Pearls and Irritations

“In the Chinese context, there are a lot of talks about remembering your original mission. The original mission is to eliminate inequality”  – Wang Dan, chief economist of Hang Seng Bank China.

CGTN Radio host Xu Yawen interviews Wang Dan, a chief economist of Hang Seng Bank China, Josef Mahoney, Professor of Politics and International Relations at East China Normal University, and Caglar Kuzlukluoglu, a Turkish economist and strategist, on China’s 3rd plenum of the CPC.

Deeper Reforms Advancing Chinese Modernisation

Xu Yawen:

Hello and welcome to the special edition of the Chat Lounge. I’m Xu Yawen in Beijing. The 20th Central Committee of the Communist Party of China has released the full text of its resolution, called Further Deepening Reform Comprehensively to Advance Chinese Modernisation.

The resolution outlines China’s policy direction for the next five years and beyond, and is considered the most important outcome of the third plenary session of the 20th CPC Central Committee. The resolution states that China is working to become a high-standard socialist market economy in all respects by 2035. It also introduces over 300 reform measures across various fields, with economic structural reform as the spearhead.

What are the priorities of China’s reform agenda? How will deeper reform foster the Chinese economy and modernisation? And why does China’s third plenum matter to global investors?

For more, let’s bring in our panelists. Join us in the studio is Wang Dan, a chief economist of Hang Seng Bank China, Josef Mahoney, Professor of Politics and International Relations at East China Normal University. Also with us on the line from Turkiye is Caglar Kuzlukluoglu. He’s an economist and strategist. Welcome all of you to the broadcast. So Dan, let me come to you first. We know how significant of this third plenary to China and also to the world. So what’s your main takeaway from the resolution also from this plenary?

Wang Dan:

Actually, what struck me first about this plenum is the policy consistency, because it was a highly anticipated event. It was delayed for several months, and the Chinese market has undergone major changes both in Chinese mainland, also in Hong Kong. So we were expecting more of the reform in the realm of the monetary policy, physical policy, which were both mentioned heavily in the announcement.

And when I look at the Plenum Communique, it also stands out that the opening up reform will be further deepened. And there were a lot of talks about how to strengthen the state-owned sector, especially in the strategic industries, how to pivot the role of the SOEs so they can better cater the real economy. And for the financial system, there are a lack of details on what’s going to happen for commercial banks, but it’s quite clear that they’re going to go through more consolidations. Our risk containment will be the key in the years to come.

Xu Yawen:

Professor Mahoney, if we read through the resolution, you probably have noticed as well, words like reform, development, modernisation, and opening up were commonly used. So what does that tell us about China’s continued modernisation as it plans for the next five years and beyond?

Josef Mahoney:

Well, firstly, let me say that I think that the document represents a watershed event. We know that when President Xi came to power that his mandate was to, in fact, advance reforms and indeed to get to the cracking the hard bones and traversing the deep waters of structural reforms. And it’s been very difficult to get to that point, given that we needed to go through the anti-corruption campaign first and then onward to face the rising challenges from the United States and certainly the pandemic.

And now that we’ve reached this clearing, there’s an opportunity to really take a bold step forward. And I think that that’s what this document really signals, as well as signalling very clearly how it’s gonna balance a lot of things that a lot of people were confused about. How would it favour this or that?

But to speak very directly to your question, I think I agree with the analysis that there’s this idea that in the early days of reform and opening up, the idea was that China would reform itself in order to make it possible to open up. But now we’ve inverted that relationship where they’re going to open up more to compel more reform. So in this way, the relationship has reversed.

And so in this sense, we can see that reform remains paramount, and certainly that’s the way the Chinese system works, but that opening up is really going to be a driving force here. Initially, China needed to improve itself so that it could open up. But on many fronts now, China is competitive.

And they realise that in order to have significant gains, for example, the way they opened up the EV industry, that really made the EV industry much stronger in China. So I think they’ve come to the realisation that now China is able to compete on the world stage economically. And so reform and bringing this openness will drive more reform internally and that will help China take these next steps forward.

Yawen Xu:

Yeah, we will also talk about the EV and in the ecological conservation. Let me come to you, Caglar. The outcome of this third plenum will resonate globally as well because China is the world’s second largest economy and is believed to be playing an increasingly important role in global affairs. So what specific areas of the plenary session and the resolution interest you?

