Transcript: Keyu Jin on the Biggest Misunderstandings About China

Read the full transcript of Professor Keyu Jin’s talk titled “The Biggest Misunderstandings About China.”

TRANSCRIPT:

China’s Economic Model: Centralized Politics, Decentralized Economy

KEYU JIN: Some in this country may think that China’s sole goal is to overtake the U.S. Jeez, that’s a lot of responsibilities in the world. No, thank you. And no, not feasible.

Now, leaving aside what we think about China and their problems, their challenges, the challenges with the model, we’re seeing the economy slow down at a significant pace today. It is still a fact that it is the country that has been growing the fastest for the longest period of time in all of human history. The Shanghainese government actually gave money and cheap land to Tesla, hoping that they would build factories and sell cars there.

Chinese local governments giving subsidizing American companies in China. People were fine with that. They liked it. They bought Tesla cars all over the streets of China today.

Now, this is again a fact, despite what’s happening between the two countries. I don’t know if you noticed, but four out of the five most downloaded apps today are actually Chinese.

A Different Perspective on China

KEYU JIN: I wanted to tell a different side of the story, and there is always a different side of the story. Given how tense things have become between the two countries, U.S. and China, I think it is important to tell that story. Allow me to offer you a different perspective and lens to look through in the next hour.

People ask me often, what are the biggest misunderstandings about China? One of them is actually how the model works. 30 million private companies sprung out from nowhere, like mushrooms springing up from a desert in so little time, 20 years. In the beginning stages of the 1980s, China was a thoroughly anti-capitalistic economy, and suddenly 30 million companies appeared out of nowhere.

We tend to think of China’s system as being extremely centralized, as if all decisions are made at the top by a few people, maybe even one person, but that’s not quite accurate.

Politically, it’s very centralized, but economically, it’s extremely decentralized.

Decisions and implementation are all made on the ground, decided by local officials who actually go about helping private entrepreneurs to succeed. In my book, I call this the mayor economy.

The Mayor Economy

KEYU JIN: Local provincial leaders—they could be mayors, they could be party secretaries—are in charge of turning backward fishing villages into global technology hubs, like Shenzhen. And that’s what they did. I don’t know what we expect our mayors to do for us in this country, but in China, that was their mandate. It was to help growth, to implement radical reforms, to help protect the environment, to really encourage private entrepreneurs to build something new.

Even today, they’re running around all over the country building mini Silicon Valleys, helping private entrepreneurs find talent, coordinate financing, build whole industrial clusters around key companies like EVs or semiconductors. The Shanghainese government actually gave money and cheap land to Tesla, hoping that they would build factories and sell cars there.

Chinese local governments subsidizing American companies in China. People were fine with that. They liked it. They bought Tesla cars all over the streets of China today.

Incentives for Local Officials

KEYU JIN: A lot of people don’t understand what are the incentives behind these mayors. Why would they want to do this for private entrepreneurs and help the economy? Well, that comes back to some pretty unique institutional features in China.

To be promoted to the higher rungs of the political hierarchy—and everybody wanted to be promoted—you needed to do a good job for the local economy. By doing that, you got more jobs, filled your fiscal coffers, and the land you own, which the local governments own, became worth more. Most of all, you needed the private entrepreneurs to help you.

We usually think about China as if the state suppresses the private sector. No, actually, it’s quite the opposite. They need the private entrepreneurs because they’re the most productive and they’re the most innovative.

There were huge incentives. On top of that, there was a lot of competition across the regions in China. It was like a beauty contest, competing for the best and most promising entrepreneurs. You had to be friendly to them. You had to be nice to them. You had to be helpful.

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In the data, we see that the cleanest, friendliest local governments saw the fastest growth and the rise of the largest companies. Those that were more corrupt, more extractive, they lost out. So there’s an incentive to behave, to actually lend a helping hand rather than a grabbing hand.

China’s Growth Despite Challenges

KEYU JIN: You didn’t need every mayor to be like that. China’s a big country. There are tens of thousands of local governments and many of them were corrupt and money went into their pockets. But the majority were incentivized. And that was enough to lead to this seismic change at breakneck pace.

Now, leaving aside what we think about China and their problems, their challenges, the challenges with the model, we’re seeing the economy slow down at a significant pace today. It is still a fact that it is the country that has been growing the fastest for the longest period of time in all of human history. And that is a fact. Something must have gone right.

