The two economists are:

GUO Kai, Executive President and Senior Fellow of the CF40. Before joining the CF40, he was an economist at the International Monetary Fund in Washington DC and then worked at the People’s Bank of China in various capacities, including in the Monetary Policy Department and the International Department. His main research areas include the Chinese economy and its macroeconomic policies as well as international finance. He is the author of three popular Chinese economics books and multiple academic papers in various English and Chinese journals. He holds a PhD degree in economics from Harvard University.

ZHU He, Research Fellow at the CF40. With over ten years of experience in macroeconomic research, Zhu He specializes in tracking domestic and international macroeconomic trends and capital market dynamics. He provides unique insights into economic policy and asset allocation strategies and is a key contributor to CF40’s Macroeconomic Policy Quarterly Report, which has gained significant attention from the market and policymakers. He holds a PhD in Economics from the Chinese Academy of Social Sciences and a postdoctoral degree from Peking University.

Founded in 2008, China Finance 40 Forum (CF40) is a leading independent think tank focused on policy research in macroeconomics and finance. Its core membership consists of 40 leading experts from government, financial institutions and academia around the age of 40. In 2021, the CF40 Institute was established to strengthen CF40’s research capacity. In 2024, the CF40 Institute introduced an original research product, CF40 Research, aimed at providing independent insights into China’s macroeconomy, policy trends, financial market dynamics, and global affairs. CF40 Research currently features English product series, including Policy Brief, Commentary, and Podcast.

The following conversation, first aired on a Chinese-language CF40 Research podcast, was published in transcript form on 7 April via the official WeChat blog of CF40 Research.

对话郭凯、朱鹤：中国经济，复苏了吗？

Guo Kai and Zhu He: Is China’s Economy Recovering?

As 2026 begins, sharply divergent views are emerging over how to read the true trajectory of China’s economy. Some point to improving indicators: the CPI and PPI are showing signs of stabilising and edging up, and the RMB has entered an appreciation cycle. Others argue that the property market is still declining, household income growth remains weak, and the foundations of recovery are far from secure. So what is really going on?

In the latest episode of the China Finance 40 Forum (CF40) podcast “WitTalk 研究有意思,” Guo Kai, Executive President of the CF40, and Zhu He, a research fellow at the institute, offered a set of judgments worth taking seriously: China’s economy is likely undergoing a mild recovery following a period of supply-side clearing. It is not a V-shaped rebound, but it may prove fairly sustainable. The deeper implication is that even without large-scale macroeconomic stimulus, China may not be far from emerging from its demand shortfall.

In this episode, the two guests also range widely, discussing fiscal policy, real estate, the oil shock, and the implications of AI.

The following is a lightly edited and abridged transcript of the conversation.

2026 growth target: lower, or more confident?

Host: Let’s start with the figures everyone cares about most. This year’s growth target has been set at 4.5% to 5%, slightly below the “around 5%” target of previous years. But the Government Work Report also adds an unusual phrase: “while striving for better in practice.” That raises a question: does this suggest lower expectations for growth this year, or greater confidence? Zhu He, could you help unpack that?

Zhu He: I actually approach this issue from three perspectives.

First, this year’s target is indeed set as a range. But does that necessarily mean it has been lowered? I don’t think so. To begin with, looking ahead to the 15th Five-Year Plan period, one unavoidable judgment is that China’s growth rate will likely step down somewhat. The central authorities have made it quite clear that the economy cannot maintain high growth indefinitely. So the 4.5% to 5% range may be signalling that future growth will gradually moderate, which is perfectly reasonable.

But second, does that deceleration have to begin this year? Does 2026 have to mark the point at which the target is lowered? I do not think that is necessarily the case.

That brings me to the third point, which relates to the phrase you mentioned: “while striving for better in practice.” In our reading, that wording carries two meanings. On the one hand, it sets a higher bar for policy implementation. On the other, it also reflects greater confidence.

Think back to 2025. At that time, the target was “around 5%”, but it came with the caveat that “Achieving this year’s targets will not be easy, and we must make arduous efforts to meet them”. This year, by contrast, the language is about “striving for better in practice”. That shift in wording itself suggests greater confidence about 2026.

Host: So when you speak of confidence, does that mean that within the 4.5%–5% range, the lower end is more like a floor, while the upper end is the actual target?

Zhu He: I believe the general direction this year is to aim for something close to 5%. The 4.5%–5% range is flexible: if there are all sorts of external shocks, of course the outcome could come in lower. But if things largely unfold as expected, then given the conditions and environment this year, there seems to be no compelling reason to deliberately set a lower growth objective.

Is fiscal policy really not proactive enough?

Host: Alright. So in your view, this is essentially a year of pushing towards 5%. A key test of the government’s resolve, and of the strength of policy support, is whether fiscal policy is forceful enough. Some foreign institutions argue that because this year’s deficit ratio and special sovereign bond targets are basically unchanged from last year, the marginal boost from fiscal policy may be weaker. They also note that the government still seems to be prioritising technology and industry, while support for consumption appears relatively limited. How do you view that argument?