Caglar Kuzlukluoglu:

Actually, the world is currently facing a range of significant challenges that underscore its fragility. So the main part of plenum is promoting high quality economic development, I guess. So China’s position includes many complex societal and economical things that this plenum includes geopolitical tensions, economic stability, climate change and public health.

So China is a major player in the global landscape, whose policies and actions have far reaching impacts. So it’s a key event to watch in the context of China’s influence on the world. So global economic recovery also is a thing that I like to mention, supply chain disruptions and rising levels of government support.

And I also mentioned that emerging economies face particular challenges in stabilising their economies. So China also is a good model for that emerging economies.

Xu Yawen:

Dan, since the economic reform was the main focus, as the Third Plenum set a clear goal that by 2035, China will build a high-standard socialist market economy in all respects. And that’s the guarantee for Chinese modernisation. So for our listeners who are not very familiar with this high-standard socialist market economy, could you help us elaborate more on that, the concept of it?

Wang Dan:

So first of all, it’s the market economy. So the market will play the ultimate role in allocating resources. And now what we need to point out is that in the past few years, the role of the state-owned sector has been strengthened for good reason. Because during economic downturn, the private sector is not spending. So the government and SOEs step up, and that’s just a natural consequence. But on top of that, there is also the socialist element.

In the Chinese context, there are a lot of talks about remembering your original mission. The original mission is to eliminate inequality. And in every endeavour that the central government is trying to do and the long-term economic agenda, common prosperity is always the guiding principle.

So when we look at this round of the Third Plenum announcement, it has a lot of talks about income inequality, and that’s closely related with the tax reform and also the development in the green technology, the strengthening of the supply chains. Because in the past, China has been relying on the old model, on the investment-driven, the housing-driven model. And it’s heavily affecting China’s economic ability to redistribute income.

Because unless you’re in the construction sector, you in a way, one way or another, speculating the housing market, otherwise the wealth doesn’t accumulate fast. But now we have shifted the focus to the high-quality productive forces, so basically innovation. So in the long term, this is the ultimate way to improve China’s productivity, to ultimately improve the income distribution, and that is the way to develop Chinese modernisation in the long term.

So for outsiders that haven’t been to China in the past few years, they probably have missed the new scene that many of the Chinese cities has gone through this upgrade process. So it’s not just the bridges, the high-speed railways, it’s also the city infrastructure and the pipes, the underground infrastructure, the facilities that’s improving the daily lives. So those things happen, don’t just overnight, they need to take time.

And that means a better fiscal support and also, of course, the participation from the private sector.

Xu Yawen:

So the country’s focus has been shifted from, as you said, the housing-driving economic structure to now a high-quality and innovation-driven economic form. Professor Mahoney, the resolution says “we must better leverage the role of the market, foster a fewer and more dynamic market environment and make resource allocation as efficient and productive as possible”. I mean, how could that work? What kind of restrictions are still there preventing China from achieving goals, as we just discussed?

Josef Mahoney:

Well, let’s back up just a little bit. I would agree with 99% of what Dan just said. I would take issue with one word, and that’s the market will ultimately decide. I think the document is a little more complicated than this in the sense that the market will play the leading role. But ultimately, if things are getting out of hand, then the government has made it clear that they will step in and that we have macro controls. But I think this is a normative lesson, one that China really began to normalise in the wake of the US-instigated global financial crisis in 2008, when it became clear.

And of course, China had this position before, but it really becomes sort of a standard idea that you have to be able to intervene in order to deal with crises. And again, with the pandemic, certainly in 2020, when the US expanded the money supply by 20% to paper over their mistakes there. So it has been confirmed again and again that we have to have this powerful capacity to intervene for the greater good of the nation and the people.

And certainly that lesson, as Don mentioned, with respect to the state-owned enterprises, there has been a long debate in China, certainly among certain liberals, about whether or not structural reforms would touch on state-owned enterprises in ways that would ultimately diminish them and give much greater play to the private sector. And what we see here is this very careful attempt to balance. They talk about building a complementary relationship between the private and the public sector.

The private sector has some advantages, the public sector has some advantages, and we can construct or create the right policy mix so that these two sides can give full play to their advantages, but also support each other in the overall national development. So I think that’s sort of the complicated gist of it at this point.

