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By Jacob Kishere
On June 20th the Henry Jackson Society hosted the esteemed Professor Ann Lee of New York University and formerly Peking University to give her incisive stance on the pressing contemporary questions about China’s growth trajectory. Professor Ann Lee teaches in macroeconomics and financial derivatives but marks herself apart from many prominent commentators by her extensive experience in investment banking and hedge fund derivatives trading, she is currently the CEO of Coterie a new technology investment consortium.
Dr Lee set out her analysis in opposition to what she describes as increasingly negative perceptions and analysis of China’s economic trajectory within western media. Whilst recognising the broad concerns for China’s continued growth given increasing national debt, slowing growth and a shrinking labour force, she set out a compelling case for why this should not cause undue concern. Dr Lee began by employing an analogy of a child’s development for Chinese national development as, she depicted the era from Maoism to China’s entry into the WTO in 2001 as alike to its childhood years. Lacking in experience both personally and institutionally, China’s leadership during this period made numerous costly mistakes in addressing substantial development obstacles. However, she contends that China is no longer a child. Its massive growth and widening economic base in the last two decades as well as increasingly adept policymakers and the undertaking of international responsibilities reflects a nation arriving at young adulthood.
Furthering her use of comparison, Dr Lee critiqued attempts to link China’s future today to that of Japan’s in the run up to and during the ‘lost decade’ that struck after 1991. Where Japanese policymakers were in denial of the structural weaknesses in their economy she contends that Chinese policy makers are both aware and proactive in preventative measures to ensure no such calamity. Unwrapping popular concerns about China’s debt, Dr Lee was keen to demonstrate that debt risk is far more qualitative than quantitative. Where countries like Greece today suffer from extensive foreign debt, developed nations such as Japan are able to function with confidence at a much higher debt-to-GDP ratio because their debt is not largely foreign held. In the case of China, national debts are almost entirely internalised and should thus not merit the same concerns as other nations.
Financial Systems, Dr Lee stressed, are “human constructions” and therefore reflective of the culture and priorities of the society and policymakers that produce them. Acutely aware of the substantial risks in the American model that were exposed in the 2008 crash, she compared the Chinese government’s strategy far more akin to the vision of Alexander Hamilton in establishing the national bank in 1791. The Chinese economic model reflects its national interests which are, like Hamilton’s, principally to facilitate nation building more so than speculation.
Whilst a slowdown in economic growth from the double-digit figures of the early 2000s has taken place, this was an inevitability and a natural progression for the Chinese economy. Dr Lee argues that given how much wider China’s economic base is today, such high growth rates would be impossible. However, there is still massive real terms growth equivalent to that of “one Russia every year”. Furthermore, the Chinese government’s investments in R&D on areas like green technology continue to surpass the US. These function as a part of regular ‘hard target’ based five year economic plans which in Professor Lee’s view ensure continued development and growth. The Chinese Silk Road project through central Asia as well as substantial investments in Africa should ensure that China’s industrial state owned enterprises are kept productive in future.
During her concluding remarks and the Q&A period Professor Lee continued to demonstrate her ability to strike stances contrary to mainstream received western opinion on China. Citing many high level conversations with bankers in Japan and China, she expressed scepticism of increased tensions in the South China Sea inferring they may be reflective of American concerns about increasing economic co-operation in East Asia. Speaking directly to the interests of London as a financial hub Dr Lee said that whilst we can expect an increased role for the Renminbi as an IMF reserve currency, the Chinese government is unlikely to push for its use in speculative trading especially as long the dollar remains the overwhelming dominant currency for transactions.