8 trillion to approximately US$21.3 trillion.
We now see many international research organizations examining this issue. Comrades Huang Yiping and Wei Shang-Jin participated in the Paris Report, which emphasized the effects that stock imbalances in international payments can have on the world economy.
Therefore, the United States faces an excessive stock of government debt, a stock imbalance in its international payments, and an IT bubble. Of course, we cannot say with certainty whether the bubble will burst, but there are major problems.
The key issue is that we must accelerate our domestic policy adjustments and adopt more expansionary fiscal and monetary policies.
We have ample policy space. We must accelerate the implementation of the modern infrastructure system. We must complete the planning as quickly as possible, turn those plans into projects, and turn those projects into actual construction and economic activity.
My final words are these:
Opportunity knocks but once; time, once lost, never returns. Ten thousand years is too long—seize the day, seize the hour. (quote from Mao)
Yao Yang：
The previous two speakers discussed relatively theoretical issues. I would like to address a more practical one: the international reaction to China’s overcapacity and the newly emerging notion of a so-called “China squeeze.”
Let us look at the macroeconomic data. Last year, China had a merchandise trade surplus of US$1.2 trillion, while the United States had a merchandise trade deficit of US$1.4 trillion. These two figures are roughly equal. Other countries are essentially caught in between: they run deficits with China and surpluses with the United States, which offset each other.
Take India, for example. Its exports to the United States are growing, but so is its trade deficit with China, which has already exceeded US$100 billion. Vietnam has overtaken China as the country with the largest trade surplus with the United States, but that entire surplus is offset by its deficit with China. In fact, Vietnam runs an overall trade deficit.
Given this pattern, global imbalances are fundamentally a China–U.S. issue. This so-called “mirror-image” pattern had already taken shape before 2008. The problem is that the United States is on the demand side: it creates demand for the rest of the world. China creates supply. That is why the rest of the world is directing its criticism at China.
How should we respond? I think our response should consist of a three-part argument.
First
I do not think a strategy of directly confronting the international community and insisting that China has no overcapacity can succeed.
Why not? Because here at home, we say every day that we have excess capacity—that this is why competition has become so intense and why prices are falling. As intellectuals, we cannot turn around on the international stage and claim the opposite.
We must therefore acknowledge that our domestic demand has, at the very least, failed to keep pace with our capacity to supply. That is why our Producer Price Index is falling and why we have such intense “involutionary” competition. That is the first level of the argument.
To put it another way, when Yellen threw a punch at us a few years ago, we should have dodged and let her punch land on cotton. Instead, we held up a shield, which only encouraged her to punch harder. Now the notion of a “China squeeze” has emerged. If we insist that we have no such problem, we will once again fall into their trap. They have set a trap for us—why should we walk straight into it? That is the first level.
Second
We should tell the world that, from a global perspective, China’s productive capacity is not excessive.
Professor Lin just mentioned that the global growth rate is declining. In my view, the world has always faced an enormous challenge: the challenge of poverty reduction and economic growth. Eighty percent of the world’s population still lives under difficult conditions and continues to need economic growth.
Over the past decade or so, global discourse has been completely dominated by the United States and Europe. Without realizing it, we have allowed ourselves to be drawn into their framing of the issue. In reality, the most important global challenge is not so-called geopolitical risk. If geopolitical risk were truly the main problem, Chinese companies would not be able to expand abroad in any case. The greatest challenge remains global development.
From the perspective of global development, China’s productive capacity is far from excessive. This is particularly true given the challenge of climate change. The main products China exports are now closely connected with the global effort to combat climate change.
If we frame the issue from this perspective, I believe we can claim the moral high ground: China is supplying the world with productive capacity and technology—and with the most advanced technology at that. This is the second level.
Third
We should put the ball back in their court.
The United States has been pursuing reindustrialization for twenty years, beginning during the Obama administration. Has it succeeded? No. Manufacturing’s share of U.S. GDP has not increased; instead, it has declined. You are undergoing deindustrialization, so how are you going to reindustrialize? China can help you. We can tell the United States that China can help.
As for Europe, if your products are not competitive, then open your doors and allow us to invest. Yet what we see today is that both the United States and Europe are using so-called national security concerns to keep Chinese investment out. They may even nationalize Chinese investments without justification.
We have the moral high ground on this issue. Why do we not use it?
There is, however, a problem here. I believe there is an undesirable tendency toward technological nationalism within China: We worked so hard to develop these technologies, so why should we transfer them to other countries?
Europe and the United States have also proposed arrangements under which they would hold a 51 percent controlling stake, while we would hold 49 percent and transfer our technology. I think that sounds perfectly reasonable. After all, that is exactly what China did thirty years ago.