Xu Yawen:

Caglar, on the theme of the opening up, the resolution says that China is committing more to deepen structural reform in foreign trade. What’s your understanding of the structural reform in foreign trade? I mean, how do you see such a structural reform may affect China’s trade and economy relations with Turkiye and other major trade partners?

Caglar Kuzlukluoglu:

Good question. I think the answer is very clear. Now for its manufacturing capabilities and vast array of consumer goods, China seeks markets for its exports and sources of raw materials, so on. China and Turkiye have been expanding their trade relations, becoming significant partners in recent years. This partnership is driven by several factors, including economic complementariness, strategic interests and mutual benefits in regional and global contexts, in my opinion. So Turkiye is a growing economy with a strategic geographic location, offers a market for Chinese goods and serves as a gateway to Europe, the Middle East and North Africa.

Xu Yawen:

And lastly, Turkey’s exports, such as machinery, vehicles and textiles, complement Chinese needs. What more advantages do you think Turkiye could take from the deepening structural reforms on China’s foreign trade?

Caglar Kuzlukluoglu:

Actually, especially after the pandemic, the world is damaging from one polar or one mainstream trading alternatives for globally. So China and Turkiye can collaborate all of the foreign trade lines in the world and regional context, in my opinion.

Xu Yawen:

Dan, so the resolution says that China will advance the market-oriented reforms in monopoly sectors within industries such as energy and railways. I’m not sure about you, but it’s my first time heard about the government-issued documents clearly point out that they want to deepen reforms on SOEs in these two sectors. So what’s your take on that?”

Wang Dan:

I was a bit surprised, too, for those two sectors to be singled out. But from the industrial perspective, it is also not a big surprise because when you look at the railway sector, for example, very few railways in China actually make a profit. But when you think about the benefit they bring to the local population, to the regional economy, it’s tremendous.

So there has been talk about maybe we need a different management and evaluation system for infrastructure investment like this and how those companies should operate and what other models they can follow to actually generate more profit. Some of those railways are run quite successfully. For example, the one between Shanghai and Beijing, because that’s where most of the population are flowing.

That’s where the business activities are concentrated. But also several railways in Guangdong province, they’re also doing well. And that is a combination of the malls, the local property development along with the railways. And that model was directly copied from Hong Kong. So in the future, we cannot expect the Chinese population to grow as fast as before. And the migration flow is shifting more from between provinces to the local counties to the provincial capitals.

So the migration flow is becoming more regional as well. And that means when we think about the future for Chinese railways, they need major reform. And for the energy sector, interestingly, it’s a different direction, because most energy sector is quite profitable.

Even in this economy, it’s not just the green energy industries, but also the traditional energy industries. Think about it, the coal, the oil. The more we stress about a green transition, the more profitable actually the traditional energy sector would become, because they’re a very important supporting facility for the new energy, like solar and wind, since they’re running by intervals, they cannot run there at night.

The more solar power station you build, actually the more coal power station you need to set there in order to make sure that energy would flow nonstop. So the main reform direction in this sector is that it tends to become monopolistic very quickly, because there’s a high entry cost. The fixed asset investment is quite high.

Usually only the state-owned sector can afford the initial fixed asset investment, that amount of value. And the local government were heavily involved in a lot of those investments. And as we can see it, many of the local governments are also running out of cash.

They need more tax, a broader tax base in order to support the future build up of the energy facilities or further infrastructure investment. Reform is definitely needed and it actually requires much higher participation from the private industries.

Xu Yawen:

You mentioned the railway sector. This is just out of my curiosity because you said it’s basically copied from the Hong Kong model. Right, the successful ones. But based on my knowledge, not long ago, the price of the subway tickets has been raised in Hong Kong. So do you think that will also be the case here in Chinese mainland?

Wang Dan:

That’s a highly controversial topic because when we think about the fare, the subway ticket fare, it’s actually quite low by any standard. If we compare Chinese ticket price to other emerging markets, this is quite low. And given the quality, the service quality that we’re getting for this price, actually Chinese people benefit big time.

But for Hong Kong, their local income on average is about one third higher than Chinese cities. I’m not talking about Chinese whole citizens, but only those living in urban area. So they can afford higher ticket for the subway or daily transportations.

Chinese mainland, unfortunately, I think this might be a main direction. The public services have been quite cheap and heavily subsidised by local government. But given the fiscal difficulties, at least in the short term, I can see a tendency to raise most of those prices, not big time.