The Role of the State

KEYU JIN: This comes to a broader point and a more contested point, which is what do we actually think about the role of the state? I’m a Western-trained economist. I can tell you in our models and our intellectual thinking framework, there’s very little room for the state except for maybe regulations, maybe stepping in when there are market failures.

I can also understand culturally and historically why we feel so uneasy about state interventions. We’ve also seen the state overreaching and being too heavy-handed, of course. These are problems.

But sitting around many meetings with politicians, leaders, experts talking about development and developing countries, a perennial thing that comes up is not enough state capacity. Emerging markets need to double their infrastructure in the next few years. Not enough state coordination, not enough investment.

China didn’t have that problem. China actually had the opposite problem—too much infrastructure, which was also wasteful. It was inefficient. But it was still a better problem to have than to not have enough connectivity to unleash people’s productivity on balance.

Current Challenges in the Chinese Model

KEYU JIN: For all of its expedience, the model has serious challenges. It’s being tested. It’s much less effective now. Growth is slowing down. Huge amounts of debt, 140 million vacant homes to be filled in who knows how many years. There’s too much capacity, too much supply, not enough demand. The financial system is really a living dinosaur, too little credit for the small and medium-sized enterprises.

That’s the other side of this high growth, high cost model. It was costly. There was waste. But to the Chinese, on net, the benefits still outweighed the cost because a billion people were lifted out of poverty. Even today, it’s the first time that you have a developing country being able to do things like cutting-edge technology.

Despite the problems, I still think it’s too early to write China off. This country, the U.S., we’ve had 12 recessions in the last century. It took more than 10 years to recover from the Great Recession of 2009. China is currently experiencing its first serious economic recession in the last 40 years.

China’s Potential for Growth

KEYU JIN: The potential is still there. There’s a vast majority of people underemployed, undereducated in the rural areas. Even just between where China is today and its potential, whether it’s in terms of urbanization, tertiary education, the service sector, productivity, there’s a big gap still yet to be filled.

Even in this country, we’ve seen over time that poor states converged to the richer states. It’s in the data and it’s also going to happen to China. So there’s still room for growth.

Misunderstanding Chinese Aspirations

KEYU JIN: The second misunderstanding is about Chinese aspirations. Some in this country may think that China’s sole goal is to overtake the U.S. Geez, that’s a lot of responsibilities in the world. No, thank you. And no, not feasible.

The daily preoccupation of the vast majority of Chinese today is still about putting food on their table and keeping their kids in school. Not really having a dangerous obsession about America.

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It doesn’t believe that worrying about America is actually going to solve its own problems. And the government needs to keep its own house in order. There’s a lot of domestic challenges.

Global Aspirations Beyond China

KEYU JIN: Talking about aspirations, we’re going to have to accept that there will be similar aspirations from India, Indonesia, Vietnam, the entire African continent. They are rising. They have huge aspirations to pedal their way to prosperity, and we’ll need to deal with that, too.

They’re going to start selling cheap goods to China, use its technology. Some of that is already happening as factories are moving to Southeast Asia en masse. The Chinese don’t really have much time to talk about the Vietnamese stealing their jobs. We don’t really hear about it in the newspapers.

Instead, what they hear about is they should invest more in smart manufacturing, in retooling, upskilling their workers, climbing up the value chain so they’re not forever stuck and condemned to producing cheap goods. Climbing up the global value chain is what they’re focused on.

Turning Crisis into Motivation

KEYU JIN: It’s a cultural thing to do in China to turn a crisis into motivation. Speaking of President Biden’s export controls on semiconductors or asking companies to break off ties with China to stop selling to them—well, initially, it didn’t go down that well in China. But then they kind of just turned it into a positive attitude. It totally mobilized everybody.

They whipped companies into shape. For the longest time, they were actually comfortably importing American chips. And now all of a sudden they have to start buying Chinese chips. Not because the Chinese government forced them to, but rather because of these policies from America.

In fact, they said, “Well, thank you. Thank you for keeping us on our toes.” There were huge accelerations in these domestic industries. And there was almost a national euphoria when they made breakthroughs in the chip industry. Small victories, but still small triumphs. The Chinese people were pretty happy. They turned this around and said, “Oh, this is pretty positive.”