Zhu He: That is indeed a fairly common view. It is broadly correct in describing the direction of fiscal policy: China has long placed considerable emphasis on science, technology, and industry. But it is hard to say that support for consumption has genuinely weakened. Especially when viewed from the broader perspective of fiscal policy, we have done our own calculations, and we do not think the strength of fiscal support in 2026 is materially weaker.

The key issue is this: since 2024, China has budgeted RMB 800 billion a year in special-purpose bonds for local government debt resolution; and since 2025, another RMB 500 billion has been allocated to recapitalise major banks. These sums are all counted as fiscal expenditure and are therefore included in assessments of fiscal support. However, from a research perspective, such spending is not directly comparable to expenditure that immediately boosts domestic demand, such as public wages, investment, or government procurement.

So if one wants to assess the true strength of fiscal policy, some adjustment in the metric is necessary. We think it makes sense to temporarily exclude funds used primarily for structural reform, such as debt resolution and bank recapitalisation. Once you do that, it becomes clear that fiscal support in 2026 is actually quite substantial. By our measure, budget expenditure is set to grow by 6.7% this year, which is a fairly high rate.

Host: Right. Especially given that the corresponding figure was only 1.1% last year, the contrast is quite clear. Guo Kai, what would you add?

Guo Kai: I’d just like to add one point. If you look closely at fiscal policy in recent years, there is another feature worth noting: the budget is one thing; implementation is another.

As Zhu He said, from a budgetary perspective, this year’s fiscal spending in support of domestic demand is not low in our view. It remains fairly proactive. To put it more bluntly, we think the judgment by some foreign institutions that China’s fiscal policy is not proactive enough is simply wrong.

But there is a second issue: the intensity of implementation. Take last year. On paper, fiscal policy was set on a relatively proactive footing. But in actual execution, according to the Ministry of Finance’s own data, only 91% of the expenditure budget was carried out. In other words, there is a great deal for manoeuvre in the implementation of fiscal policy, and this issue has to be viewed dynamically.

If growth performs relatively well this year, then perhaps fiscal implementation does not need to be pushed to the limit. But if the economy underperforms, or weakens for one reason or another, then fully executing the existing budget could still provide meaningful support. So in my view, enough money has already been earmarked. The final intensity of fiscal support will depend on actual conditions, and the outcome should still keep growth within the range of 4.5% to 5%.

Host: Let me push that a bit further with an extreme scenario. People always cite the 2008 RMB 4 trillion stimulus as the benchmark, and argue that unless spending is ramped up on that scale, the stimulus is not big enough. So under what circumstances—a sudden global financial crisis, say, or an extreme form of external decoupling—would it become necessary not just to fully execute the current budget, but actually add to it? Or do you think the current policy reserve is enough to offset such shocks?

Guo Kai: I think a supplementary budget would only be warranted in the event of a truly sudden and obvious shock, potentially one coming from abroad. That is one possible scenario. But under normal circumstances, I do not think there is any need to expand the budget further.

Why say China’s economy has already bottomed out?

Host: I see. And I take it that this also reflects your overall view of China’s economy this year. CF40’s recent research argues that the economy had already show initial signs of stabilisation in 2025, and that 2026 marks the start of recovery after the cycle’s turning point.

That does sound a bit counterintuitive. The macroeconomic data do not seem to tell that story very clearly—GDP started strong last year and weakened later on, while investment growth even turned negative. So how did you arrive at the view that the economy has already bottomed out and begun to recover? What is the evidence?

Zhu He: Let me start with a few examples, mainly at the macro level.

First, we observed that both CPI and PPI began stabilising and edging up at roughly the same time in the second half of last year.

Second, if you look at listed-company data, per capita wage growth slowed step by step in 2022, 2023, and 2024, but that step-down process stopped in 2025. This is not to say wages have suddenly surged, but at the very least they are no longer on a downward path.

Most importantly, when we talk about recovery, we need a clear assessment of its magnitude. Over the past 20 or 30 years, China’s economic cycles have often looked, in hindsight, like classic V-shaped reversals: the economy came under severe pressure, massive policy measures were introduced, and growth bounced back sharply.

That is not the kind of recovery we are talking about now. This time, the recovery doesn’t take off with a sudden surge; it is slower and milder. But it is still backed by fairly solid macro evidence. Beyond inflation and wages, there is also investment, which you just mentioned. We published a report arguing in detail that the decline in investment data last year had diverged from other macro indicators. We said then that if our judgment was correct, investment would rebound noticeably early this year. And that is precisely what has happened.

Guo Kai: I think there are several dimensions to this.

First, you cannot think about the 2025 economy in a vacuum. China was hit by a lot of major negative shocks that year. I will not list them all, but just take the new round of China-U.S. tariff friction: at one point, tariffs went as high as 145%, whereas in the first round of trade tensions in 2018, they peaked at 25%. Those were very large external shocks.

