On January 4, 2025, the Northeast Asia Economic Development and Opening-up Forum, hosted by the School of Finance and Trade at Liaoning University, was wrapped up. The forum was attended by Professor Yu Miaojie, a deputy to the National People’s Congress, Fellow of the International Economic Association, and the Deputy Secretary of the Party Committee and President of LNU. Professor Yu delivered the keynote speech at the forum. The original text of the report is reproduced below:
We are now facing a complicated and severe international environment and arduous domestic reform and development tasks. In the short term, there are three challenges.
The first is insufficient demand. From the perspective of external demand, the ‘small courtyard and high wall' policy of the United States and rising trade barriers have led to weak external demand. From the perspective of domestic demand, the income of the Chinese people has not been significantly improved compared with the past, resulting in insufficient domestic demand. The second is supply shock. China’s industrial chains and value chains are negatively affected by the international economic and trade market. The third is an impeded market. China’s unified domestic market still needs more efforts.
So how should we deal with these challenges?
The shortage of domestic demand can be solved by raising people’s income and implementing a proactive fiscal policy and an easing monetary policy. I think a key direction of government work this year is to raise the income of low-income groups, such as raising the wages of retirees, raising the income of low-income families and increasing financial subsidies to urban and rural areas.
Specifically, in terms of fiscal policies, China’s current fiscal deficit is about 3%, and it may reach 4% this year, achieving a fiscal deficit of about 5.66 trillion RMB. At the same time, about 1.3 trillion RMB ultra-long-term special bonds, about 500 billion special bonds and about 4.4 trillion RMB local government special bonds may be issued this year. Together with the local fiscal revenue of about 22 trillion RMB to 23 trillion RMB, there will be a total fiscal scale of more than 33 trillion RMB. In addition to dissolve debts and risks, these financial expenditures will mainly be used to stimulate investment and construction, which is also a focus of our work this year.
In terms of monetary policies, easing monetary policies include two aspects, one is the total amount of monetary policies and the other is the structure of monetary policies. In terms of the total amount of money, I think the optimal M2 should be more than twice the generalized GDP. GDP will definitely exceed 130 trillion RMB this year, so there should be about 260 trillion RMB of M2. From the perspective of monetary structure, although it is very important to dissolve debts and risks and ensure financial stability, it is also very important to ensure that money can really flow into production and circulation. Theoretically, China’s current economy is not so pessimistic. What we have now is just low consumption, but there is no inflation and even no economic stagflation. This situation can be improved by both fiscal and monetary policies.
To cope with the supply shock, on the one hand, we should use science and technology to empower and promote the development of new quality productive forces through industrial policies. On the other hand, we should continue to implement policies on opening up. In my opinion, besides the eight strategic emerging industries proposed at the Third Plenary Session of the 20th CPC Central Committee, namely information technology, artificial intelligence, aerospace, new energy, new materials, high-end equipment, biomedicine and quantum technology, we can also focus on building a low-altitude economy, which could alleviate the supply shock and cope with the lack of demand.
Secondly, we should better promote the application of policies on opening up. Currently, globalization is still the mainstream trend in today’s world. Although the growth of trade is lower than that of GDP, which is caused by some geopolitical factors and the development of service industry exceeding that of manufacturing industry, it does not mean that we are not living in an era out of globalization. The total global economic and trade volume in 2018 was 51 trillion USD, and now it has reached 63 trillion USD, indicating that globalization is still an upward trend. In addition, the two core features of globalization, namely the regionalization of production and the multilateralization of trade remain unchanged. What we are pursuing is an inclusive economic globalization as economic foundation, which determines the superstructure of political multipolarization featuring quality and orderliness.
So how can we achieve this goal? I believe that to promote the formation of a new pattern of all-round opening up, it includes three aspects: a larger scale, wider scope and a deeper level. For a larger scale, it includes not only commodity trade dominated by manufacturing, but also service trade, digital trade and green trade. At present, the scale of China’s service trade is nearly 950 billion USD and there is still a significant gap to the US’s 1.7 trillion USD. Digital trade includes digital industrialization and industrial digitalization, which complement and promote each other and. China’s export of three new products has been at the forefront of the world, among which the export of green trade has reached about 14% of the world, exceeding the proportion of China’s total trade volume accounting for 11% of the global trade volume.
