Sailing through Unchartered Waters
Author： Source： Date：2017-09-01
Editor’s notes: Many advanced economies have been challenged by an aging population for years. China is now joining them. Mr. Wong exemplified the plans of Singaporean government, projects of the city government of New York and the experienced workers at the BMC as effective ways turn the aging population into productive workforce, in order to sustain economic growth.
Thank you for having me to this festive event. I consider this as a party, a party for good ideas. And this is a place where ideas, critics and suggestions are blended together and there shall not be boundaries on discussions of a new thinking, new ideas, no matter how wrong they can be. (In the) future looking backward and presenting some ideas that are stupid, but then all good ideas come out of bad ideas to begin with.
Having that said, commenting on policy formulations and implementations to shape the future development and growth of a country like China is never an easy exercise. Chinese economy’s sheer size, global reach, and still, a very stable and healthy growth momentum can only make public policy choice that more difficult. So the formulation and implementation under very challenging periods, I think the task is daunting. However, at the time that the global markets are also facing several challenges, I describe them as the unchartered water, because in the last 30 to 50 years, we have not seen global condition as such. Active government policy, forward-looking, anticipating the change would be critical for a country’s sustaining growth opportunities.
When we look at policy change in China, say in the last 30 years as to the last 2 years or the last 12 months, one has to be very humble by looking at the government’s effort and Chinese companies, private enterprise and adjustments that individuals have to change, I think is admirable. It’s very difficult for outsider like me to look at the economy and suggest or critic on some of the policy. To me this event is a very educational experience. The topic Sailing through Unchartered Waters，I mainly will look at the three areas. There are many unchartered waters and they are actually opportunities, I don’t look at them as negative. So I am going to cover 3 areas-the low global growth, the low interest rate environments, the destructed global trade and restructuring, and aging populations. I have noticed that we have not talked too much about aging populations. That is a big topic globally, and I think particularly it is very relevant to China. So I am going to touch upon that with a little bit more my own personal fancy and it’s a research project that the institute is engaging currently. So let’s start from there.
Global economy and Chinese growth
So let’s briefly comment on the global economy and the Chinese growth. I am rather pessimistic on the global economic growth. Pretty much the way I look at it, the global economy never recovered from 2008 financial and economic crisis. Global growth, as we have accustomed to in the last 30 plus years, has yet to go back to normalcy, which is the steady-improving global trade, elevated growth rates and interest rate that can enable long-term investment with healthy returns. Those elements are missing and I don’t see that they can come back very quickly and very soon, and in a rate that we would like to anticipate.
In the short run, turbulence and uncertainties continue to dominate global dialogues among governments and private enterprise. In other words, the focus of the dialogue is no longer where the opportunities are, but rather on patching problems. On the monetary policy fronts, major economies from the U.S. to Europe, Japan and even to China have pushed those policies to remain growth aggressively and continuously. Yet, the result has been mixed at best. Zero interest rate policy has lost its luster in promoting growth globally. Particularly to some countries, they seem to breed in that environment and economic growth it’s almost at the fault. As a consequence, tail risk for excessive credit expansion and liquidity increases exponentially. Yet progressive reform and public policy have not been deployed for various reasons, many are social, political, and some actually, the avoidance f public sentiments or the negative public sentiments underneath change.
So many mature economies have stuck in a low growth or near recession conditions. According to IMF in April, the growth for 2016 at the time was projected to be 3.2%. Now if we look back in past 5 years, the projection for global growth every year, shrinking from six something, to five something, to four something. So every time in the July revisions which they can the mid-year revision, the growth rate will be further trimmed down. That’s the condition that I think to a very large extent, I’m beginning to agree with Professor Xu Xiaonian, that macroeconomic is dead. So we are not doing, or we cannot do anything that revive the economies and bring the economic growth back online. So the condition or the trend is not optimistic. And at a glance, I think this is what I would call “the totally dark water” and I don’t know if anyone has a very good answer on this.
Traditionally in the last 20 year or maybe even 30 years, we would see the mature economies and the developing economies grow at a diverging trend. So at the time in the global economy, the mature ones actually have a lower growth, but always the emerging markets and developing economies actually grow at a rather high rate. But at this time the growths actually are converging, so I don’t know how to interpret this. The only conclusion I can draw without going into further academic exercise is that the reason is not economics; the reason is politics and the social sentiments. So the government cannot enable change. So on that note, since global picture is not that blue-sky, and rather cloudy, I think it is to the contrast to the Chinese economy. I notice that, when I talked to economists from China, they are far more pessimistic than I am. And I looked at the growth rate and said what’s wrong with 6 percent, and what’s wrong with 5 percent. I think the premise that we have to have a 6.7 percent growth should not be the goal.