And yet, despite all that, China’s economy did not go through any obvious or rapid cooling. That suggests that the resilience of the Chinese economy is much stronger than it was a few years ago. This is crucial for assessing the current state of the Chinese economy.

Of course, we also conducted a great deal of research. We studied China’s manufacturing cycle. China is a manufacturing powerhouse, but in recent years, PPI had been falling persistently, reflecting problems such as “involution”. As Zhu He mentioned, however, PPI began rising month on month in the second half of last year.

Some have attributed that to “anti-involution” policies or upstream price increases. We do not see it that way. On closer inspection, what seems to have happened is that supply and demand in China’s manufacturing sector have begun to reverse: supply growth is no longer keeping up with demand growth. The rebound in manufacturing PPI reflects improving demand, including not only domestic demand but, importantly, external demand as well. We see that as a very significant signal of improvement.

Then there is the RMB exchange rate. For years it had been under depreciation pressure. That pressure suddenly disappeared after April or May last year, and by the end of 2025, the RMB had entered a fairly strong appreciation process. This shift was driven by millions of households and businesses “voting with their feet.” The RMB is strongly pro-cyclical: it tends to strengthen when the economy is doing well, and weaken when the economy is under strain. If the economy had not stabilised, it would be hard to explain such a rebound in the exchange rate.

So after carefully examining a great deal of evidence and putting it all together, our major conclusion is that after several years of adjustment, the Chinese economy seems to have passed a cyclical turning point and entered a phase of gradual recovery. It will not be a V-shaped rebound, but it does appear to have reached the bottom of the cycle and begun to move higher.

If the macro picture is improving, why does it not feel that way at the micro level?

Host: I can follow the logic, and I find it persuasive. But for many people, the lived experience may feel completely different. A common refrain online is: “Am I being averaged out again?” Why is it that the macro economy appears to be improving, while at the micro level, people do not feel it, or even feel things have become colder? Why is there such a big gap?

Zhu He: Speaking from my own experience, I have just taken advantage of the “trade-in” policy this year to upgrade my phone and laptop. I think the discrepancy between the macroeconomic picture and people’s micro-level perceptions can be viewed from two angles. One is structural, which is exactly the issue you mentioned of being “averaged out”: some people will feel conditions have improved, while others will not.

But the more important issue is the temporal dimension. The recovery we are seeing this time is relatively slow and not especially strong, though it is still a recovery. By contrast, changes in our own wages and daily lives happen gradually. It takes time for macro trends to filter through to individual experience. That lag may not be very long, but given the nature of this recovery, it is unlikely to be especially short either.

So based on my own research, I think there is reason for people to be somewhat more confident. The benefits may not reach each of us tomorrow. But if we look back a few years from now, it may well turn out that by 2026, we had already come through the hardest part.

Guo Kai: I think it is entirely normal that people do not yet feel the recovery at the micro level.

First, as Zhu He said, this recovery is still in a very early stage, and the slope is not especially steep. If your own circumstances have not improved significantly or have even worsened relative to last year, that is a perfectly understandable perception.

Take manufacturing. We think it has begun to enter a slow recovery. But if you break the sector down, only a small number of industries are showing a clearly visible rebound. In most sectors, the recovery is still very weak, and in many sectors, conditions remain extremely difficult. So your personal experience will vary enormously depending on your industry, your region, and your field.

Second, macro recovery unfolds in stages. The effect on people’s incomes and jobs often comes last. What shows up first may be prices: things begin to cost more. Then some firms see an improvement in profits. Then they start expanding investment and hiring. Only after that do they begin to feel able to raise wages and bonuses. That transmission can take several quarters, or even longer.

So it is entirely normal not to feel it yet. If everyone were already feeling it, we would not still be talking about a turning point—we would already be in the middle phase of recovery.

In the end, of course, our judgment will have to be tested against the data. But our current view is that the turning point has passed and we are now in the early stage of recovery.

Emerging from weak demand: not through stimulus, but through clearing

Host: But that brings us back to a contentious issue. If the recovery is this slow, why not use stronger stimulus to accelerate it? Put differently, can this kind of endogenous repair really bring an end to weak demand? Could China emerge from demand deficiency as early as this year?

Guo Kai: This may well be the single biggest point of observation and the biggest source of disagreement among people following China’s macroeconomy this year.

My own answer is yes, it can. The reason is this. One widely held view is that if China is to escape demand deficiency, it must do so through a large Keynesian demand-side stimulus. The thinking is that although macro policy has been reasonably supportive in recent years, it has not been strong enough to lift the economy decisively out of weak demand. Consequently, there is a strong view that, if this remains the case, demand deficiency will persist for a long time. We have now become somewhat sceptical—or shall we say, strongly sceptical—of that view.

We think China may have been going through a fairly classic real-business-cycle adjustment. What does that mean? It means a pronounced process of clearing, including in real estate and in manufacturing. During that process, you see immense downward pressure.