Maybe it’s even more targeted for low income families or the elderly, probably can still get some sort of subsidy. But the general public, I suspect that people might ultimately have to pay higher prices.

Xu Yawen:

Professor Mahoney, let’s talk about the Chinese modernisation, especially its modernisation of harmony between humanity and nature. As the resolution says that China will firmly deepen the reform on the ecological civilisation system and accelerate the planning and construction of a new energy system and better promote green, low carbon and circular development of the country. So why is the reform in this area is the must on the agenda?

Josef Mahoney:

Well, you know, one of the things everyone knows at this point, the UN General Secretary never misses a chance to warn us that we are facing an existential crisis with climate change. And we know that the Global South, which China is the leading nation of, is much more directly affected than the Global North. We also know that the Global North was able to develop and reach modernisation at an earlier stage of history and is historically responsible for more of the climate change.

Unfortunately, the Global South has created some bottlenecks for the Global South in terms of their development opportunities. But there’s also considerable research to indicate that among the countries in the world, China is the most vulnerable in terms of population and capital investments exposed. And in this case, there’s been some studies, for example, that indicate that Shandong, Jiangsu, Shanghai, and the Greater Bay Area are in the top four or five places in the world in terms of exposure.

At the same time, it was clear that the traditional or legacy or fossil fuel industries that had exercised considerable political clout in the West, especially in the United States, where we had the coal and oil and gas industries working in tandem with their lobbying in Congress, had long purposely crushed the emergence of green technology and innovation. Any time there would be an innovation, they would buy it up and kill it. Elon Musk is idiosyncratic in this sense.

He was able to establish a very successful company despite those pressures. I think it’s clear that China realised that there was a strategic opportunity to really become part of that green innovation because the West had not taken that responsibility, but certainly because China was by at that point becoming the most advanced industrial system in the world and had the capacity to do this. But also because I think it’s clear to Chinese officials and certainly since the new era that it was imperative for China to take direct action.

We’ve seen this tremendous turnaround in the quality of air and water in the new era. And this has to do a lot with the way that they made lifetime accountability for public officials with respect to local quality. But all of these things have come together in a way that China has seen opportunity but sort of existential necessity to push forward.

And because China is playing such a pivotal role now in helping the Global South develop through initiatives like the Belt and Road, it creates this not only opportunity but responsibility to advance ecological civilisation. So all these things have come together. It’s what the Chinese people want. It’s what the world needs. It’s good for business. And here we are.

Xu Yawen:

If we’re talking about the ecological civilisation, a good example would be the electric vehicles that China is leading today in the world. However, we have seen that this industry, even though China is doing it very well, is doing the production, the sales, and the goal is to mitigate pollution, but the industry is facing some difficulties from the US-led Western nations that is blocking the Chinese EVs to enter their markets. So, facing the difficulties, how would that affect China’s approach to its goal?

Josef Mahoney:

Well, let’s be clear, by some estimates, there’s somewhere around 200 EV companies now in China, and they’re not all going to survive. We’re going to see a consolidation of that industry, like we’re seeing a consolidation now of the solar panel industry. And that’s going to be painful for some people, but nevertheless, we are going to have probably three or four or maybe five Chinese EV companies that will be major producers in the world. I think to be very direct about this, because I’m more from the political side, the problem is that the way China plans, the way it organises, the way it builds, it’s able to, through its political system, realise an incredible efficiency. And this is one of the reasons why the Chinese industrial system has become so efficient and capable. Now, of course, we’re on the edge of the Fourth Industrial Revolution, and just because China has been the most advanced in recent times doesn’t mean that that position is going to hold, and this is why we see so much pressure to adjust now.

But the real problem is that the Western countries, like the United States, their green development was thwarted by special interests, by economic interest. And at the same time, their political system has been unable to generally solve a lot of problems, fundamentally incapable of reform at this point, whereas the Chinese system has been exactly the opposite in terms of its capacity. So the message that’s sort of getting lost in the global debate about Chinese EVs is not whether or not there are subsidies or whether or not China is a developing country and it has supported this industry, but in fact, the political system has created an industrial system that is just much more competitive because the political system is much more competitive in terms of its capacity to be solutions-oriented.

