This week’s news looks at three topics frequently discussed, the resilience of the Chinese economy, the aging Chinese population, and education for mainland Chinese children in Hong Kong.
Why does the Chinese economy not collapse?
Do you want to know what is the biggest suspense drama of the late 20th century? I think many people would answer: ‘Why didn’t the Chinese economy collapse?’ This is indeed mysterious. Twenty years ago, if you asked economists whether the mainland economy would collapse, they would say that ‘it will collapse for sure’. If you asked them 10 years ago, they would reply vaguely: ‘it will probably collapse’. But, even with a raging epidemic and the confrontation between China and the United States, the number of people who are optimistic about the development of the mainland has increased day by day.
Recently, Bloomberg chief economist Thomas Orlik published a book “China: The Bubble That Never Pops” (China: The Bubble That Never Pops), which suddenly opened everyone’s eyes. The title not only uses the absolute word ‘Never’, but also believes that the economic momentum of the mainland in fighting various crises has allowed it to survive time again despite many prophecies of collapse.
But this is illogical – ‘a bubble that never bursts’ will not be accepted by economic textbooks. However, Paul Samuelson and Jean Tirole, the two Nobel Prize winners in economics in 1985, once acknowledged the possibility of a bubble being sustainable. They believe that if the economic growth rate always exceeds interest rates, the bubble may persist.
But how can the economy grow at double digits forever? How can more and more income be invested in assets in each generation?
If cheap labour can continue to shift from fields to factories, from state-owned enterprises to private enterprises, private capital may continue to provide considerable returns. But with the shortage of labour in China, the profitability of some enterprises finally started to decline. Then, as the recruitment of workers became more and more difficult, returns on capital and real estate also slowly went down.
How did the mainland respond? I saw with my own eyes that they used five “Rs” to complete the reversal once again: “Reflating and re-inflation”, “Remix and reorganization”, “Refinancing and refinancing”, “Rotating and re-rotating” and “Write off and then write off”. First, they reorganized the economic structure without slowing down economic growth. Although they reduced spending on new mines and steel, they also increased spending on infrastructure.
Furthermore, projects that allowed short-term, high-interest, bank loans were refinanced with low-interest bonds issued by local governments. In addition, the mainland has also written off many non-performing loans. The old mines were closed, the slums were cleared, and even low-income families could buy new real estate. These were all funded by targeted loans from the People’s Bank of China. This effectively widened the gap between growth and interest rates and made it easy to maintain debt levels.
The free market does not handle it in this way. Therefore, I think the mainland’s frequent recoveries come from the visible hand of the government. China looks at the invisible hand of liberalism and does not believe that it can return to equilibrium just by letting go. The Government chose to use bailout, smoothing and redistribution to make the country successful.
However, Covid-19 suddenly caused a frenzy. No one had time to question the mainland’s practices. Economic rescue became something that every government was doing.
All these changes remind me of Keynes’ words:
If you believe in the invisible hand, in the long run, we are all dead.
Now, Marx and Keynes must be very happy in heaven. Marx would laugh and say that capitalism has finally collapsed, the world is socialism, and Keynes would laugh that his theory has been turned over.
(The author is a venture capital partner)
China’s negative population growth may occur ahead of schedule in the next five years
Cai Fang, vice president of the Chinese Academy of Social Sciences, emphasized recently that China’s low fertility rate and low population growth rate are both looking irreversible. Over the next five years, these demographic factors will pose severe challenges to the economy, society, and people’s livelihood.
The increase in the dependency ratio of the population will lead to a continuous slowdown in economic growth. The aging of the population will also lead to a decline in labour participation rate, human capital, and income and consumption levels. This may generate new poverty-causing factors. It also prevents China from using its huge population to take advantage of the ultra-large-scale market, making it more difficult to grow consumption.
Cai Fang listed the government’s four urgent tasks in responding to population aging:
- To slow down the decline in population growth.
- To increase the actual labour participation rate of the elderly.
- To establish a sound pension and old age Service industry development policy support system.
- To ensure the equalization of supply and the sustainability of social security payments.