In property, that has shown up in falling house prices, weaker investment, fewer housing starts, and reduced land purchases. This process has already lasted three or four years. In manufacturing, many firms saw profits squeezed sharply, and responded by cutting investment and curbing capacity expansion. That too was part of an adjustment process.

Our judgment is that this clearing process has already passed its turning point. Under those conditions, we believe that even without large-scale stimulus, the economy’s own resilience and endogenous adjustment can generate a recovery. Of course, without the old boost from a rapidly rising property sector or the sharp demand expansion created by massive policy stimulus, the economy will not rebound in a V-shaped fashion. It is more likely to recover in a milder way. But it is still a recovery, and we think it is sustainable.

To put it more succinctly, there are two ways to solve a demand shortfall. One is to leave the supply side untouched and pull up demand through policy—the Keynesian solution, based on the idea that large market failures and frictions require an external policy shock to restart the economy.

The other is to work through deep supply-side adjustment. Once adjustment has gone far enough, investment bottoms out and begins to recover; consumption, having been compressed, begins to rebound as well. In other words, demand can recover as a result of supply-side adjustment. My view is that China has in fact been going through a supply-side adjustment cycle.

Host: If your reading is correct, does that mean there will still be another rate cut this year?

Zhu He: Given the current trajectory of the economy, we think the likelihood of a rate cut is diminishing, at least in the short term. If the recovery continues into the second half of the year and this begins to form a certain concensus, then by that point the rate-cut debate may largely fade away.

As for monetary policy, its main task is to maintain ample liquidity, and the central bank has in fact been doing that for several years. The pace of growth in total social financing has remained broadly acceptable.

Guo Kai: This is actually a very important question. To be frank, even within the CF40 research team there is still disagreement on it. For example, our senior fellow Zhang Bin continues to argue that rate cuts are important for expanding aggregate demand.

But I think there is a difference between what ought to happen and what is likely to happen. Whether rates should be cut is one question. Whether they will be cut is another. If you are asking for a forecast, I think the probability of another rate cut this year is fairly low.

Last year, even in the face of such major external shocks, China cut rates by only 10 basis points. If the economy evolves as we expect this year, the case for another cut weakens substantially. On top of that, the banking system is still under pressure from narrowing net interest margins. The compression in margins was checked somewhat last year, but margins remain very low, so the constraints on further easing are strong.

So whether you look at the cyclical position of the economy or the constraints from banks’ net interest margins, it is hard for me to see another rate cut this year—unless there is a major negative shock.

Where does the property market stand now?

Host: Taken together, both of you sound broadly optimistic about this year’s recovery. Zhang Bin was mentioned earlier, and we’re very much looking forward to having him join us for a discussion next time. But back to the topic at hand. When one talks about China’s economy, there is one subject that always looms large: real estate. Over the past few years it has been a major drag on domestic demand and confidence. Now that the macro economy is improving, where exactly does the property market stand? Zhu He?

Zhu He: This is how I see the property cycle. If we look back at 2025, the market had already changed quite significantly from where it was in 2022–2024.

First, some developers’ debts, especially the off-balance-sheet debt of private developers, had begun to enter a genuine restructuring phase.

Second, the share prices of some Hong Kong-listed property firms had stabilised and in some cases were even rising in tandem with the broader market.

Third, if you look at the housing sales area and inventory area, especially the inventory area, it is quite clear that stock was no longer continuing to build in 2025. From 2022 to 2024, inventory was rising, but in 2025, it was basically flat relative to 2024.

Taken together, these signs suggest that China’s property market had already begun a spontaneous clearing process by 2025 and was moving close to a bottom. We recently published a short property brief titled China’s Real Estate Market in 2026: Moving Towards Stabilisation after the Decline. Our view is that the market has not yet entered recovery, but it has at least moved towards stability. Since 2022, the contraction had been remarkably smooth and persistent. We think there is a fairly high probability that this process comes to an end in 2026. In other words, 2026 looks like a year in which the market settles into a bottoming phase.

Host: Guo Kai, what is your take?

Guo Kai: This is how I see it. There is actually a great deal of disagreement about where the property market stands. Our judgment, as Zhu He has just said, is that this year, it will at least stop falling and stabilise. In other words, prices may still slip a little further this year, but once that happens, the decline should more or less be over. That is our broad assessment.

The most basic reason is that, compared with international experience, China’s property market correction has already been unusually large in both duration and depth. No market falls forever. Once a correction has run its course, it eventually stops.

Second, our view on property is tied to our judgment about the broader economic cycle. Of course, that raises a chicken-and-egg problem. But we are confident about economic recovery, and if the economy is recovering, that itself provides better support for the property market.

Third, even from an asset-pricing perspective, if PPI turns positive this year as we expect, CPI remains in positive territory, and the GDP deflator shifts from negative to positive, then changes in real interest rates should also provide support to housing prices.

So this is not a matter of gazing into a crystal ball and declaring that prices must stabilise. It is simply that when we put all these factors together, it seems more likely that the market will stop falling than continue to slide.

