Summary: The Future of Global Economic Relations

Open Session: The Future of Global Economic Relations: Lessons from China, EU, the US, and Beyond

The Center on Global Economic Governance and the School of International and Public Affairs hosted the third annual summit forum on China and the West: The Role of the State in Economic Growth Conference on March 22nd and March 23rd, 2018 in Beijing, China. This session brought together leading experts in Chinese, U.S., and European economic relations to discuss the impact of divergent approaches to the role of the state in economic developments. The speakers further explored how new policies on international trade, technology, and innovation will affect the global economy against the backdrop of recent political developments. 

The summit took place following the announcement by the Trump Administration that it would impose punitive tariffs on as much as $60 billion USD in Chinese imports to address intellectual property conflicts. Many government ministries of China, including the Ministry of Commerce and the Ministry of Foreign Affairs, have expressed serious concern over this issue, indicating China’s position and adopting targeted measures.

This session was chaired by Ms. Lan Yang, who is the Chairperson of Sun Media Group and an alumna of Columbia University's School of International and Public Affairs. The summary of each speaker’s remarks follows below:

Merit E. Janow, Dean, School of International and Public Affairs, Columbia University

Dean Janow reflected on the paradigm shift in China in terms of the role of the state, as well as significant shifts in the U.S. and Europe. First, China's economy has become a significant part of the global economy, yet China and the West represent different models of development which will undoubtedly have implications for the rest of the world. Second, discussion on trade has increased because of disputes between the U.S. and China. Dean Janow emphasized that it is important to think about the structural characteristics of each respective economy, and the extent to which the U.S. and China are complementary and instructional to each other. She further underscored the necessity to think about the sources of tensions, as well as where opportunities lie, and how to manage through points of tension.

Summarizing a previous session on innovation and the digital economy, which Dean Janow had moderated, she explained that the panelists focused on key topics, including the role and nature of innovation, the role of AI, and the labor effects of the digital economy.  

Justin Yifu Lin, Dean, Institute of New Structural Economics and Institute of South-South Cooperation and Development, Peking University

Professor Lin made remarks in regards to the appropriate roles of the state by drawing lessons and insights from China’s past experiences. Professor Lin explained how China introduced a market economy allowing competition to work since the reform and liberalization in 1978. This was followed by the awakening of entrepreneurial spirit, rapid industrialization, and macroeconomic structural reforms. Over the past 40 years, other countries also have had similar changes in the market economy; however, Professor Lin explained, in contrast to China’s success, reforms in many of those countries have repeatedly run into barriers and stagnation, triggering financial crisis.

In its experience of transition, Professor Lin concluded that the Chinese government played a very proactive role. On one hand, China’s reform followed a gradual process to maintain steady growth in the national economy. On the other hand, the government was actively facilitating the formation of new sectors to realize rapid industrialization. China’s economic reform was, thus, a result of balancing between the two measures and has further contributed to China’s overall development.

Professor Lin concluded his presentation by naming the two ingredients of China’s success: the importance of the market in unleashing entrepreneurial and innovative spirit, and having proactive facilitation of the state to ensure entrepreneurship contributes to the industrialization and structural transformation.

Edmund Phelps, 2006 Nobel Laureate in Economic Sciences and Director, Center on Capitalism and Society, Columbia University

Providing a general summary of the conference, Professor Phelps underscored trade interactions between countries in the context of economic globalization as a central trend. Professor Phelps recalled comments made at last year’s China Development Forum on what the impact of Trump’s presidency would be on international trade. At the time many business people thought Trump would not change much of the trade status quo between China and the U.S., but Professor Phelps took an unpopular position forecasting that there would be a significant shift.   

Professor Phelps noted that one of the things said during that conference that struck him as interesting is the inclination to blame the economic difficulties of a number of countries on trade. He believed this view to be false. Rather, technological innovation, such as AI and Robotics, is the more powerful source that, unfortunately, has caused serious losses for the labor force in America, Britain, and France.

Yan Mei, Managing Director, Brunswick, China

Ms. Mei felt quite dismayed after hearing the news about the U.S.-China trade conflict, as China had established a trading partnership with the U.S. since the beginning of its reform and liberalization. Many people had felt that the U.S. is a model country for the world. After hearing this news and looking at the U.S., she felt hurt because what people had admired about the U.S. in the 1980s is no longer a reality. While America is claiming leadership everywhere in the world, the reality is the decline and loss of American leadership.

Transitioning to discuss the role of innovation, Ms. Mei utilized the cutting-edge companies in China as an example to show how the founders – all in their 30s – were born into a generation of internet explosion and digital revolution. Comparing these individuals to older individuals in government, she raised the question of whether the government was equipped to properly regulate these technologies. Ms. Mei concluded that the state must be more innovative, more creative, and more adaptable in order for China to embrace the new era and to continue to embark on further innovation.

