Cai Bingjie
Research Associate
Research Focus
Guangdong-Hong Kong-Macao Greater Bay Area, Regional Economics, Urban Development, Industrial Planning, Blue Economy
Education
Master of Natural Science; Southwest University
Projects
International Comparative Study of Shenzhen's Construction of a Global Marine City, 2018
Study on Collaborative Development and Innovation Model of Science and Technology for Dongguan, Hong Kong and Macao, 2018
Dongguan Binhaiwan New Zone Development Master Plan, 2018
Plan of Fishing Port Economic Transformation and Upgrading of Shenzhen, 2018
Special Plan of Ecological and Environmental Protection of Binhaiwan New Zone Dongguan, 2018
Plan of Building Anyang into a Regional Central City in the New Era, 2018
Contact
Email: caibj@cdi.org.cn
Tel: +86-755-2512 4161
Global Opportunities from the Urbanization of 1.4 Billion Chinese
Author: Fan Gang, President of CDI
Editor’s Note: China’s central government has made important adjustments to the urbanization strategy, shifting from the strategy to develop small towns to developing large cities. Crucial to building big cities and large city clusters is the integration of transport and public services.
In the past 40 years of reform and opening up, China has experienced the largest and fastest industrialization and urbanization process in world history. At present, only about 55% of Chinese live in cities, and the process of urbanization is far from over. Recently, during the China International Import Expo, President Xi Jinping proposed to support the regional integrative development of the Yangtze River Delta as a national strategy. Recently, the Central Committee of the Communist Party of China and the State Council issued the “Opinions on Establishing a New Mechanism for More Effective Regional Coordination and Development”, which mandated the integrative development of major regions driven by the Beijing-Tianjin-Hebei cluster, Yangtze River Delta cluster, Guangdong-Hong Kong-Macao Greater Bay Area and Chengdu-Chongqing cluster. These recent developments signal a strategic shift from encouraging the development of small towns to that of big cities and large city clusters.
China will form a “3+N” city cluster layout.
The polarization of China’s real estate market is in essence a result of increasingly polarized population flow, which will lead to the formation of three super city clusters with a population of 100-200 million, and a number of big city clusters with a population of 30-50 million. The Beijing-Tianjin-Hebei region, the Yangtze River Delta, and the Guangdong-Hong Kong-Macao region have the potential for becoming super city clusters, while Wuhan, Zhengzhou, and the Chengdu-Chongqing region will likely see the emergence of big city clusters.
The development of big cities and large city clusters, in itself a response to people’s pursuit of a better life, conforms to the current dynamics of population movement and will contribute to economy of scale and the agglomeration effect. In this process, it is crucial to have a broad vision, for it would be necessary to draw lessons from the development of other countries and proactively make city plans in line with urbanization trends. The first priority is effective transport system that enables people to work and live in separate zones or cities, thus making it possible for big cities and surrounding small towns to have different functions. This also requires that small cities and towns around big cities have different functions to avoid overlaps.
Promoting regional coordination by drawing on China’s historical experience of “Imperial Commissioners” and “Provincial Governors”
To further promote the construction of large city clusters, it is imperative to solve problems of current administrative divisions for effective overall planning so that economic, industrial and research sectors within the region can complement each other in a coordinated way.
Large-scale regional planning is often hindered by administrative divisions, which requires coordination and guidance at a higher level. Compared with the joint deliberative organs such as the council of New York bay among other bay areas, effective coordination mechanisms in many domestic city clusters are yet to be formed. Measures such as holding annual joint meeting among city mayors so that they can share views on their own cities’ development and explore possible solutions for integrative growth are by no means easy to achieve.
In this respect, we can draw lessons from China’s historical experience: all dynasties in China have official positions such as the “Imperial Commissioner”, “Governor of Two Provinces”, “Governor of Guangdong and Guangxi”, etc., which are responsible for coordinating work in a case-by-case approach.
By far several regional coordination mechanisms have formed in China. The State Council has set up a Beijing-Tianjin-Hebei Collaborative Development Leading Group headed by China’s Vice Premier. The Yangtze River Delta and the Pearl River Delta may also require such an arrangement. Within a cluster, cities shall avoid forming similar industrial structure, but instead, develop a range of industries in different areas as well as different small city layouts to ensure coordination and complementarity.
Public services shall be enhanced for city clusters.
Strengthening the integration of public services is also crucial, including ensuring cross-regional coordination of medical services and equal access to education. It is important to minimize the influence of the household registration system and strive to achieve equal access to public services for permanent residents. This process will entail reform in economy, society and governance and will require the efforts of think tanks, research institutions and associations to jointly facilitate the sound development of urbanization.