Morally speaking, we have no grounds for refusing other countries what we ourselves asked of them thirty years ago. Moreover, their request is a compliment to China. Why should we not accept it?
Even if we transfer technology in this way, given the current pace of our technological progress, I do not think we are likely to fall behind in the end. On the contrary, if you ask Chinese companies themselves, they will tell you that this competition is beneficial to them.
At least among the companies I have dealt with, not one has complained about so-called involution. What they complain about much more is shipping goods and then being unable to collect payment. That is their biggest problem. They do not complain about intense competition.
They all say that competition is a good thing: “I can compete my rivals out of the market, and it pushes me to advance technologically at a very rapid pace. What is wrong with that?”
China now faces a two-sided global situation. On the one hand, the competitiveness of our products is increasing. On the other hand, we must recognize that not only developed countries but also developing countries are now feeling competitive pressure from China.
Whenever I attend international conferences, everyone talks about this issue. We cannot turn a blind eye to it. Nor can we wait until the rest of the world forms a “united front” against us—as if the other nineteen members of the G20 were to join forces and demand that China take action. In the long run, that would constrain China’s international room for maneuver.
Conversely, if Chinese companies can expand abroad smoothly, we will be able to re-create another China overseas. That would be a crucial strategic move toward strengthening both China’s overall national power and its soft power.
That is all I wanted to say.
Li Xunlei:
Thank you to the organizers, and thank you, Professor Ju, for the invitation. I will take a few minutes to briefly outline my views.
The global economy needs to rebalance because it is suffering from imbalances. I strongly agree with Professor Lin’s earlier point that the global economy is facing not only imbalances but also recessionary pressures. Why have these recessionary pressures emerged? Why has global economic turbulence intensified?
My long-term explanation is that the period of peace has lasted too long. Historically, the global economy has often restored balance through war. Yet it has now been 81 years since the end of World War II—an extraordinarily long period of peace by historical standards. During this period, the world’s population more than tripled, rising from 2.5 billion to 8.1 billion. This has led to the mass extinction of species and intensified the conflict between humanity and nature.
Prolonged peace—especially when the rules remain unchanged—also intensifies conflict among people, while widening disparities between rich and poor become increasingly widespread. The imbalances I observe are therefore multidimensional rather than confined to a single area. There are imbalances within countries, between countries, and among individuals.
Geopolitical conflicts exist between countries, particularly in connection with China’s rise. Professor Yao Yang also asked earlier: Why has China become the target of so much criticism? It is because China’s economy has developed too rapidly and its manufacturing sector has become increasingly powerful. For China, of course, this is a good thing. In the early 1990s, China accounted for only 2 percent of global GDP; today, that figure has risen to 18 percent. It is therefore understandable, in my view, that other countries would seek to contain China.
At the same time, we should not shy away from acknowledging that China has also encountered imbalances in the course of its economic development. These include rising debt, regional disparities, the phenomenon of people “lying flat,” and the sharp decline in the number of births.
A fourth issue is the growing strain on trust between countries. Western countries have been repatriating their gold from the United States, reflecting concerns about both U.S. Treasury securities and the U.S. dollar. Meanwhile, economic growth has increasingly become debt-driven.
This chart illustrates income disparities, an issue with which everyone is already familiar, so I will not discuss it in detail.
The next chart shows that the global economy has entered an era of debt-driven growth. It presents macro leverage ratios—the combined leverage of governments, businesses, and households—which have continued to rise. The red line represents China.
Although China’s economy has undeniably grown very rapidly and attracted worldwide attention, our debt has also increased. China’s macro leverage ratio has surpassed that of the United States and the average level among developed economies. It remains below Japan’s, but we must also consider the costs and trade-offs associated with economic growth.
This chart compares government leverage ratios. Over the past five years, China’s government debt has increased cumulatively by 106 percent, while its GDP has grown cumulatively by 35 percent. In other words, Chinese government debt has grown three times as fast as GDP.
If everyone believes that this three-to-one ratio represents an acceptable cost, then we can continue using debt to drive the economy. However, when the central government calls for high-quality development and improvements in both quality and efficiency, this may also reflect concern about the excessive pace of debt growth.
Of course, I also agree with the two previous speakers, Professor Lin and Professor Yu, that China can continue increasing government debt. Why? Because China’s rising debt has not triggered inflation. As long as China remains in a long-term, low-inflation environment, we will retain considerable room to borrow, even if the efficiency of debt-financed growth is relatively low. We still face many problems that need to be addressed.
Why can the United States not continue borrowing indefinitely? Because U.S. inflation is too high. In recent years, the U.S. fiscal deficit and the yield on ten-year Treasury securities have risen in tandem. Although the U.S. macro leverage ratio is lower than China’s, U.S. borrowing is concentrated primarily in the government sector.