For a wider field, it includes the following five aspects. The first is the diversification of export destinations. We should actively explore international markets outside the United States. After Donald Trump takes office, the United States will impose at least 10% tariff on China’s imports, reaching an average of 24% and may even continue to impose more. We should plan ahead and prepare for the worst situation of losing the American market. We can focus on expanding the markets of relatively friendly countries such as newly industrialized countries, BRICS countries and SCO countries, especially the Russian market. Secondly, it is necessary to carry out differentiated policies. For example, high-quality products can be exported more to the destinations with higher export income and vice versa.
Second is the expansion of import scale. The successful hosting of the 7th China International Import Expo (CIIE) has fully demonstrated that China’s import expansion is a basic national policy, not an expedient measure. Expanding imports can improve people’s sense of happiness and gain because from the perspective of economics, it can increase consumer surplus. We should increase the import of intermediate products, thus reducing the cost of enterprises and improving their profits. We can also use market competition to achieve the survival of the fittest of the finial products, eventually improving the productivity of the whole industry.
Third is the active introduction of foreign capital. Although for labor-intensive industries, the comparative advantages of introducing foreign capital in China is gradually weakening. But for capital-intensive industries, the comparative advantages of introducing foreign capital still exist. For capital-intensive industries, the most important thing is not labor input, but whether there are upstream and downstream supporting industrial chains, whether there is industrial agglomeration and whether there are elements of the whole industrial chain. These are all the advantages in China.
Fourth is FDI enterprises going global. We need to re-examine the goal of going global of enterprises. In the past, enterprises went global mainly because of cost, such as investing in Ethiopia to reduce production costs or investing in Australia and Congo to obtain energy resources. These goals are still reasonable. However, the current international investment environment has changed and enterprises can gain new market opportunities through technology export. For example, the European Union’s invest invitation to China’s electric vehicle enterprise BYD requires that the share of the enterprise should not exceed 50% and technology transfer should be carried out. I think this model is strategically feasible.
Fifth is differentiated development for BRI countries, which is particularly important in the context of geopolitical crisis. As for the Maritime Silk Road, since it is unlikely to establish a free trade zone in the Middle East at present, the focus should be on promoting economic and trade cooperation between China, Japan and South Korea. On the other hand, the development focus of the land Silk Road should extend eastward and strengthen cooperation with Russia, especially in the Far East, which occupies an area of 6.2 million square kilometers and has a population of about 7.8 million.
For a deeper level, to change from a factor market to an institutional market, we should focus on rules, regulations, standards and management. To this end, it is necessary to give full play to the functions of 23 pilot free trade zones and Hainan Free Trade Port and explore in trade, personnel exchanges and capital. First of all, we should further promote trade liberalization, such as reducing tariffs and narrowing the negative list. Secondly, it is necessary to promote the facilitation of personnel exchanges. For example, at present, many cities in China have implemented a one-week visa-free policy to promote the circulation of people. In addition, we should expand the opening up of capital. Pilot opening can be conducted at the pilot free trade zones and Hainan Free Trade Port and foreign-funded enterprises can be gradually allowed to operate banking, securities, insurance and other fields. It is important to adhere to the principle of national treatment and most-favored-nation treatment and give foreign-funded enterprises the same treatment as domestic enterprises.
To solve the problem of an impeded market, among which the most critical ones are product market, factor market and talent market. The first is the unification of the talent market. It is very important to create a better platform for the free flow of talents. When introducing talents, we can’t adopt the policies of restricting their flow, which seems to be protective, but in fact it is harmful. On the one hand, if the environment is good enough, talents will naturally stay. On the other hand, if only ordinary people are introduced, then this flow can promote better talent inflow.
Second is the unification of the commodity and service markets. The most important thing in the commodity market is to achieve the unification of domestic and foreign trade commodities, that is, same quality, same production line and same standard. The unification of the service market is equally important. One of the priorities of this year’s work is to actively introduce and encourage foreign students to study in China. This will not only promote opening up, but also promote reform. Finally, we should optimize the business environment and reduce trade costs, including implicit and explicit transaction costs. In this way, the synergy between market and government can be better promoted for a unified domestic market.
I believe that with the above measures, China’s economy is expected to achieve a growth rate of 5% in 2025 and we will work together towards the goal.
