(Chinese Version)

Editor’s Note:

As China’s leading business & tech information service provider, TMTPost has always been primarily concerned about new trends in China’s economy and tech industry. In the latest issue of “TMTPost Founder & Tech Gurus”, Zhao Hejuan, founder and CEO of TMTPost, had an interview with Zhang Yansheng, a well-known Chinese scientist and chief researcher at the Academy Committee of National Development and Reform Commission during the 2017 annual meeting of Bo’ao Forum.

Each year, Bo’ao Forum will release Asian Economy Forward-Looking Indicator during the annual meeting. Zhang has been invited as counselor to the index for three consecutive years. On March 24th, SAIC Cadillac, together with China Finance and Economic Review, issued the 2017 Asian Economy Forward-Looking Indicator, which aroused heated discussion both among the public.

When we look back on the ups and downs of China’s economy in the past few years, we may be amazed by the rapid development of the mobile internet, the rising wave of mass innovation and entrepreneurship as well as the huge potential of the technological revolution. Many people may feel that the world is becoming increasingly “unpredictable”. However, when we look further back to the rapid development of China’s economy in the past three decades, we may find lots of surprising coincidences. For example, while 1992 marks China’s spring of reform and opening up, 2002 marks China’s entry into WTO, lots of historical moments fell in 2012.

I’m not joking, but TMTPost also happened to be established in 2012. It is in 2012 that WeChat went viral in China and ushered in a new “social networking evolution”. It is in 2012 that traditional Chinese media went from boom to bust while new media began to rise one after another. It is in 2012 that startups which later can be placed on par with BAT, such as Didi, TouTiao, Xiaomi, MeiTuan, were established or went through rapid growth. It is in 2012 that angel investors began to rise. It is starting from 2012 that a concept marked each year, from mobile internet, personalized search engine to VR, AR, AI, health, new energy… Still, why 2012?

Last month, I was invited to participate 2017 annual meeting of Bo’ao Forum. When I saw the 2017 Asian Economy Forward-Looking Indicator, I was shocked. The indicator, which is based on a survey of 508 economists and entrepreneurs, reached 84.1 this year. However, the indicator remains at 45.7 last year. Imagine the surprise when I saw the indicator, especially amidst the overwhelmingly negative attitudes towards the Asian economy on the market.

“Asian economy is undergoing a period of restorative growth”, Zhang Yansheng, a well-kwown Chinese economist, observed.

During the annual meeting, I also heard many other guest speakers make similar judgments.

Zhang also introduced me National R&D Index, a key indicator that determines a country’s transformation from a non-innovative economy to an innovative one. In 2012, China’s NRDI reached a historic high, 2.08. China’s goal is to reach 2.7 by 2025. What does it mean? Well, the US’s NRDI is measured at 2.8 at present.

For sure, there is still huge uncertainty in the future. However, one thing is very clear, technological innovation is going to play an increasingly prominent role in China’s national economy.

So, how will the Asian macroeconomy develop in 2017? Has the economy posted a solid rebound? What’s the relationship between the trend of Asian macroeconomy and China’s innovation and entrepreneur wave? How will Asian macroeconomy affect China’s primary market? Why can’t new technology development “avoid the Gordon Myth”? What made Zhang believe that “Chinese innovation didn’t make historical progress until 2012”?

Only when we grasp the historical rules can we better know the future. It is likely that we can have some tentative answers to these questions from the interview. It is well known that a complete economy cycle last seven to ten days. Therefore, in the next five years, we may enter a “harvest period” in the latest cycle, starting from the year 2012. Or rather, a “disastrous period”?

Anyway, who knows? The only thing that doesn’t thing is change, for sure. Be prepared.

The following is the transcript of the interview, edited by TMTPost editors:

The reason behind the sudden rise of Asian Economy Forward-Looking Indicator

Zhao Hejuan (hereafter referred to as “Zhao”): As we see today, Asian Economy Forward-Looking Indicator has risen from 45 last year to over 84. So should we really be positive about Asian economy?

Zhang Yansheng (hereafter referred to as “Zhang”): It’s a really good question. For me, the answer is very simple. Both global and Chinese economy have recovered from the 2008 financial crisis as of 2017. At this point, how will Asian economy develop in the near future?

Fundamentally, what stage is Asian economy at? Although we are positive about global, Asian and Chinese economy, we have to make clear that global economy is still undergoing restorative growth. In other words, we have got out of the financial crisis, but it will still take four to five years to go back to the normal growth level.

Zhao: As we can see from the indicator, global economists are very optimistic about Chinese economy. What do you think will Chinese economy have on Asian economy? Will there be another potential financial crisis in Asia?

Zhang: Chinese and American economy are top two contributing factors to Asian economy. Globally, Chinese economy accounted for 15 per cent of global economy in scale, but contributed 30 per to global economy.

Undoubtedly, China’s contribution to Asian economy is a lot higher than that of US economy. As chairman Xi Jinping said during his keynote speech at the Davos Summit, China would contribute $8 trillion to global innovation through import, something no other country can compare.