I think the L-shape debate or the W, whatever shape you want to describe, I think at this point, the real question is: can China find the next growth engine? The next growth engine can be as Professor Xu Xiaonian mentioned, can be factor productions. Can we optimize them? Because for many Chinese enterprises, those factors are not a factor of consideration in the past. The government provides strong support and abundant labor. And I do have to emphasize, abundant labor. We have moved 400 million plus people from rural area to urban center. Those are elements that actually in many countries would be priceless resources. But in China, the cost of that is nearly zero in paying them. So just consider that.
China’s next growth engine—empowering the elderly population
Now I am going to migrate to the second topic. You know my answer on the global economy and so Chinese economic growth in the future cannot depend on the external environments, if anything I could imagine that those conditions can be quite challenging, no matter how you look at it. And I just don’t see Europe, Japan and to some extent the U.S can change its public policy to promote stronger growth because those probably would involve with reform, immigration, actually the bottom line is human capital. It’s not about economics, it is about human capital. The social unrest, disfranchising of communities, all those can point back to one thing—opportunity in the future. Those youngsters in Europe particularly the large cohort of immigrants, the second generation cannot see they have the opportunity that their father or their parents envision for them when they moved to those places.
So those will take some time to be addressed, and I am not as pessimistic that those conditions will be permanent but then it would take a lot of political courage to do so. And that’s one thing I think by looking at the Chinese government and what the government has done, that’s one thing that Chinese government has, the courage to go into unchartered water, to make the necessary change to carry growth forward. Although in detail, there is something I am going to share, if I have enough time, on supply-side reform.
But I would like to migrate to the second area on unchartered water-demographics. Often said, demographics are the destiny. So I just mentioned that the Chinese miracle in the past 30 years pretty much is government-fixed investment, infrastructure and urbanization. Urbanization is labor story. So the Chinese, actually, economic miracle is riding on the back of 400m plus migrant workers. And they are workers. They should not be called migrants, but they are workers. Now that is quickly disappearing.
The gloomy picture, if you listen to many macroeconomists, I have to emphasize, macroeconomists. Their projection is we are losing huge block of consumption power, because older people don’t consume that much. If we look at the older population, and if anyone doesn’t know about the size of that aging population, it’s going to be the size of the United States in about 13 years. So if we go by the traditional notion of aging, if we go by that, the public pension, healthcare will be a huge burden that no government can bear. And is China alone? No. China, actually, by far perhaps has the large block of the retired population by 2030 or 2050. But there are other economies, other countries have gone through that dilemma. Many chose not to do anything. I think that takes courage to deal with a lot of retirees and then to revise the pension plan or revise the retirement age. So here’s my propositions, if you will. I would like to challenge you to the traditional notion of aging, turning increasingly larger portion of population into a productive force. Now I use the word “productive force”, I didn’t say workers, I didn’t say cork. That can be many things, or just about anything. That can unleash additional source of consumption, supply of experienced workforce and building stronger community, when society, governments and private enterprises create an environment that is enabling and empowering the elderly population.
Sometime when I visited Beijing, I’d like to go to the square. I looked at pretty much my cohort, I would suspect, ladies in their 50s and their 60s doing dance in the square. To young people, that is an annoyance. To me, I have a mixed feeling. I don’t think I can spend my day dancing happily in the square, but those cohort are. My point is they have excessive energy, and they want to be heard, they can work, they can do a lot of things. They should be a very productive workforce in the society. So the stipulation actually comes with a big picture by me. And so probably you will say, OK, he just dreamt up. I would provide some examples why they can be relevant, and they can be very important in the future of China. One key point in the discussion is how to promote consumptions. I doubt anyone would like to spend a lot of money if they do not have anything else to do. I think if I might have the choice and if I don’t go out to see a lot of people, if I don’t have to deal with you guys, I probably would not shave; I probably would not have my hair cut that often; and I don’t need to buy that many shirts. However, since I have to meet with people, to make discussion and to make my life purposeful. Hence I need to maintain certain standards, I need to consume. So think about these scenarios as such.
