Tsinghua professor says growth needs to be priority to offset external headwinds
With geopolitical conflicts intensifying and the COVID-19 epidemic continuing, China must find ways to protect the stability and safety of the industrial chains while implementing a dynamic zero-COVID policy.
Li Daokui, Mansfield Freeman Chair Professor of Economics at Tsinghua University, made the remarks at the Tsinghua PBCSF Chief Economists Forum in Beijing, which focused on China's economic and policy outlook amid a turbulent 2022.
As to how to deal with external shocks and risks in the short term, Li said it is important for China to do its own things well.
To understand how China can cope with external shocks and risks in the short term. Li said that it is imperative to protect the industrial chain as it would help safeguard China's growth potential in the long term.
The following excerpts from the interview have been edited for clarity and brevity.
CGTN:You have said that the main force for this year's 5.5% growth rate will be infrastructure. How much room will infrastructure have to support growth under the present circumstances?
Li: There are two differences between this round of infrastructure development and the earlier versions. The main feature of this round of infrastructure growth is that it is largely in developed areas but focused on addressing the earlier shortcomings.
The second main feature is the added focus on green energy investment. The potential and demand are huge, including solar photovoltaic power stations, energy storage hydropower stations, and charging stations. Data shows that China’s power generated from coal accounts for 70% of the annual power generation. If this is replaced entirely by photovoltaic energy, that in itself could open a huge market.
And these new energy investments will also have great commercial returns as coal power costs are increasing steadily. So this aspect will also prompt investors to make investments in the newer sectors.
CGTN: The People's Bank of China said that by the end of April, China's M2 and M1 grew by 10.5% and 5.1% year-on-year, respectively. Does this mean that the real economy faces a complex environment beyond expectations, affecting market expectations?
Li: I think the current market demand is not strong enough, so in this case, these measures, including tax cuts, increased money supply, and increased lending, play a limited effect on improving demand. I think the first step is to resume work and production. Under the current situation, China must find ways to protect the stability and safety of the industrial chains while implementing a dynamic zero-COVID policy. Fundamentally speaking, protecting the industrial chain safeguards China's growth potential for the future.
In addition, income subsidies should be given to low and middle-income communities. The supply chain could be maintained after the demand is increased. This will also increase the demand for financing.
CGTN: What is the impact of the Russia-Ukraine conflict on financial markets? What are the changes in the pattern of foreign exchange reserve growth and RMB internationalization?
Li: China must be patient, including the internationalization of the RMB amid the uncertainties. At the same time, in the process of preventing the spread of the epidemic, we must ensure the normal operation of the economy. Meanwhile, our financial system is not developed enough, so even though we have foreign exchange reserves, we can only invest in foreign markets, our financial institutions, markets, and infrastructure, including credit rating agencies. But this set of systems is not mature enough. In terms of foreign exchange reserves, we need to maintain the pace which could be normal; we should not worry about the process because of the uncertain external environment.