And this is what’s really troubling to European economies. We’ve seen some pressure from Europe with respect to EVs, but certainly the United States. So I think this is really about an industrial model that connects directly to a political model and the US doesn’t really have an answer except to make Chinese EVs unwelcome and even to demonise them.

We saw the Secretary of Commerce saying that these could basically, the Chinese EVs could be used by the Chinese government to spy on critical infrastructure and their daily lives. This is really this demonisation. It has nothing to do with quality or trade or even comparative advantages. It’s really something much darker.

Xu Yawen:

In the resolution, it also mentions about China’s commitment to more high-quality cooperation under the Belt and Road Initiative. So how important is the high-quality BRI cooperation to global trade, considering that today, over 150 countries participate in this initiative?

Caglar Kuzlukluoglu:

The BRI, China’s ambitious infrastructure and economic development projects, aims to enhance global trade routes and continue with the thing that alternates. So, Turkiye is a critical node in this initiative, in my opinion, given its strategic location bridging Asia and Europe. Investments in infrastructures such as railways, ports and logistics centres in Turkiye facilitate smoother and more efficient trade flows between two countries, I guess.

Both countries, China and Turkiye share interests in diversifying their trade partners and reducing dependency on traditional markets. For China, Turkiye represents a key partner in its broader strategy to increase influence in the Eurasian region. Then Turkiye views China as a significant partner in balancing its economic relations with the West and fostering growth through increased trade and investment.

Xu Yawen:

Dan, so speaking of the measures, the resolution supports high-quality growth and ensure security. It explicitly pointed out that preventing and defusing risks in real estate, local government debt, as you just mentioned, and small and medium financial institutions will be covered. Given the current market situation, what are the most pressing measures China needs to take to strengthen its financial security?

Wang Dan:

Well, the number one pressing issue, in my opinion, is Chinese banks. So most Chinese banks are highly exposed to the housing sector. There are about 4,000 commercial banks in total. 90% of them are smaller regional banks, which have been lending to the regional developers in the past 30 years. So in the past three years, we have seen this sharp downturn in the housing market. And as a result, many of those banks actually face the lack of liquidity or even a high ratio of bad loans.

So that issue is more complicated because now the interest rate in China is relatively low. So those banks do need to pay relatively high rate for the deposits that households save in the bank. It’s also at a historical high record.

So the banks have much higher costs than before. And simultaneously, they cannot find very good assets. So most of those smaller banks have concentrated their assets in Treasury bonds.

So they have been busily buying the government bonds. And it’s not sustainable. So the government has been talking about a consolidation of a lot of those smaller banks.

And since two years ago, we have seen the efforts of building some of the larger regional banks, combining the 20 or 30 of the smaller, like agricultural regional banks or even small county banks into one book. So that way, there would be some counterbalance within this bank, this smaller regional bank system, so that it won’t easily be run on. But this reform will take many years before we can actually say that the banking system is stable.

And for the housing market, right now, it is still in the downturn, although the acceleration of housing decline has slowed in June. I mean, that’s a, it is a kind of situation that people are trying to avoid, because in the past two and a half years, actually, the housing prices in the largest 40 cities in China has declined by 10% to 30%, depending on where you live. And that is a very high level of drop.

And for many of the Chinese households, this is hard to accept, because on average, 80% of household wealth is stored in housing. And the government is trying to restore the market confidence by coming up with all sorts of stimulus throughout the past two years. But so far, none of those measures really has turned around the market expectation, because no one in this economy will buy an overvalued asset.

And people are still expecting the housing prices to fall further, and so do we. Because based on the current housing market supply and demand, the supply still way exceeds demand. And the fertility rate is going down, and people are postponing their plan to buy new homes.

And our forecast right now is that by the end of 2025, we’ll reach a new equilibrium, because by then, people have been waiting for long enough. It’s been three years since people have been seriously thinking about buying a new home. So even if people are not getting married, not planning to have a lot of children, they’re still getting married, they’re still having babies. So at some point, the pent-up demand has to be released. So the housing market, we believe, within a year and a half, will have a more stabilised situation, but right now, it’s not yet. So the government has been trying to inject more liquidity to regional banks, trying to resolve the bad loan issues, at least make that problem less acute in the short term.