If we break debt down by sector, we can see a substitution effect. In the United States, government borrowing has replaced household borrowing: the government is leveraging up while households are deleveraging, and government borrowing is being used to support household consumption.
In China, all three sectors—government, businesses, and households—have taken on debt. However, if we examine the figures over a longer period, we find that the household sector has already begun to deleverage.
I therefore believe that Chinese households are only at the beginning of the process of repairing their balance sheets. They are unlikely to return to a period of renewed leverage in the near term. Under these circumstances, only greater government leverage can maintain economic balance. We should harbor no illusions about this.
Additional government borrowing should come primarily from the central government because the leverage ratios of local governments are already very high. Meanwhile, debt has increased on a net basis across emerging-market economies; only in advanced economies has debt generally declined. These are the figures for the past five years.
Another point that we should emphasize internationally is that China’s exports have not grown particularly rapidly over the past decade. We may have the impression that they have grown very quickly, but in reality, China’s export growth outperformed the global average in five of those years and underperformed it in the other five.
Over the most recent five-year period in particular, China’s exports grew cumulatively by 45.6 percent, which was 3.2 percentage points below the global growth rate of 48.8 percent. It may appear that China is exporting an enormous amount, but our export price index has been declining. In terms of export value, China actually underperformed the global market over the past five years.
The situation is therefore not as Western countries describe it: China has not been squeezing them out of the market. Rather, the entire world has entered a period of rapid trade growth. This is something we should emphasize in our international communications.
We have now entered the age of artificial intelligence. The international economic environment has improved again, and stock markets have also performed very strongly—not only in the European Union, but also in Japan, South Korea, Taiwan, and elsewhere.
At this stage of the new, fourth technological revolution, I believe we should advocate stronger global cooperation, particularly cooperation with the United States. China and the United States have inherently complementary economies. Only through cooperation can we overcome the problems of global imbalance and recession.
Although the United States regards China as a competitor, I believe we should continue to emphasize the positive side of the relationship: the complementarity between the two countries remains very clear.
I would add, however, that interest-rate cuts by the U.S. Federal Reserve may not be as effective as they once were. In the past, the Fed’s rate cuts worked well because the U.S. economy was driven primarily by consumption. Since last year, however, U.S. capital expenditure has increased sharply, and the country has begun placing greater emphasis on investment.
Investments in areas such as electronics and semiconductors are relatively insensitive to interest rates because the companies involved have very high gross profit margins. Under these circumstances, I believe the impact of the Federal Reserve’s interest-rate policy will be weaker than before.
Finally, I want to emphasize that we must look at the data. Before prescribing remedies, we should follow the new development model proposed by the central government—a model in which the domestic and international economic circulations reinforce each other.
At present, China is experiencing relatively smooth international circulation but impeded domestic circulation. The weakness of domestic circulation is reflected primarily in the declines in investment and consumption growth that Professor Yao Yang mentioned earlier.
What are the underlying causes? We can formulate effective policies only after identifying them.
The central government has also proposed investing in people. For example, an article published in Qiushi at the beginning of this year noted that China’s incremental capital-output ratio was 2.8 in 2021 and subsequently rose to around 8. It has recently declined somewhat, to approximately 6. Overall, these figures suggest that we need to make better and more carefully optimized choices in allocating resources.
Such optimization would contribute to the healthy development of China’s economy. I therefore lean toward policies that increase household income and promote consumption.
Thank you.
A useful and interesting discussion. I suggest that the discussion about aggregate demand and supply is too abstract. It cannot account for structural change with productive upgrading on the one hand (and arguably a little slow in mopping up obsolescence), and consumption restructuring on the other. More attention needs to be paid on Engels Law effects, and the spatial and demographic dynamics of employment and income growth. Similarly, discussions about global “imbalances” need to address more the capital account side of the ledger, as one of the interlocutors suggests, and this also goes with what the old first world needs to do. The conditions of circulation (exchange / trade) are entirely determined by the conditions of production.
We know that consumption and income are almost fully correlated (2000-25). Consumption growth doesn’t budge from real income growth; and real income growth is tightly tethered to investment growth. Again, this is an ontological priority and sequencing. The real question is why is it households don’t spend a little more of their rising income? The answer in large part lies in Engel’s Law. The income elasticity of consumption for basic goods is <1 (indeed close to 0 for some goods), while the elasticity for services is >1. Yet, the services sectors remain laggards in keeping up with this changing pattern of consumption.
Anyway, a useful summation of some important views. Over the next month I will be publishing a number of essays on related matters.
Thank you so much