Cai Fang suggested that the government should start with designing pension payment methods and strengthening on-the-job training to increase the labour participation rate of the elderly, and introduce a roadmap for delaying the statutory retirement age.
In terms of the development of elderly-related industries, he proposed that elderly-related industries should be regarded as the new economic growth point and thus should become a key support area of industrial policies.
He also believes that pension funds should invest in a wider range of funding sources to ensure that pension payments can be sustained if the dependency ratio is further increased. He also proposed to establish a long-term care insurance system as soon as possible and strengthen law enforcement to eliminate age discrimination in the job market.
Children of Hong Kong Drifting School – Mainland institutions must run schools to meet market demand and demonstrate Hong Kong’s diversity.
(Hong Kong Drifters is the colloquial name for Mainland citizens who have chosen to live and work in Hong Kong.)
According to a recent survey conducted by the China Silk Road Intelligence Valley Research Institute, more than 90% of “Hong Kong Drifters” are keen to allow their children to study in schools run by mainland institutions in Hong Kong.
When many overseas or mainland people came to live in Hong Kong in the past, they were happy to bring their children to Hong Kong to study. However, after the “Regulation Amendment Disturbance” in 2019 (Hong Kong riots), some Mandarin speakers suffered street violence. On campus, there was discrimination and bullying against students from the Mainland. Some teachers brought their political ideas into the classroom. Under such circumstances, some Hong Kong drifters hope that the schools their children attend can be free from these factors.
At the same time, the Hong Kong drifters discovered that there are Japanese schools, Korean schools, and even Canadian and Australian schools in Hong Kong, which can connect to foreign high school curricula. Therefore, they hope that there will be school curricula that are in line with the mainland so that children can go to the mainland in the future.
If their children want to go back to the mainland to study, the parents of Hong Kong drifters will also consider leaving Hong Kong, which is a constant loss of talent in Hong Kong.
Why not send their children back to the Mainland to study if Hong Kong drifters are dissatisfied with local education? If the children are sent back to school in the Mainland, it will cause family separation. “Just as I would not think that Europeans and Americans working in Hong Kong should leave their children to school in their hometowns”
To attract and retain talent in Hong Kong, it is necessary to solve the schooling problems of their children. Thus Hong Kong established international schools many years ago.
This report noted Hong Kong Drifters’ concerns about local school education and their hope for mainland institutions to come to Hong Kong to run schools. Among them, the most worrying about Hong Kong schools among respondents is the “lack of home country education” (84.72%).
Hong Kong people sometimes interpret patriotic education in the Mainland as political and ideological education. This includes raising the national flag, singing the national anthem, and even teaching the superiority of the Chinese system.
However, the report’s authors believe that home country education not only refers to political education but is integrated into the whole curriculum. This includes subjects such as Chinese and history and in-depth introduction to the history and culture behind the article or event. The authors believe that these are currently not available in most Hong Kong schools.
For example, in the Mainland, students at elementary level are made familiar with the most prominent literary and artistic achievements in Chinese history. There are also courses in the mainland that introduce legal and moral education based on common concepts in life.
The survey also shows that 44% of parents are worried about the level of education in Hong Kong. Despite the relatively superior average level of English in Hong Kong, the level of Chinese and mathematics has been significantly lower than that of key schools in the Mainland. Any parent hopes to make their children more competitive and able to accommodate more possibilities in the future. If you want to go to overseas universities in the future, the strength of key primary and secondary schools in the Mainland is no less than any traditional prestigious schools or international schools in Hong Kong.
The report also points out that mainland educational institutions have experience in running schools overseas. For example, in Singapore, where the level of primary and secondary education is very high, a Chinese educational institution opened an International Baccalaureate school with a Chinese curriculum as early as 2006. “Maple Leaf Education”, an educational institution listed in Hong Kong, also has three overseas schools located in Canada and Australia, offering middle school or one-stop courses from elementary school to middle school. In recent years, Chinese educational institutions have built primary and secondary schools in places such as Brazil and Malaysia.
These all reflect that quality education will always have a market in the world.