When I paid a visit to Latin American countries for field research, many local friends would tell me that they weren’t afraid that China’s economy growth slowed down, but that China shifted its economy model. For example, some Brazilian friends told me that if China stopped importing iron ore from Brazil and stopped importing beans from Argentina, they wouldn’t know what they could do else. When I did some research, I found that trade volume between China and Latin American countries skyrocketed by 22 times for the past decade. Imagine the vast opportunities brought by Chinese economy to local economy.

The “Gordon Myth”

Zhao: The Chinese government seems to be increasingly emphasizing on the concept “turning from virtual to real economy”. For the past few years, Chinese internet and virtual economy boomed. However, the Chinese government seemed to be encouraging capital to go to real economy. What does this mean? What impact will such policy have on the internet and virtual economy?

Zhang: For sure, such policy preference will further promote China’s innovation and internet economy. 1990 witness the IT revolution, which led to the US the longest boom cycle. However, as IT bubble burst in 2001, global capital dropped by 53 per cent and continued to drop until 2004. What happened next? Financial crisis and real estate bubble, as we all know. As a matter of fact, the Brexit and the election of Donald Trump both reflected people’s dissatisfaction towards “turning from real to virtual economy”.

Zhao: Will cutting-edge technologies such as AI and new energy vehicle bring about another industrial or technological revolution and thus lead to another economy boom?

Zhang: This is actually a very controversial issue. Recently, many economists are talking about the “Gordon Myth”, a concept come up with by a macroeconomist at Northwestern University. Basically, it’s about the paradox between the technological boom and dropping productivity. Statistics suggest that global labor productivity in 2015 dropped to merely 70 per cent that of a decade ago. This rule also applied to China. At this point, we’ve got to reflect how can we apply concepts such as new technology, technology revolution, new industries, new businesses, etc., to the supply and manufacturing end and innovation chain and thus bringing about real benefits to the industry.

Sharing economy can’t bring about revolutionary change

Zhao: What do you think of the sharing economy? Does sharing economy belong to supply side reform by improving supply side resource efficiency?

Zhang: In fact, sharing economy is still at the primary stage, so there’s still a long way to go. How come? IT revolution is important because it significantly transformed global logistics and supply chain management. Thanks to the IT revolution, a product could be manufactured by different players around the world, while China also became the biggest beneficiary. In comparison, sharing economy is more like a complement to the existing business model. Fundamentally, sharing economy only deals with the storage issue and perfects it, but won't have much revolutionary impact on the supply end.

2012, a turning point

Zhang: Since 2012, China has made historical progress in innovation. Back in 2010, China’s National R&D Index was still only around 1.75. The Chinese government’s goal at that time was to reach 2, but there’s nothing much for the government to do, since it was enterprises’ willingness to invest in R&D that mattered.

2012 also witnessed global economy slowdown. However, the Chinese society has become increasingly aware of the importance of R&D for the past few years. As Chinese enterprises began to increase their investment into R&D, China’s NRDI reached a historic high, 2.08, in 2012. Statistics suggest that Chinese society’s investment in R&D reached RMB 1.4 trillion, among which Chinese enterprises accounted for RMB 1.1 trillion, while government, high schools and tourist organizations accounted for RMB 300 billion in total. China’s goal is to reach 2.7 by the year 2025.

Zhao: What does an NRDI of 2.08 mean?

Zhang: NRDI is basically the ratio of total R&D investment to GDP. At present, the US’s NRDI is 2.8. Our goal is to reach 2.7 by 2025. More specifically, Shenzhen and Shanghai plan to reach 4.1 and 3.7 by that year. From this aspect, we can see that China has reached a turning point where it’s no longer a dream to become an innovation-driven economy, but a reality.

Zhao: We also noticed that the Chinese government didn’t start promoting mass innovation and entrepreneurship until 2012. Why 2012?

Zhang: Above all, the Chinese government’s move was in accordance with the economic rule since 2012 witnessed a turning point in terms of NRDI. Secondly, the ratio of added value of the service industry to GDP also changed in 2012. Thirdly, the contribution of consumption to the economy also rose in 2012. Fourthly, China’s GDP growth rate dropped to less than 8 per cent in 2012 and 7 per cent in 2015. Last but not least, China’s Gini Coefficient started to drop and income gap between rural and urban China gradually narrowed since 2012. Why 2012?

In other words, 2012 is a new beginning. Over three decades after the reform and opening up, China’s economy has embarked a new path. New stories are to be told and new trends are to be set. Coincidentally, the 18th CPC National Congress was also held in 2012.

It was also in 2012 that concepts such as “firmly grasping the solid foundation of real economy” and “firmly grasping expanding domestic demand as the strategic pivot” were come up with.

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[The article is published and edited with authorization from the author @Zhao Hejuan, please note source and hyperlink when reproduce.]

Translated by Levin Feng (Senior Translator at PAGE TO PAGE), working for TMTpost.