Fundamentals Cannot be Ignored in Innovating and Developing the Financial Sector
Author: Fan Gang, President of CDI
Editor’s Note: It is imperative to reexamine fundamental aspects as we innovate the financial sector in order to ensure a bright prospect for its future development and to actually solve current problems.
The further development of China’s financial sector is unstoppable and is also something determined by China’s economic trends. Still, problems such as high leverage, risks and debts remain, which needs further investigation and analysis. Banks are constantly upgrading the technologies they use, such as APPs, networks, the internet, Fintech and big data, which are only natural as new technologies should be embraced by all industries. But the reason why the above-mentioned problems persist or are even worsening, especially regarding debts and the stock market, even as we try to innovate the financial sector, in my opinion is due to weak fundamentals. These fundamentals should be reexamined in the innovation process. As a late-mover, China wants to catch up with and even overtake advanced countries, but tends to only focus on the attractive side of finance but ignore its underlying rationale and past lessons of development. Thus it is important to consider how the financial sector should be developed by revisiting the fundamentals; this is the only way to effectively address the current problems to ensure robust prospect for the financial sector in future.
- Common sense
Money can be generated through investment but can never come out of thin air. The Ponzi scheme and any other financial practices that promise sustained high returns on investment are all frauds. Another common sense is about financial market regulation, especially for public finance. Regulation encourages innovation, provides confidence that risks can be controlled, and thus facilitates the development of new technologies and sound development in general.
- Fundamental integrity
Fundamental integrity refers to basic systems including legislation that punish and take preventive measures against dishonest behaviors. The essence of finance is credit, without which its development will go awry.
Mergers and acquisitions are a notable example. One main mission of finance is to ensure the survival of the fitter enterprises in the economic cycle, as less competitive enterprises are acquired by more competitive ones, so that their productivity can be more effectively used. But endless back-door deals following mergers and acquisitions render projects not operable. It is necessary to establish a credit system, otherwise the market will always face insurmountable challenges. Take for instance block chain, which is designed to make information transmission smoother and ensure privacy, therefore a means to reduce cost of enterprises and individuals in economic terms, including cost to expose false information or overcome information asymmetry. But the essence of block chain is providing information. If it contains false information, or in other words, if fundamental integrity is undermined, then information technology will only bring us disaster rather than progress. This means we should first address the basic issue of integrity.
- Fundamental nature
Finance, which provides money to users by acting as an intermediary based on credit, is in nature a service industry that accommodates the needs of the real economy. Through banks, securities, funds, insurances and financial management, the financial sector channels capital into the real economy to fuel its growth. Starting from investing in funds to developing the capital market is one way to develop the real economy.
4 Fundamental business forms
One important cause for lack of innovation in investment funds is not with finance, but with the property rights system. This goes back to the basic institutional issues, again that of property rights, not finance.
First, personal intellectual property rights can be capitalized and turned into stock rights to attract venture capital and concentrate capital and resources in the fields of scientific and technological innovation. The absence of corresponding systems has resulted in limited investment in new enterprises. Enterprises think that financing is to borrow money from banks, which is both costly and difficult. If funds are robust, enterprises would naturally be invested in by funds. Banks only provide liquidity for enterprises, while investment funds underpin their long-term development.
Secondly, many basic business forms have not been developed, such as financial intermediaries for mergers, acquisitions and reorganizations. This is also one fundamental issue that should be reexamined.
- Fundamental systems
The innovation of the financial sector and its further development depend on a robust fundamental system. Once they find advanced technologies, less developed countries tend to mistakenly focus only those latest technologies while ignoring the systems behind.
It is important to cement fundamental aspects as we embrace new technologies. As a result of the lack of a well-functioning fundamental system, coupled with the absence of fundamental common sense and corresponding means of regulation, new problems and frauds will emerge following the use of new technologies. This does not mean that innovation is bad, but that great importance shall be given to fundamentals in the process of innovation. Only in this way can the whole financial sector develop in a more sound and balanced way to better contribute to China’s economic development, the generation of wealth, and more efficient operations of capital and investment.
2018 International Trade Forum: Seeking China’s New Growth Momentum
On December 11, the 2018 International Trade Forum was held in Shenzhen by China Development Institute in collaboration with Shenzhen Association of Enterprises with Foreign Investment among other institutions, where economists, entrepreneurs and government representatives held discussions on the international economic landscape, as well as opportunities and challenges for businesses amidst rising global trade tensions.
“It is important for China to find new growth momentum in reform.”