Xu Yawen:

Well, it’s interesting because we noticed that in the resolution, it also mentioned about a broader policy towards the housing market, and it says reforms will be made to the financing methods for real estate development and the pre-sale system of commercial housing. With this new policy coming out shortly, how would that affect the existing issues in the housing market?

Wang Dan:

Those new measures that are announced in the Third Plenum are a common practice in the developed countries, that the developers need to secure financing first before they start constructing the homes. But in China, it’s usually the case that the developers will collect payment and money from potential home buyers first while they started construction. And if anything happens along the way, because usually it takes three years to finish a project, if housing prices somehow start to decline, then people get panic, there will be a liquidity issue for developers.

Sometimes those buildings don’t get built, and then the home buyers would lose big time. And for Chinese government, they would really want to avoid the situation. And it’s also at the core of the property sector difficulty, because originally the government would really want to lower the leveraging ratio of Chinese property developers.

And we are familiar with the three red lines for the developers and two red lines for the banks. So it’s all about reducing the exposure to the property sector as a whole. So far, I have to say by many metrics, this reform is a success.

Xu Yawen:

The resolution mentions this as well. It says that the country will speed up the development of new models for real estate developments and increasing the construction and supply of affordable housing. So how will China’s property market be reshipped?

What can we expect to see the developments or the scenario of the housing market in the coming years?

Wang Dan:

There are two layers of this issue. One is about the way that a government would increase the supply of those affordable housing, because a big part of that will be from the repurpose of existing housing stock. Because when we look at the first tier cities in China, there is no problem of excess inventory.

Most of those houses were already sold. And what’s really a problem may be the occupancy. Sometimes people bought those houses, but they don’t live in them.

There might be occupancy problem, but they can be sold, since people ultimately still believe the economic prospect of the tier one cities. But once you get out of the biggest cities in China, in tier two, tier three, or even in counties, there are tremendous amount of housing stock that are finished, construction long time ago, but never sold. So we don’t know the exact size of this part of the excess stock, but the different estimates would suggest it’s pretty big.

So the local government are trying everything they can to repurpose those properties. Some of them were already turned into affordable housing, but the local government need more money to actually purchase those stock and turn them into the low cost rental housing or some of the affordable housing targeting certain income brackets. But another layer of the problem is also constructing because the average lifespan for Chinese building, especially Chinese homes, is about 25 to 30 years.

For China, the commercial housing reform happened around 1998. For most of the homes in the market, they’re still in use, but you can see many of them are in this dilapidated state. So the Chinese developers are really good at building them, but not very good at maintaining them.

So they need more money actually to keep up the condition of those homes. And for the government, of course, now they can swoop in and buy some of those homes at very low cost and turn them into the low cost rental housing. But the maintenance will be a problem.

So probably I don’t think that they have enough finances to build affordable housing directly. The main model I think they have to rely on is still to take over the existing stuff.

To purchase from the residents. Yeah, from either the household directly or from the developers.

Xu Yawen:

Professor Mahoney, the plenary session indicates that driving a shift to new quality productive forces will be among China’s top priorities in promoting high quality development in the long run. I mean, how about this technology led strategy drive next stage economic growth?

Mahoney:

Well, let’s start with the easy point, which is whenever we see this term productive forces, we know that we’re dealing with a Marxist terminology, right? So shout out to Marxism. But obviously we are in this period, which has been described as the Fourth Industrial Revolution.

We don’t use that term very much in China, but it’s a term that’s being used globally. And what’s characteristic of this revolution is that we’re seeing a blurring or a breakdown of the boundaries between different sectors. So there’s much more integration across different groups.

And as China had achieved, let’s say, the first position in the industrial model of the current or the now lapsing era, it knows that it needs to be in the forefront of upgrading its capabilities in order to maintain that capacity going forward. And we know that certainly China has faced growing tech decoupling pressures from the United States. So all of this is part of it.

But then there’s another side of it, which is certainly that we have this innovation drive and we also have this idea that there are a lot of Chinese companies, a lot of state owned enterprises that are inefficient at this time. And it’s difficult for us to promote certain types of policies that might directly aim at results that could lead to unemployment. But at the same time, one of the things that we are now realising in China is that it’s vitally important to upgrade these companies in order to, as a national security issue.

And so this is no longer purely about employment. It’s also about the greater good of the country, its ability to compete facing these difficult headwinds. And so I think this is where we’re seeing this idea of advanced quality productive forces as being something that really needs to help drive reforms and certainly bring innovation more to the forefront, whether it’s AI or quantum computing by 2035.