There are governments that are very proactive which is Singapore. This has come into some actual case that we can look at it as stipulating and seeking the next growth engine in China without involving external markets, without dealing with a lot of trade politics, and so on and so forth. Singapore government actually 2 or 1 year ago instituted a new policy- that encouraged its retirees to go back to school. (They can) now choose whatever they want to study, and government will provide for the tuition, and hopefully they can find a job or a task that they would like to do. So this is called purposeful. Make the elderly’s life purposeful. If they want to deal with their grandkids, so be it; if they want to be a clerk again, so be it; if they like to dance in the square, also is good. Those are economic and social benefits that I think in the past, in the entire human history, at least in the industrialization age, that we never thought of someone after 60 can be so productive. So today’s technology, today’s work environments are all enabling. It’s up to the governments and all of us, I think more “all of us” than the government to look at the elderly.
So second, this would be the enterprise level as I said government. Oh by the way, the Singapore government also put out a health-care package for the elderly, so to make sure that they are healthy, their life can be purposeful, and they remain active, so to prolong their productive life as long as possible, as fruitful as possible. So going back to another example, is private enterprises-BMW. I think many Chinese like to drive BMW. Can you imagine some components of the car are produced, assembled by workers at 65 years age. And they are as productive, and in often cases, they are producing higher quality than the younger workers, because they have 40 years of experiences, and they don’t need to look at computer sometimes to detect the problem with the components. So this is the BMW experience.
And then I also would like to say the New York, which is a city government, which I think had done so much for the retired communities, the retirees, or the elderly workers. They set up community centers which government didn’t spend too much money. Actually, one of the comments yesterday from one of the speakers on urbanization and city, is commenting on the city governments of the United States. Very often now and then, the city governments are very poor in the Unites States. So they don’t have big budgets such as Shenzhen, Beijing, Shanghai or any other city in China. So the cities actually leverage the city’s culture, meaning say New York as a melting pot, you have a lot of Jewish population, Chinese, Japanese, Asian, whatever, every corner of the world lives in that city. And they actually understand the subtlety in culture and social connection. So they set up a program with very minimum cost to lay the elderly population to church, to community center, and those centers link to the hospitals, so that the elderly’s needs can be taken care of without major cost.
Now those are the three examples that I cite, and hopefully these suggestions actually would come with some new thinking, and maybe we can find a new growth engine.
Thank you!
Perry Wong is the managing director of research at the Milken Institute. He is an expert on regional economics, development and econometric forecasting and specializes in analyzing the structure, industry mix, development and public policies of a regional economy.
Speech delivered at the Global Views and China’s Economy session during the 3rd Dameisha Forum. Opinions expressed here belong to the author and do not necessarily represent the position of SZIDI.
Thank you for having me to this festive event. I consider this as a party, a party for good ideas. And this is a place where ideas, critics and suggestions are blended together and there shall not be boundaries on discussions of a new thinking, new ideas, no matter how wrong they can be. (In the) future looking backward and presenting some ideas that are stupid, but then all good ideas come out of bad ideas to begin with.
Having that said, commenting on policy formulations and implementations to shape the future development and growth of a country like China is never an easy exercise. Chinese economy’s sheer size, global reach, and still, a very stable and healthy growth momentum can only make public policy choice that more difficult. So the formulation and implementation under very challenging periods, I think the task is daunting. However, at the time that the global markets are also facing several challenges, I describe them as the unchartered water, because in the last 30 to 50 years, we have not seen global condition as such. Active government policy, forward-looking, anticipating the change would be critical for a country’s sustaining growth opportunities.
When we look at policy change in China, say in the last 30 years as to the last 2 years or the last 12 months, one has to be very humble by looking at the government’s effort and Chinese companies, private enterprise and adjustments that individuals have to change, I think is admirable. It’s very difficult for outsider like me to look at the economy and suggest or critic on some of the policy. To me this event is a very educational experience. The topic Sailing through Unchartered Waters，I mainly will look at the three areas. There are many unchartered waters and they are actually opportunities, I don’t look at them as negative. So I am going to cover 3 areas-the low global growth, the low interest rate environments, the destructed global trade and restructuring, and aging populations. I have noticed that we have not talked too much about aging populations. That is a big topic globally, and I think particularly it is very relevant to China. So I am going to touch upon that with a little bit more my own personal fancy and it’s a research project that the institute is engaging currently. So let’s start from there.
Global economy and Chinese growth
So let’s briefly comment on the global economy and the Chinese growth. I am rather pessimistic on the global economic growth. Pretty much the way I look at it, the global economy never recovered from 2008 financial and economic crisis. Global growth, as we have accustomed to in the last 30 plus years, has yet to go back to normalcy, which is the steady-improving global trade, elevated growth rates and interest rate that can enable long-term investment with healthy returns. Those elements are missing and I don’t see that they can come back very quickly and very soon, and in a rate that we would like to anticipate.