That said, we are not talking about a uniform nationwide stabilisation. China’s housing market is highly differentiated. Many third- and fourth-tier cities may not feel any stabilisation at all, because they still have a large inventory overhang and weaker population and employment fundamentals than first-tier and strong second-tier cities. But in some first-tier and stronger second-tier cities, we do think that stabilisation will become more visible.

Recently, for instance, the second-hand housing markets in Beijing and Shanghai have shown something of a spring pickup. I think that could be a positive sign. Why? Because this year there have been no significant new measures aimed specifically at stimulating property, and macro policy has remained relatively steady rather than highly expansionary. If, in that environment, the market is beginning to show signs of a spontaneous revival, that may suggest that households with rigid demand, or those who have been wavering between buying and renting, are starting, at the margin, to consider buying. That would be a healthy development. Of course, we still need a few more months of observation.

Host: That is a lot to digest. But what you are saying is that property will stop falling this year—in other words, the decline hasn’t stopped yet. But the broader economy has already begun to recover. For more than twenty years, real estate has dominated China’s economic cycle. Does this mean it is no longer the economy’s main pillar?

Zhu He: We previously did a study on this. Since real estate belongs to the service sector, we looked at how the service share of GDP evolves across countries. At least based on our findings, in major economies, real estate is both a pillar industry and a sector that plays an important role in driving the economic cycle.

In China, at least through 2025, real estate has remained a cyclical driver. From 2022 to 2024, was the economic cycle not largely shaped by property? The difference is that if you compare today with the past twenty years, and especially with the 2021 peak, the sector’s weight in the economy has clearly declined. That is an objective fact.

Even so, it remains a pillar industry. And if we take a longer-term view—five or ten years—as long as people’s demand for better housing remains unmet, and as long as the aspiration for a better life continues to include improved living conditions, then property will not become nearly as unimportant as some people now imagine. It simply will no longer occupy the kind of absolute, untouchable dominating position it held over the past decade or two. That era has passed.

Guo Kai: I see it this way. From the perspective of any household, among food, clothing, housing, and transport, the biggest expenditure is still housing. Under almost any set of conditions and in almost any country, housing is likely to be the largest item of household spending. If that is true at the household level, then for the national economy, real estate and related industries cannot possibly be small. They have to remain highly important.

Our own research and what Zhu He mentioned earlier suggest that this round of housing adjustment has gone very deep—so deep, in fact, that it may have overshot to the downside. Over time, it will have to move back towards a more normal level. As long as people aspire to a better life and families continue to want better homes, the spending base will always be there. So I think the property sector will eventually be bigger than it is today, and its position as a pillar industry will not change fundamentally.

The only difference is that the old growth model, which depended on rapid property expansion and property-led investment to sustain growth and drive the economic cycle, will likely undergo a significant shift. In the future, China’s growth is likely to come from a more diversified set of sources: technology investment, the development of other service industries, and stronger consumption. It will be a more diversified model, less dependent on real estate alone. This is actually a healthier development model that we hope to see.

Host: But that needs a bit more clarification. When you say property will “return”, what exactly do you mean? Last year, for instance, property sales were a little over RMB 8 trillion, while in earlier years the market was often described as a RMB 10 trillion market.

Guo Kai: Sales value is a bit more complicated, so let me answer in terms of floor space.

We have done some estimates. Every year, many older homes in China need to be demolished and rebuilt. Many families are restructuring. Younger people marry and have children; older generations age. There is also still a large rural population that will eventually move into cities and buy homes there. Once you take all those basic needs into account, China still needs something like 1 billion square metres of new housing supply a year to meet normal demand arising from depreciation, replacement, life-cycle change, and household restructuring.

Last year, however, new-home sales were only around 700 million square metres, and the area now actually under new construction is well below even that. That clearly does not line up with a steady level consistent with the normal housing needs of 1.4 billion people. So under normal conditions, I would expect building, demolition, renewal, and sales to return to a more reasonable pace.

The service sector as the engine of future growth

Host: I will leave the property discussion there. It is not an easy subject because it touches directly on people’s personal interests, and I think Guo Kai’s candour is no small thing. I won’t summarise the specifics here; those interested can listen to this segment again. But to be clear, CF40’s argument is an academic inference based on international experience and historical data, not investment advice. If you’d like to learn more about the detailed research, you are welcome to download the report from the CF40 app.

Returning to the main point: if real estate remains a pillar sector but is no longer the overwhelming engine of growth, what then are China’s new engines of growth? Zhu He, perhaps you could start.

Zhu He: From an industrial perspective, a modern economy really has two main pillars: manufacturing and services. Agriculture now accounts for only a very small share of output in modern economies.

Last year we did two studies, one on changes in manufacturing, one on changes in services, trying to use the experience of successful developed economies to think about what China’s manufacturing and service sectors should look like in future. The conclusions, I would say, are fairly clear.