Pun Hoi Yu, Chairman, Institute of New Structural Economics, Peking University and Co-founder, China and the West Dialogue

Emphasizing the rapid pace of technological, economic, and political changes in the world, Mr. Yu characterized these adaptations as a constant feature of the new world environment. In this sense, Mr. Yu added, we should not be surprised at Trump’s announcement increasing trade tariffs; however, it seems that not all economists and economic theories have adapted to this aforementioned changing environment. In response to the challenge of increased trade tariffs, China does not have to choose between being passive, defensive, or revisionist. Instead, China can comprehensively combine the three approaches. Mr. Yu suggested that the economists focus on what has happened in the past 30 years and continue debates in academia, in order to maintain steady economic growth in the constantly changing environment.

Jun Zhang, Professor, Dean, School of Economics, Fudan University and Director, China Center for Economic Studies, Fudan University

According to Professor Zhang, cutting-edge technologies and innovations are driving the productivity growth of the current world economy, and the Chinese government has committed itself to carrying out structural reform to sustain the process of transformation. Additionally, many people share the idea that China will continue to lead the process of innovation because of the structural reform currently underway that has paved the way for new start-ups and growth of private entrepreneurs.

Contrasting this Chinese experience with the US, Professor Zhang noted that both are facing similar challenges, but the US lacks structural economic reform, which has resulted in trade conflicts and imbalances with China and other parts of the word. However, he added, the U.S. has not realized its lack of such reform and has been continuously utilizing the privilege given by the U.S. dollar over other countries. Having those lessons in mind, Professor Zhang concluded that no single model can fit all countries at all times. Therefore, the state should have the capacity to move from one stage to another in order to adapt to changing competitions that will make the economy more resilient. America has done very little, in comparison to China, to build up the state capacity to carry out structural reform and spur productivity growth, which Professor Zhang noted as key to understanding current tensions.

Jan Svejnar, Director, Center on Global Economic Governance and James T. Shotwell Professor of Global Political Economy, Columbia| SIPA

Professor Svejnar detailed the dramatic changes in today’s economy and the opportunities accompanying those changes. Over the past 40 years, China’s economy has grown rapidly and has become a new world leader in the era of the digital economy. While Europe in a way has also had significant state involvement, especially on the social side, it has not done all that well over the last two or three decades in terms of economic progress, in particular in the realms of modern technology and digital technology. The U.S. has been a dynamic economy among the older, more advanced economies, but has been struggling with adapting to a rising Chinese presence in the new global economic order.

Professor Svejnar also spoke about innovation, stating that many countries have been concerned that the rapid pace of change would make coping with these new developments challenging, and would ultimately lead to conflict. In this context, Professor Svejnar noted, structural economic adjustments are highly necessary. China currently exemplifies the most successful model by balancing the role of the state and market economy, as well as by promoting innovation and entrepreneurship. The U.S., Professor Svejnar contrasted, is in a situation where there has been very strong entrepreneurial spirit with a lot of innovation taking place, but the government’s opposition to structural change has not enabled these entrepreneurial and innovative behaviors to reach the highest extent. Professor Svejnar explained that Europe is aware of the necessity to change and is trying to take measures that will bring it to fruition; however, given its highly educated population, it, in a way, is an economic unit that is well below its potential.

Ricardo Melendez-Ortiz, Chief Executive and Co-founder, International Centre for Trade and Sustainable Development (ICTSD) 

Mr. Melendez-Ortiz felt disappointed in the announcement by the U.S. of the increase of trade tariffs on China. He also noted the common misconceptions and misinformation that lead many people to believe China to lack of innovation, positing that all Chinese products are stolen copies from the U.S. Overall, Mr. Melendez-Ortiz claimed that this leads to a misunderstanding that trading with China is detrimental to the interests of the U.S. He was pleased that the conference was a way in which to dispel these misconceptions, Mr. Melendez-Ortiz emphasized the need for more intercountry dialogue in order to build a bilateral trade system that is sustainable in the long-term and that would improve the world’s economic situation.

Haizhou Huang, Managing Director, China International

Summarizing recent events in the economy, Mr. Huang explained that the U.S. started a trade war over the past few days, and the global market did not welcome it. Since the reform and liberalization of the Chinese economy, China has been actively engaged in cooperation in the world economy, which has brought benefits to other countries as well as to itself. However, at the same time, this has also created some side effects, which required the timely introduction of new policies in response to those changes. Drawing a parallel to technology and innovation, Mr. Huang warned that the side effects from these changes would need to be addressed by the state as well.

This event was organized in partnership with the Columbia Global Center in Beijing, Peking University’s Institute of New Structural Economics (INSE), and Tsinghua University.