But it’s also, I think, sort of a reform from the inside out approach. So because it’s difficult for us to go in and say, okay, you need to like drop this number of employees in your company, instead you need to adopt these processes that are going to make you more competitive because that’s in the national interest. And if that produces unemployment, because when we’ve seen the rapid adoption of AI, say, in the United States for a while there, we were seeing numbers that indicated, and these are estimates, that the US was losing 5,000 jobs a month due to AI adoption.

Well, certainly that’s not something we want to see in China, but if we do see it as a consequence of this imperative to adopt these forces, then we’ll see the government responding with other types of policies to support employment or unemployment issues. Or maybe they’ll slow it down, right? I remember several years ago there was a, one of my students was in the logistics field, and there was an indication that there had been some major innovations in logistics technology.

And if that had been adopted when it was available, it would have resulted by some estimates in losing 70,000 jobs in that industry in Shanghai. And so what they did is they staggered it and staged it in so that it would be, so there are ways to manage this, but it’s clearly now this case that if we want to continue to move forward, we have to do so. And if that leads to some consequences, fine, we’ll deal with those.

Xu Yawen:

Let’s move forward with greater efficiency and with a greater eye on moving forward in the vanguard position. Caglar, as both Professor Mahoney and Dan mentioned at earlier of the show, common prosperity is one unique feature of China’s modernisation. You can see in the resolution, it says that China’s reform not only covered economic aspects, but also put forward measures to ensure and improve the people’s quality of life. So what are your observations on China’s solution for addressing economic inequality and improving people’s well-being?

Caglar Kuzlukluoglu:

Well, Turkiye also has a great modernisation story. But if we’re talking about Chinese modernisation, Chinese modernisation has been a driving force behind the country’s remarkable economic growth over the past few decades. Chinese modernisation has been characterised by rapid industrialisation and urbanisation transforming the country into the world’s second largest economy.

China has made substantial efforts to reduce poverty, lifting hundreds of millions of people out of extreme poverty. Targeted poverty alleviation programs focus on the most disadvantaged regions and populations. Efforts to improve access to quality education and healthcare, especially in rural and underdeveloped regions, to ensure more equitable opportunities for all Chinese people.

Finally, dynamic huge population, what I mean China, equals qualified investment for all over the world countries and investors.

Xu Yawen:

I have a follow up question for you. You’re in Turkiye and how do you see the significance of China’s third plenum to the global investors? Because we have been hearing about people in different fields and different backgrounds are paying a lot of attention to this plenum and also the resolution coming out of this plenary.

Caglar Kuzlukluoglu:

There are generally huge interest in Turkiye about China and US generally and the plenum is also resonating in all of the countries, especially in the economic issues and the future of the development, especially China and emerging markets. So it’s a thing like guidance for some emerging countries such as Turkiye, in my opinion.

Xu Yawen:

Dan, the third plenary session also pointed out that opening up is the defining feature in Chinese modernisation. So how can China stick to its state policy to deepen this opening up in the future?

Wang Dan:

The opening up in the past basically meant China would export more to the rest of the world. Actually, it has taken many different forms, maybe more foreign investors, multinationals set up their headquarters or factories in China. But the ultimate destination still is foreign countries, either in Europe or in the US.

But now the opening up has a different meaning because it’s not just China produce things and then sell it to the rest of the world, but also opening up its domestic market, trying to import more. As exemplified by the central government several times last year, Chinese domestic market is a highly valued market for global investors because of its size. It’s easy to scale up.

And for any type of business, especially consumer business, one way or another, you will end up in China. So the next step for the high level opening up reform doesn’t just mean that China will strengthen its supply chain and to be a better supplier for other countries, but also become a better destination for investors and for outsiders to work and live in China. And it’s quite key.

Xu Yawen:

Professor Mahoney, on the front of foreign policy, we have also noticed that the resolution says Chinese modernisation is for peaceful development and it will advocate for an equal and orderly multipolar world and inclusive economic globalisation that benefits all. How is Chinese modernisation unique from other nations?