In the short run, turbulence and uncertainties continue to dominate global dialogues among governments and private enterprise. In other words, the focus of the dialogue is no longer where the opportunities are, but rather on patching problems. On the monetary policy fronts, major economies from the U.S. to Europe, Japan and even to China have pushed those policies to remain growth aggressively and continuously. Yet, the result has been mixed at best. Zero interest rate policy has lost its luster in promoting growth globally. Particularly to some countries, they seem to breed in that environment and economic growth it’s almost at the fault. As a consequence, tail risk for excessive credit expansion and liquidity increases exponentially. Yet progressive reform and public policy have not been deployed for various reasons, many are social, political, and some actually, the avoidance f public sentiments or the negative public sentiments underneath change.
So many mature economies have stuck in a low growth or near recession conditions. According to IMF in April, the growth for 2016 at the time was projected to be 3.2%. Now if we look back in past 5 years, the projection for global growth every year, shrinking from six something, to five something, to four something. So every time in the July revisions which they can the mid-year revision, the growth rate will be further trimmed down. That’s the condition that I think to a very large extent, I’m beginning to agree with Professor Xu Xiaonian, that macroeconomic is dead. So we are not doing, or we cannot do anything that revive the economies and bring the economic growth back online. So the condition or the trend is not optimistic. And at a glance, I think this is what I would call “the totally dark water” and I don’t know if anyone has a very good answer on this.
Traditionally in the last 20 year or maybe even 30 years, we would see the mature economies and the developing economies grow at a diverging trend. So at the time in the global economy, the mature ones actually have a lower growth, but always the emerging markets and developing economies actually grow at a rather high rate. But at this time the growths actually are converging, so I don’t know how to interpret this. The only conclusion I can draw without going into further academic exercise is that the reason is not economics; the reason is politics and the social sentiments. So the government cannot enable change. So on that note, since global picture is not that blue-sky, and rather cloudy, I think it is to the contrast to the Chinese economy. I notice that, when I talked to economists from China, they are far more pessimistic than I am. And I looked at the growth rate and said what’s wrong with 6 percent, and what’s wrong with 5 percent. I think the premise that we have to have a 6.7 percent growth should not be the goal.
I think the L-shape debate or the W, whatever shape you want to describe, I think at this point, the real question is: can China find the next growth engine? The next growth engine can be as Professor Xu Xiaonian mentioned, can be factor productions. Can we optimize them? Because for many Chinese enterprises, those factors are not a factor of consideration in the past. The government provides strong support and abundant labor. And I do have to emphasize, abundant labor. We have moved 400 million plus people from rural area to urban center. Those are elements that actually in many countries would be priceless resources. But in China, the cost of that is nearly zero in paying them. So just consider that.
China’s next growth engine—empowering the elderly population
Now I am going to migrate to the second topic. You know my answer on the global economy and so Chinese economic growth in the future cannot depend on the external environments, if anything I could imagine that those conditions can be quite challenging, no matter how you look at it. And I just don’t see Europe, Japan and to some extent the U.S can change its public policy to promote stronger growth because those probably would involve with reform, immigration, actually the bottom line is human capital. It’s not about economics, it is about human capital. The social unrest, disfranchising of communities, all those can point back to one thing—opportunity in the future. Those youngsters in Europe particularly the large cohort of immigrants, the second generation cannot see they have the opportunity that their father or their parents envision for them when they moved to those places.
So those will take some time to be addressed, and I am not as pessimistic that those conditions will be permanent but then it would take a lot of political courage to do so. And that’s one thing I think by looking at the Chinese government and what the government has done, that’s one thing that Chinese government has, the courage to go into unchartered water, to make the necessary change to carry growth forward. Although in detail, there is something I am going to share, if I have enough time, on supply-side reform.
But I would like to migrate to the second area on unchartered water-demographics. Often said, demographics are the destiny. So I just mentioned that the Chinese miracle in the past 30 years pretty much is government-fixed investment, infrastructure and urbanization. Urbanization is labor story. So the Chinese, actually, economic miracle is riding on the back of 400m plus migrant workers. And they are workers. They should not be called migrants, but they are workers. Now that is quickly disappearing.