And by the way, President Biden, would you mind also sanctioning our national men’s soccer team, too? But, thank you.

Jokes aside, to look at the rise of Africa and India, does China want to see that as a threat or opportunity? I actually really think they see it as an opportunity. The rest of the world is coming. Ninety percent of the people in the world still live in developing countries. And they, too, have that kind of aspirations.

The New Generation of Chinese

KEYU JIN: Third, finally, the Chinese people. The misunderstandings and the new generation. That’s actually what I enjoy talking about the most. It’s what gives me the most hope that we are going to do much better with a new generation and that we’re not actually headed on a collision course.

The new generation, born after the one-child policy in the 1980s—I was among the first generation. I have lots of thoughts about it. I’ve done lots of research about it. It’s a fascinating topic. They are radically different from my parents’ age, who went through huge vicissitudes, economic and psychological hardships in China during turbulent times.

The new generation, they love leisure, consuming, spending money on clothes, traveling, entertainment, all of that. They even like to borrow to spend.

We used to think about China as a big saver, saving so much and then flooding the world with capital and products. Well, this generation is different. They borrow, they spend. Eighty-five percent of the consumer credit is actually accounted for by people under 35. One click on Alibaba’s e-commerce website, you can borrow to buy lipstick. That’s what college students do. I don’t know who pays them back, maybe their parents. But anyway, they still love to borrow. The mentality has totally shifted.

Despite what we think about the one-child policy, the dark sides, there were also some unintended consequences. For one, it seriously raised the status of Chinese women. Why? Because you used to educate your sons first before your daughters. And everybody now, with a daughter, pours all the resources into her. The modern Mulan’s of every family. And we see in the data that the gender gap completely closed in my generation for attainment in higher education.

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The Rise of Chinese Women in Business

And in the data, among the business leaders, those born in the 1990s, 45 percent of the business leaders are women. Compared to only 6 percent of those born in the 1960s or 10 percent for those born in the 1970s. So it really accelerated the closing of the gender gap for China and this formerly very traditional Confucian society, way above what economic growth would have predicted in other countries.

Moreover, this is a really open-minded generation. I’ve looked at lots of international surveys about them. They care about things like diversity, animal rights, social inequity. They feel more confident. The kind of factory workers that opted for three shifts a night back in those days, that’s not in their generation. They’re more relaxed, more chill.

It’s not a bad thing. They’re not going to be working as hard, as tenacious, but they have a broader perspective about life in general. And also they communicate better. Many of them have been educated in this country. A third of international students in this country are Chinese students. And five million visitors before the pandemic came to this country.

They are fluent with Western culture, the language, and they would be great ambassadors for China. They connect much better with the Gen Z’s around the world. And they are that bridge.

Innovation and Global Connection

They’re also very innovative. Now, this is, again, a fact, despite what’s happening between the two countries. I don’t know if you noticed, but four out of the five most downloaded apps today are actually Chinese. I don’t know if it will stay this way, but the new generation has much less of a culture divide and gap.

So let me leave with this thought. Our great leader, Deng Xiaoping, who really pushed the country for reforms and opening up and really was the forefather of this miracle success, used to say about intractable problems. We had many back in those days as well.

Let’s leave it to the smarter, younger generation to figure it out. They’re going to sort it out.

But at the same time, we still need to hold the world together for them to actually give them that chance. I don’t think that on top of all the debt that we’re going to throw at them or the dirtier planet, that we really want to add a more dangerous world on the cusp of collapse to the mix. So it’s where places like this, forums like this, to offer this exchange, to get to know each other better, to reduce these misgivings that I think is so, so important.

Building Bridges for the Future

And it’s really in this kind of country that such curiosity and openness for different views can actually take place. So I really thank you for listening. Thank you for giving me this opportunity. And thank you for giving me and so many other students from China, from India, from Africa, to learn from this country.

We can also expect that when the next global financial crisis comes around the corner, and I’m certainly sure it will, the two central banks in US and China, they’re going to have to call each other up. That if there’s ever a hope of realizing the green transition, we are going to need the cheapest, cleanest energy and technology and a whole lot of investment and collaboration to make it happen.

We’re here. So let’s keep the people-to-people connection, keep the dialogues open, have some goodwill, and maybe even just start from small victories. And I believe over time, even more can be achieved.

Thank you.