Recent years have witnessed the rise of “de-globalization”. It is thus imperative for China to develop a new economic growth model driven by increased productivity. Regarding the supply side, China shall prioritize the supply and allocation of labor, and reform its education and professional training sector in order to facilitate growth of higher quality in future. Regarding the demand side, China shall improve income distribution system and foster higher consumption capacity of its people to further fuel economic growth. In addition, China shall also ensure basic public services as well as equal access to these services.
—— Cai Fang, Member of the Standing Committee of the National People’s Congress, Vice-President of the Chinese Academy of Social Sciences and Chairman of the Board of Directors of the National Institute for Global Strategy.
“The mobility of production factors is the key to building a global technology innovation center for the Greater Bay Area.”
Currently, the Guangdong-Hong Kong-Macao Greater Bay Area faces 5 major challenges in the movement of people, i.e., difficulty for professional accreditation and restricted scope of practice, higher individual income tax in China’s mainland compared to that in Hong Kong and Macao, non-portable social security, difficulty in actualizing equal treatment, and lack of supporting facilities. To address these challenges, the institutional arrangements for the movement of people in the Greater Bay Area shall be innovated, such as unilaterally recognizing the professional qualification of Hong Kong and Macao residents, extending the practice of “separate tax schemes for Hong Kong and Macao people” across the Greater Bay Area, exploring effective ways to link the social security systems of Hong Kong, Macao and the mainland, building Hong Kong and Macao Residents Services Center in the Greater Bay Area, piloting equal treatment for Hong Kong and Macao residents in the Greater Bay Area and fully capitalizing on big data to facilitate the movement of people.
—— Guo Wanda, Executive Vice President of China Development Institute.
The important role of multinationals in economic globalization.
To gain an upper hand in global competition, multinationals shall firstly establish global presence to ensure sustained supply and to establish communication with global clients, and secondly, engage in innovative cooperation in diverse dimensions, and provide more effective solutions for clients, and thirdly, ensure good service and quality commitment to win brand recognition, and fourthly, provide diverse products and one-stop services.
—— Huang Yiyun, General Manager of Dupont China Holding Co., Ltd
“Two-way” asset management competence will be a key advantage in international asset management arena in future.
For a long time in the past, China’s investment in overseas assets has been lacking, and vice versa. This imbalance will be overcome with increased mobility of China’s capital market. Domestic and overseas institutions shall explore different avenues of asset management in search of new systemic hedging strategies to improve resilience in investment and reduce fluctuations.
—— Sun Chen, Chief Executive of Harvest Global Investments Limited
Shenzhen shall seize the opportunity of the development of the Guangdong-Hong Kong-Macao Greater Bay Area and make China’s voice heard in international rules.
Under the Belt and Road Initiative, China’s foreign trade and overseas investment have maintained steady growth. China shall stand up to the new problems that have emerged in international arbitration through legislation or judicial interpretation with even more open mindset. On this front, Shenzhen is dedicated to fostering business environment in sync with international rules, such as internationalizing the governance structure, organization and scope of practice of Shenzhen’s arbitration institution, in a bid to create a new pillar for international arbitration.
—— Liu Xiaochun, President of Shenzhen Court of International Arbitration and Director of Shenzhen Arbitration Commission
Shenzhen’s enterprises shall improve their ability to work with international rules
An increasing number of enterprises in Shenzhen have gone global under the Belt and Road Initiative. These enterprises urgently need to familiarize themselves with local legal system, financial environment and cultural customs. Thus it is important to continue to educate enterprises to ensure their compliance with and respect for international rules, as well as their ability to protect their own legitimate rights using these rules.
—— Gao Zhan, Member of the CPPCC Shenzhen Committee, head of Shenzhen Fair Trade Promotion Administration
European enterprises maintain confidence in investing in China as business environment improves in the latter.
In 2017, European businesses have achieved robust financial performance in China, with 66% of respondent businesses reporting year-on-year revenue increase. Meanwhile, the steady improvement of China’s business environment has boosted European investors’ confidence in operating in China. As to the rising challenges posed by increased production cost, Chinese and German businesses shall deepen high-tech talent training cooperation, so as to provide technical support to cope with labor shortage and faster pace of industrialization.
—— Sven-olaf Steinke, General Manager of TüV Rheinland’s electrical service in China
Businesses shall proactively conduct upgrading to cope with the negative impacts of trade frictions.
As China-US trade frictions continue to ferment, global business operations and investment will face uncertainties. Enterprises shall keep a level head and increase R&D investment in big data and other advanced technologies to boost industrial upgrading, reduce cost and improve efficiency, so as to avert the risks posed by trade frictions.