The gloomy picture, if you listen to many macroeconomists, I have to emphasize, macroeconomists. Their projection is we are losing huge block of consumption power, because older people don’t consume that much. If we look at the older population, and if anyone doesn’t know about the size of that aging population, it’s going to be the size of the United States in about 13 years. So if we go by the traditional notion of aging, if we go by that, the public pension, healthcare will be a huge burden that no government can bear. And is China alone? No. China, actually, by far perhaps has the large block of the retired population by 2030 or 2050. But there are other economies, other countries have gone through that dilemma. Many chose not to do anything. I think that takes courage to deal with a lot of retirees and then to revise the pension plan or revise the retirement age. So here’s my propositions, if you will. I would like to challenge you to the traditional notion of aging, turning increasingly larger portion of population into a productive force. Now I use the word “productive force”, I didn’t say workers, I didn’t say cork. That can be many things, or just about anything. That can unleash additional source of consumption, supply of experienced workforce and building stronger community, when society, governments and private enterprises create an environment that is enabling and empowering the elderly population.
Sometime when I visited Beijing, I’d like to go to the square. I looked at pretty much my cohort, I would suspect, ladies in their 50s and their 60s doing dance in the square. To young people, that is an annoyance. To me, I have a mixed feeling. I don’t think I can spend my day dancing happily in the square, but those cohort are. My point is they have excessive energy, and they want to be heard, they can work, they can do a lot of things. They should be a very productive workforce in the society. So the stipulation actually comes with a big picture by me. And so probably you will say, OK, he just dreamt up. I would provide some examples why they can be relevant, and they can be very important in the future of China. One key point in the discussion is how to promote consumptions. I doubt anyone would like to spend a lot of money if they do not have anything else to do. I think if I might have the choice and if I don’t go out to see a lot of people, if I don’t have to deal with you guys, I probably would not shave; I probably would not have my hair cut that often; and I don’t need to buy that many shirts. However, since I have to meet with people, to make discussion and to make my life purposeful. Hence I need to maintain certain standards, I need to consume. So think about these scenarios as such.
There are governments that are very proactive which is Singapore. This has come into some actual case that we can look at it as stipulating and seeking the next growth engine in China without involving external markets, without dealing with a lot of trade politics, and so on and so forth. Singapore government actually 2 or 1 year ago instituted a new policy- that encouraged its retirees to go back to school. (They can) now choose whatever they want to study, and government will provide for the tuition, and hopefully they can find a job or a task that they would like to do. So this is called purposeful. Make the elderly’s life purposeful. If they want to deal with their grandkids, so be it; if they want to be a clerk again, so be it; if they like to dance in the square, also is good. Those are economic and social benefits that I think in the past, in the entire human history, at least in the industrialization age, that we never thought of someone after 60 can be so productive. So today’s technology, today’s work environments are all enabling. It’s up to the governments and all of us, I think more “all of us” than the government to look at the elderly.
So second, this would be the enterprise level as I said government. Oh by the way, the Singapore government also put out a health-care package for the elderly, so to make sure that they are healthy, their life can be purposeful, and they remain active, so to prolong their productive life as long as possible, as fruitful as possible. So going back to another example, is private enterprises-BMW. I think many Chinese like to drive BMW. Can you imagine some components of the car are produced, assembled by workers at 65 years age. And they are as productive, and in often cases, they are producing higher quality than the younger workers, because they have 40 years of experiences, and they don’t need to look at computer sometimes to detect the problem with the components. So this is the BMW experience.
And then I also would like to say the New York, which is a city government, which I think had done so much for the retired communities, the retirees, or the elderly workers. They set up community centers which government didn’t spend too much money. Actually, one of the comments yesterday from one of the speakers on urbanization and city, is commenting on the city governments of the United States. Very often now and then, the city governments are very poor in the Unites States. So they don’t have big budgets such as Shenzhen, Beijing, Shanghai or any other city in China. So the cities actually leverage the city’s culture, meaning say New York as a melting pot, you have a lot of Jewish population, Chinese, Japanese, Asian, whatever, every corner of the world lives in that city. And they actually understand the subtlety in culture and social connection. So they set up a program with very minimum cost to lay the elderly population to church, to community center, and those centers link to the hospitals, so that the elderly’s needs can be taken care of without major cost.
Now those are the three examples that I cite, and hopefully these suggestions actually would come with some new thinking, and maybe we can find a new growth engine.
Thank you!
Perry Wong is the managing director of research at the Milken Institute. He is an expert on regional economics, development and econometric forecasting and specializes in analyzing the structure, industry mix, development and public policies of a regional economy.
Speech delivered at the Global Views and China’s Economy session during the 3rd Dameisha Forum. Opinions expressed here belong to the author and do not necessarily represent the position of SZIDI.