China’s manufacturing sector is now genuinely formidable—stronger than we realised. China’s manufacturing output is equal to that of the United States, Germany, and Japan combined, plus several smaller economies. But building such a large and powerful manufacturing sector has also come with some efficiency costs, that is, the service sector has not developed fully over a very long period.

So what does “full development” of services look like? We examined that too. The key question is this: as a country becomes richer, where does demand growth actually come from? Just as Professor Guo said earlier, on a personal level, when incomes rise, do people really just keep buying more phones and more computers? Those are manufactured goods. You might buy more clothes, too, but there are clear limits.

If you look around, especially at younger people, what you find is that where the bulk of spending occurs, and where people are most willing to spend money, is on services—and often on very classic, emerging forms of service. Even tourism now looks relatively traditional. People are spending on concerts, comic cons, and all sorts of newer services. That, we think, is where the future lies.

Of course, in our report, we simply framed this at a broader level and identified several unavoidable areas. First, elderly care. Quite apart from the fact that ageing is already a major reality in China, the current elderly-care industry is still far from providing adequate services. Yet this is perhaps the most standard form of service demand one can imagine.

Closely related to elderly care is healthcare, where there is still enormous room for growth in spending.

Third is real estate, which Guo Kai has just argued may actually have overshot to the downside.

Taken together, all of these belong to the broad service sector. And beyond them, there will probably be more and more new service formats emerging over time. That will create more jobs, especially for young people. These are the sectors and directions that, in our view, can provide sustainable growth momentum for China over the longer term.

Host: Guo Kai, would you add anything?

Guo Kai: I think the framework here is actually very simple. It comes down to “the people’s aspiration for a better life”.

At the earliest stage of development, that aspiration is basically about food and clothing. That corresponds to agriculture, which is why agriculture was the earliest pillar industry and engine of growth. In many developing countries, early growth was driven largely by a green revolution.

Once basic needs are met, demand shifts towards manufactured goods—cars, computers, televisions, what Chinese people once called the “three big-ticket items”. But the demand for those goods has physical limits. You can buy a car, perhaps another car, but only so many cars. You can have a computer at home, one in the office, a laptop—but there is an upper bound.

As incomes continue to rise and living standards improve, demand naturally shifts towards the broad service sector. People want better education for themselves or their children. They want better health. They want care in old age. They want fine music, art, concerts, and emotional fulfilment. All of that is service demand. Even the simple desire to live in a better home is part of the service economy.

So if one thinks in terms of the natural progression of human aspirations, the end point is always service. If services lag behind—if China remains strong only in manufacturing while failing to provide adequate services—then people’s aspiration for a better life is plainly not being fully met.

If you look at the biggest complaints people have about daily life today, they are not about there being too few manufactured products or those products being too expensive. The complaints are about education, healthcare, elderly care, and housing. Demand is already there; supply needs to move to where demand is. From that perspective, the answer can only be the service sector.

There is one more point Zhu He did not mention. There’s another area in China’s service sector with enormous potential: so-called producer services. In other countries, producer services are huge and very profitable. Think of Amazon’s cloud business or the services Google provides to support business operations. In many cases, that is where these firms make the largest share of their money.

In China, by contrast, the profit pool and growth space in this segment are still relatively limited. From a business perspective, producer services can serve both manufacturing firms and service firms, which means they themselves have tremendous growth potential. However you look at it, the new engine ultimately leads back to services.

The oil shock: could it be a blessing in disguise?

Host: Alright, you have clearly outlined the future growth trajectory. And earlier, Guo Kai also shared a deeper insight: that China is going through a slow recovery after supply-side clearing. It certainly sounds like we’re on a healthier path of endogenous growth.

But just as the domestic economy has begun to show tentative signs of improvement, the external environment has become more turbulent again. As we record this episode, the U.S.-Israel conflict with Iran has entered its third week, and international oil prices have risen from $67 a barrel before the conflict to $100. Could these external shocks derail the recovery that is just beginning to emerge?

Zhu He: I think this has to be considered from both the domestic and international sides.

On the one hand, higher oil prices will weigh on global demand because they raise costs across the board. It is a classic cost shock, and China’s external demand could therefore face some pressure.

On the other hand, China’s own energy mix matters. More than half of China’s energy still comes from coal, while crude oil accounts for only about 18% of primary energy consumption. Compared with countries where oil makes up 70% or 80% of primary energy consumption, the same oil shock has a much smaller cost impact on China. As a result, China’s relative advantage actually increases.

You could see something similar after the outbreak of the Russia-Ukraine war in 2022. China’s energy costs became highly competitive, and the sharp increase in exports was not just related to weak domestic demand, but also to China’s relative cost advantage in production.

Therefore, from this perspective, the popular argument that “higher oil prices depress global demand, which in turn hurts Chinese exports” needs to be revised. China’s export market share could actually rise.

Host: But is that relative advantage still there, no matter how high oil prices go? And what about the consumer side, because the rise in retail fuel prices is very real?