—— Kang Yong, Chief Economist at KPMG China
The Guangdong-Hong Kong-Macao Greater Bay Area has huge potential, and business complementarity and cooperation shall be encouraged.
The economy in the Greater Bay Area has great potential for growth. Different cities and businesses within the Greater Bay Area shall seek effective cooperation based on mutual complementarity. The Federation of Hong Kong Industries will help its member enterprises in their upgrading process, develop new innovative technology platforms, provide businesses with consulting services and match-making opportunities, and facilitate cooperation between experienced industrialists and start-ups.
—— Sun Qilie, Honoary President of Federation of Hong Kong Industries
https://en.cdi.org.cn/component/k2/itemlist/user/352-superuser?start=250#sigProId48c63f73b5
Canadian Parliamentary Delegation Visits CDI
A Canadian parliamentary delegation led by Senator Joseph Day, Co-Chair, Canada-China Legislative Association, visited CDI on January 10 and discussed the Guangdong-Hong Kong-Macao Greater Bay Area (Greater Bay Area) and economic and social development of Shenzhen with CDI experts.
Dr. Guo Wanda, Executive Vice President, briefed the Greater Bay Area in terms of development challenges and working priorities including infrastructure connectivity, industrial clusters, environmental protection, quality life circle and institutional innovation. Both sides had a proactive discussion on integration of the Greater Bay Area.
China and Singapore to Cooperate on Greater Bay Area Opportunities
On January 9, Mr. Chua Teng Hoe, Consul-General of Singapore to Guangzhou, visited CDI and discussed to explore opportunities for cooperation between Singapore and the Guangdong-Hong Kong-Macao Greater Bay Area (Greater Bay Area) with Dr. Guo Wanda, Executive Vice President of CDI.
Dr. Guo Wanda elaborated on background and priorities of the Greater Bay Area and suggested that Singapore deepen cooperation with the Greater Bay Area in areas like scientific innovation, financial opening and environmental protection. Both sides agreed that the Greater Bay Area will bring more opportunities for the bilateral cooperation between China and Singapore.
Consumption Dips As Growth Hits New Low
Top leaders’ annual Central Economic Work Conference, held from December 19th to 21st, set countering the ongoing growth downturn as its main 2019 goal for the economy. Leaders pledged to cut taxes and fees “on a greater scale;” to increase the issuance of local government bonds by “a relatively large margin;” and to strike a balance between monetary tightening and easing, to ensure “reasonably ample liquidity.” They promised to continue to address the financing difficulties of private and small companies. Such measures are part of official efforts to “strengthen counter-cyclical policy adjustments,” a statement that refers to government support for boosting economic growth, according to statements by the Xinhua News Agency.
Growth slowed further in November. Industrial output was up 5.4% y/y, down 0.6 pps from Q3, and down 0.7 pps from November 2017, to its lowest level since this cycle of economic downturn began. Fixed asset investment was up 7.7% y/y, comparable to October, driven mostly by state investment, with an increase of 6.7% y/y, up 12.5 pps from July.
Consumption and trade dipped further. Retail sales of consumer goods were up 8.1% y/y in nominal terms in November, down 0.9 pps from Q3. Their real growth rate was 5.8% y/y, down 0.7 pps from Q3. Both exports and imports experienced a major growth slowdown. Exports were up 10.2% y/y, down 9.9 pps from October. Imports rose 7.8% y/y, down 18.5 pps from October. We expect trade to deteriorate further, due to the trade war with the United States.
Prices are declining, likely due to the low money supply. In November, CPI rose 2.2% y/y, down 0.3 pps from October. The ex-factory price of industrial goods rose 2.7% y/y, down 0.6 from October. At the end of November, M2 rose 8% y/y, the same rate as in October. M1 rose 1.5% y/y, down 1.2 pps from October, reaching repeated record lows.
China’s auto sales fell -18% y/y in November, and have been plunging since June, marking the first annual negative growth in three decades. As the world’s largest auto market, 29 million cars were purchased in China last year, compared to 19 million in the second largest car market, the United States. Although peer analysts consider the fall in Chinese car sales the result of the 2018 elimination of the auto sale tax rebate policy, we view the main reasons as economic slowdown, a crowding out from the housing boom and strict regulation of the shadow banking sector for consumer loans. But we also view auto sales decline as a short-term phenomenon, as housing prices have already shown declining trends from earlier overshooting.
CDI and MOTIE Delegation Discuss SEZs
A delegation from Ministry of Trade, Industry and Energy (MOTIE), Republic of Korea visited CDI on December 19 and held discussion on urban planning of Shenzhen Special Economic Zone with CDI experts.