Josef Mahoney:

Well, you know, this is a very big topic and I’ll try to get to the heart of the matter. But, you know, there is this narrative that we hear from Beijing that Chinese modernisation is distinct, not simply distinct because it’s proceeding with Chinese characteristics, but distinct from other developed countries or we should say modernised countries. And so much that there are generally two types of models that other countries have followed.

One of them was the sort of the Western countries, maybe possibly including Japan because Japan was able to move in very quickly in the 19th century where they modernised, especially in the case of the West, through invasion, colonisation, slavery, appropriation of resources, genocide. There was a very brutal move that would then be followed by patterns of hegemony and imperialism and war. And China was not inclined nor able to follow this model, even if it was inclined, in the 20th century.

It did have to fight to establish its own model of sovereignty and security, and it did have to fight on its borders to secure that further. But in terms of its modernisation, it has not taken that western path. Now, the other path that some countries have followed was sort of what were previously called second world countries that managed to hook their wagon to either one of the superpowers, in this case, one might point to the Republic of Korea or others that were able to develop in tandem with one of the major powers.

And China didn’t do that, although certainly its reform and opening up period benefited from having close economic relations with the West. But China’s model has been distinctive. Now, this is something that is a very compelling narrative for other countries in the developing world, countries that for one reason or another have found themselves unable to gain traction in their development, sometimes because they were facing legacies of colonialism or legacies of institutional discrimination in some of the major international organisations.

I remember when Asian Infrastructure Investment Bank (AIIB) was first started, you know, it was started in part because the Asian Development Bank (ADB) was not really open and conducive to doing more equitable business with developing countries. And, you know, I remember one Western leader saying, you know, instead of demonising AIIB, maybe we should just reform our own institutions so they’re not so discriminatory towards, you know, the Global South. But I think what China understands is that they were able to, because of unique circumstances, they were able to find and take successfully an alternative path.

And now they are able to work with others who want to break out of those old patterns and take a different path, one that’s suitable for their circumstances. I think it’s also clear, however, that China understands, and I think we can see this in a lot of different ways and a lot of different sort of multilateral efforts. But especially, say, in the Shanghai Cooperation Organisation, which recently had a summit in Astana.

We know, for example, that Central Asia has long been prized as a strategic geography. There were these imperialist paradigms that say, whoever controls Central Asia controls Asia. And we’ve seen great powers trying to fight over and gain control over Central Asia.

And if not control it, then at least manipulate it to keep things in a stir. And after the United States penetrated Central Asia in the wake of 9-11, this created tremendous insecurity for the countries in the region, the Central Asian countries, but also Russia and China. And this is where we really see China taking this decisive leadership role, bringing everyone together and saying, OK, the approach here is not to establish a single power that is able to exercise control over Asia.

But we all have to work together to prevent that from happening. Because it’s not going to be something that you can really sustain if you want to compete with Russia head to head over who’s going to have hegemony over Central Asia. And India is a rising power.

They don’t want to compete with China or Russia. So the fact that these countries are able to come together and realise that this has been an Achilles heel for Asia and that solving that problem collectively in a way that responds to Central Asian needs but also all the great power needs that surround Central Asia. This is something that has really been instructive of what China has developed as its major country diplomacy, its principles-based diplomacy.

And I think it has established this clear model for how China envisions not only the relationship between peace and development and security but also how it envisions a multipolar world and a shared future for humanity.

Xu Yawen:

Caglar, as Professor Mahoney just talked about how distinctive features of Chinese modernisation in pursuing a peaceful and independent foreign policy, so what’s your take on this? Like, how significant is China’s peaceful approach in today’s uncertainty and conflict?

Caglar Kuzlukluoglu:

China’s modernisation has brought about significant economic growth and development. Addressing the accompanying economic inequality is essential for long-term stability and prosperity. So China’s approach to foreign policy, as I mentioned before, including its stance on modernisation, is closely watched all around the world, in Turkiye, in Europe and all over the world.

As one of the, for example, largest contributors to greenhouse gas emissions, China’s environmental policies are critical in the global fight against climate change. So China’s position is more critical than we know to solve main subjects of the world as a key player.

Xu Yawen:

With that, we are wrapping up this episode of Media Chats. Many thanks to our panelists, Wang Dan, a chief economist of Hang Seng Bank China, Josef Mahoney, professor of politics and international relations at East China Normal University. And also with us on the line from Turkiye is Caglar Kuzlukluoglu, an economist and strategist.