Zhu He: I am not saying there is no downside at all. At current prices, China’s domestic retail mechanism already caps refined-product price adjustments at a crude price of $130 a barrel; the floor is $40. In industry, as we said, China relies mainly on coal, with oil making up around 18% of primary energy use. Around 70% of that oil is imported. If we simplify and say crude accounts for 20% of total energy use, and 70% of that is imported, then the direct exposure is roughly 14%. That is the part affected by the first-round price shock.

But if oil prices rise substantially, substitution will also increase. In many sectors, people will switch to alternatives, especially coal. In chemicals, for example, this is why coal-chemicals producers are becoming excited. If petrochemical production becomes more expensive because oil rises, but coal-based inputs remain relatively stable, then China’s coal advantage becomes more valuable. China has no shortage of coal.

Host: And then there is also new energy.

Zhu He: Exactly. This is just our perspective from the standpoint of the energy mix; we’re talking about a dynamic process. If crude prices keep rising, substitution effects will become stronger. And once you factor in new energy, it further dilutes the 14% figure we just calculated. In the end, the actual impact may be below that.

Guo Kai: That is right. You ask whether rising oil prices are a positive or negative development for the global economy and China’s economy. The immediate instinct is to see it as a negative for both the global economy and China. But then the question becomes: how negative, really? Once you analyse it carefully, there are many factors that may greatly limit the damage. In a dynamic sense, it could even become a positive development.

As Zhu He said, among the major economies, China has the lowest reliance on oil: about 18% for oil alone, around 25% for oil and gas combined. So the energy cost shock China faces is smaller than that faced by others.

Look back at 2022. After the Russia-Ukraine war broke out, many industries in Europe became uneconomic because of soaring energy prices. Production shifted to China, and Europe ended up importing more from China. That kind of effect cannot be ignored. It may well happen again, and the longer the episode lasts, the more important those second-order effects could become relative to the direct impact of oil prices.

The second point is new energy. As Zhu He wrote in an article, China’s new-energy sector has already reached a stage where it can sustain its own expansion economically. If oil prices rise sharply and stay high, demand for new-energy products will most certainly increase around the world. That demand may not surge instantly, but over the course of five months or a year, it is bound to rise. That, too, would work in China’s favour.

So I think we need to distinguish clearly between the short-term shock and the medium- to long-term implications. In the short term, China may be among the less affected economies. Over the medium-to-long term, this may turn out to be a blessing in disguise.

Host: So would it be fair to say this: if the war ends within four to six weeks, as Trump has suggested, then the negative impact on China would be limited; but if it drags on for three to five months or longer, China could actually end up in a better relative position than other economies?

Zhu He: First of all, nothing Guo Kai has said should be interpreted crudely as “China wins again”. That is not the point. The basic reality is that it is still very hard to know when Trump wants this to end, or how exactly it will end. It’s all very difficult to predict. All we are saying is that the impact needs to be assessed and analysed within a more comprehensive analytical framework.

Suppose oil prices stay around $100 for one or two years. How should we interpret that? Returning to your most basic question—whether it could derail China’s recovery—our answer at present is fairly clear: most likely it will not. And there are certain mechanisms through which China could even benefit.

The reason is that over the past few years, China’s main economic risk has been low inflation. The economy has been trying to work its way out of that. Think about Japan in 2022 and 2023. One reason it emerged from a long deflationary environment was precisely the outbreak of the Russia-Ukraine conflict, which caused oil and food prices to surge. After the price hikes, the data clearly shows that, while not overnight, but certainly within a few months, the Japanese’s expectations of deflation had reversed. Things that had not risen in price for twenty years suddenly looked as if they might keep getting considerably more expensive.

Of course, China is not in that exact situation. But if the policy challenge is to break low-inflation expectations, then a manageable supply shock that nudges some prices higher can create an interesting dynamic.

Guo Kai: This might be a more macro-level description, and it’s especially counterintuitive. How could higher prices possibly be good? For ordinary households, holding everything else constant, higher prices are obviously not a good thing. But in a macro setting, the mechanism is different.

Suppose the economy is stuck in a low-inflation, low-wage-growth, low-consumption-growth state. It might have been a relatively stable equilibrium. Because prices are low, it does not matter so much that wages are not rising. Because wages are not rising, consumption remains weak. Because consumption remains weak, prices do not rise. It becomes a self-reinforcing cycle with real inertia behind it. That kind of cycle is not easily broken overnight. Sometimes it takes an external force to break it; policy alone may not be enough.

Now, a supply-side-driven price increase is not the most desirable kind of price increase. But it is still an increase. And once prices start to rise, inflation expectations can shift. Once expectations shift, existing interest rates look lower in real terms, the pressure to raise wages can increase, and the whole cycle may begin to break.

If, on top of that, the broader underlying trend in China’s economy is already one of recovery, then the result can be deeply counterintuitive: a shock that initially appears negative may in fact generate a positive macro effect by helping the economy exit the low-inflation loop more quickly.