Mr. Zeng Zhen, Director of Urbanization Research Department, introduced development mode and industrial priorities of Shekou area, Luohu District, Futian CBD area, OCT area and Nanshan high-tech area. The delegation from MOTIE introduced seven free economic zones in Korea. Both sides shared development mode of special economic zones (SEZs) in China and South Korea.
CDI Experts Give SEZ Training to Cuban Officials
From November 19 to 25, Dr. Qu Jian, Vice President of CDI, and Dr. Liu Rongxin, General Director of the Department of Regional Development Planning at CDI, gave training to officials at Mariel Special Economic Zone (SEZ) in Cuba. The training program included SEZ-related development course, laws and regulations, regional planning, investment and financing, and operation management. Mariel SEZ, the first one in Cuba, was launched in 2013. Although it was well positioned as a critical hub in the Caribbean region, it was faced with difficulties of investment attraction and operation management.
China's Central Bank Weighing More Stimulus to Support Economy
The Chinese central bank is aiming to relax its informal deposit rate guidance for commercial lenders, allowing more interest rate flexibility and higher loan issuance to Chinese borrowers.
Kristian Rouz - The People's Bank of China (PBOC) is set to loosen its deposit rate ceiling for commercial lenders in an attempt to inject additional money liquidity into the economy. The move comes amid elevated trade tensions with the US, as Beijing seeks to boost domestic consumption by making it the key driver of the economy.
The Chinese central bank's planned move will relax the informal rules it sets for commercial banks mandating the amount of interest the lenders could repay on the amount borrowed. This will allow for more commercial interest rate flexibility, meaning banks will be able to boost their credit issuance at likely more affordable rates.
This comes as the PBOC is continuing its efforts to crackdown on ‘shadow lending', which has been rife in China since the recovery from the global economic crisis started back in 2009. By supporting official bank lending - which takes place within the central bank's regulatory framework - the PBOC is hoping to stave off borrowers' appetite for 'shadow lending' schemes.
The most recent changes in PBOC policies come after the National People's Congress appointed economist Yi Gang as the central bank's new Governor. Yi holds a PhD in economics from the University of Illinois, and the Chinese government expects his expertise to help remodel the nation's financial system to mirror that of the US by making it more reliant on the services sector rather than export-oriented manufacturing.
The looming change in PBOC policies has become particularly urgent in the wake of the recent developments in China's international trade. US President Donald Trump's push for ‘fair and reciprocal' trade might cause disruptions to China's exports - not only to the US, but to America's largest trading partners as well.
This, in turn, could undermine the influx of investment into China. While the Chinese government is seeking to reassure investors by touting a greater openness of its economy, the PBOC is preparing a blueprint for a greater-scale monetary stimulus, which could finance Beijing's ambitious economic overhaul.
Moreover, Chinese officials have recently urged increased government investment in the domestic economy rather than foreign reserves. The PBOC recommended diverting funds for economic development at home from US Treasury bonds.
"We are a low-income country, but we are a high wealth country. We should make better use of the capital. Rather than investing in US government debt, it's better to invest in some real assets," member of the PBOC Monetary Policy Committee (MPC) Fan Gang said.
Fan also acknowledged that China's high debt level - which exceeds some 200 percent of its GDP and contains higher risks associated with provincial government debt - might pose a challenge to the nation's financial stability. The PBOC urged prompt deleveraging, where possible, and the additional central bank stimulus might help such an endeavor.
"This problem is serious and we need to clean house. We need to contain this financial risk, but it will not cause a financial crisis," he said.
Fan said despite China having a safety cushion amounting to 44 percent of its GDP in the form of savings and foreign reserves, it might not be enough to cover all liabilities in the event of a global economic meltdown or a serious challenge to foreign trade.
However, Chinese officials said it is unlikely that the trade dispute with the US will escalate toward an economic catastrophe.
"On whether China will reduce its foreign exchange reserves, how policymakers think, I don't know. I personally believe this possibility is very small," Zhang said.
While China is the largest overseas holder of US government debt - with its Treasury holdings standing at $1.17 trln as of this past January - the Chinese finance ministry ruled out a sell-off in US Treasuries, stressing its commitment to international long-term bond investment rules.
Additionally, as the US Federal Reserve has some $4.5 trln in its bloated balance sheet, the US central bank could absorb any significant sell-off of its bonds if necessary, which could impair China's reputation as a reliable creditor.
While Beijing is hardly interested in rocking the boat, the PBOC's quiet monetary stimulus and a broader economic reform are expected to alleviate the risks the Chinese economy will face within several years.
