Xiang Songzuo’s speech was just 25 minutes long. But the comments made by the professor of Renmin University’s School of Finance look certain to remain relevant long after his address is consigned to academic history.
In a far-reaching assessment, he talked about China’s slowing economy, rampant speculation and debt, and the fallout from the trade war with the United States.
“Basically, China’s economy is all built on speculation, and everything is over-leveraged,” the former chief economist of the Agricultural Bank of China, one of the big four lenders, told a seminar at the Renmin Business School at the end of last month.
“China’s economic decline indicates that there is a major issue with the focus on expansion and growth: It has deviated from the fundamental and moved to speculation. These are the words of [the former Governor of the People’s Bank of China] Zhou Xiaochuan,” Xiang continued.
“Starting in 2009, China embarked on this path of no return. The leverage ratio has soared sharply. Our current leverage ratio is three times that of the United States and twice that of Japan. The debt ratio of non-financial companies is the highest in the world, not to mention real estate,” he added.
Moreover, this comes at a time when the economy is experiencing a rapid downturn.
Manufacturing activity has declined, consumer spending has shrunk and new car sales have stalled. A cooling property market has also been squeezed by tighter credit restrictions.
On top of that, the state-run Academy of Information and Communications Technology reported earlier this week that smartphone shipments last year plunged by 15.5%.
In part, this is a byproduct of the trade conflict, with Xiang pointing out that this has changed the landscape of China’s relations with the world’s other major economies, particularly the US.
“We used to speak of ‘China’s period of strategic opportunity for economic growth.’ Does this period of strategic opportunity still exist? Personally, looking at the international situation, I think this period of strategic opportunity is fading quickly,” he said.
“The trade war is in fact no longer a trade war but rather a clash between two opposed value systems. It can be said with certainty that the Sino-US relationship has come to a crossroads and faces significant historic challenges. What are we to do? To be honest, I don’t think we have really found much of a solution,” Xiang, whose comments were translated from Mandarin and appeared in full on the influential China Change website, added.
Resetting that “relationship” was brought into sharp focus on Wednesday when the latest round of trade talks between the world’s two biggest economies finally ended in Beijing.
Signs of optimism triggered a rally in Asian markets and continued after Ted McKinney, the US Undersecretary of Agriculture for Trade and Foreign Agricultural Affairs, told the media it had been a “good few days.”
The mood was also buoyed after comments from China’s Ministry of Foreign Affairs. “A good result will not only benefit both China and the United States [but] is also good news for the world economy,” spokesman Lu Kang said at a media briefing.
The mid-level discussions were the first since US President Donald Trump and China’s head of state Xi Jinping hammered out a 90-day trade war truce at the Group of 20 summit in Buenos Aires last month.
But with initial details sparse, concerns remain about core issues such as intellectual property violations, cyber theft, and Beijing’s state-backed economic model.
A meeting between senior officials, such as Vice-Premier Liu He and US Trade Representative Robert Lighthizer, is widely expected in the second act of this geopolitical power play.
“I am looking for Liu He to go to Washington after this round of talks [but] the timing is actually very critical,” Iris Pang, the China economist at ING Bank, told the South China Morning Post. “If it is immediately after these talks, it really means that something is going to happen.”
Still, as Xiang pointed out, the relationship is now at a “crossroads.” Resolving the dilemma will take more than just three days of discussions or Liu’s trek to Washington.