How should we think about the RMB and gold?

Host: Understood. Aside from oil, there are several other interesting developments in global markets. The dollar is strengthening, yet gold has fallen. The RMB has also remained relatively resilient against other non-dollar currencies, staying below 7 to the dollar. Guo Kai, how do you interpret the logic behind these dynamics?

Guo Kai: The dollar’s behaviour is fairly classic. Historically, it has been a safe-haven asset, especially during geopolitical conflict. When war risk rises, investors tend to feel that holding some dollar-denominated assets is safer, so a stronger dollar is easy to understand.

Gold is a bit puzzling. There are probably a number of market adjustments involved. Many institutions may be rebalancing positions, either taking profits on earlier winners or cutting exposure because of risk concerns. In that process, both long and short positions may be reduced. Since gold had previously been a crowded long trade, its price would naturally come under pressure. There have also been recent rumours that some central banks, including those of Poland and Russia, have begun selling gold, which may also be affecting market moves.

The RMB, I think, is a separate story. After several years of relative weakness, it has begun to strengthen as China’s economy recovers. The currency itself is cyclical, so it has a natural tendency to firm in that environment. And whether one looks at purchasing-power parity or at the size of China’s trade surplus, the RMB appears undervalued. That creates a natural force pulling it back towards fair value, which is also helping to drive its appreciation.

Then there is the impact of the Iran-related tensions. Europe is clearly more exposed than China. Japan is more exposed. South Korea is more exposed. The United States, as a participant, is obviously exposed too. Relative to all of them, China stands out as the one least affected—a very stable choice. In that sense, the RMB has taken on some safe-haven qualities of its own. Several forces are pushing in the same direction, so renminbi appreciation, to me, is both logical and expected.

Host: You mentioned the renminbi’s “safe-haven” qualities in this round. Foreign capital is also increasing its allocation to Chinese assets, and people are talking a lot about a “re-rating” of Chinese assets. How do you see the value proposition and attractiveness of Chinese assets now?

Guo Kai: I think Chinese assets, especially when measured in U.S. dollar terms, are too cheap. The best measure of that is the RMB itself. China’s real effective exchange rate depreciated by around 15% between 2021 and last year. That reflected insufficient confidence in the Chinese economy and geopolitical factors that discouraged some capital from entering China, leaving the RMB significantly undervalued.

Our view now is that as the economic cycle turns, the assets that were dragged down to overly low valuations should begin to return to more normal levels. That process is, by definition, a re-rating. In that sense, RMB assets may still have considerable room to run. Overall, the backdrop for RMB assets remains quite favourable.

When it comes to AI, action beats anxiety

Host: We have discussed the external environment, but there is also a deeper force reshaping the global economy: AI. How do you see AI affecting the macroeconomy?

Guo Kai: To be honest, I do not know. And I suspect nobody really does.

What makes AI so interesting is that its micro-level impact is very obvious. On the one hand, a great deal of work that used to take a long time can now be done much more quickly with AI, which clearly boosts labour productivity. On the other hand, it also means that the same amount of work may no longer require as many people. If firms across the economy start hiring fewer people, that has obvious implications for employment and income.

Wherever AI is already having an effect at the micro level, the impact is striking. But at the macro level, the interesting thing is that the effects are still surprisingly hard to see. Whether for the U.S. or China, the data has yet to show a dramatic surge in productivity or large-scale unemployment.

Take software engineers in the U.S. There are many reports about coders being displaced by AI. But if you look at the employment data, software engineering employment is still rising. One reason is that many firms are also hiring engineers to install, integrate, and run AI systems.

So the micro effects are very visible; the macro effects are much less so.

How should we understand AI’s macro-level impact? People can have different views. My own view is that nobody really knows. It may be one of those historical episodes in the history of humanity with no real precedent. For now, all we can do is keep observing.

What I would say is that economies that can adjust quickly and that have decent social protection are likely to adapt better. Ultimately, this is a question of adjustment. And one thing China does quite well is adjust quickly after a shock. In that sense, China may be relatively well placed to adapt to AI disruption. On that point, I remain fairly confident.

Host: And if we bring this back to each of us as individuals, is there anything either of you would like to share?

Zhu He: Let me answer from my own work experience. Guo Kai just said that an economy needs to adapt. I would go one step further: individuals need to adapt even earlier.

My strongest feeling is that I am trying desperately to keep up with the pace of AI development, and even then, I can only just about stay close. So for listeners, if there is already some part of your work where AI can be applied—and I think that is true of the vast majority of jobs—the earlier you start trying it, the more initiative you retain, and the more quickly you will find your own way of working with AI. At the micro level, it is going to reshape most forms of work.

Guo Kai: Faced with this AI disruption, I think anyone who claims they don’t feel a sense of urgency or anxiety is just lying. I, for one, am extremely anxious.

You suddenly realise that many of the moats you thought you had can disappear overnight. Skills that took years to build—language skills, for instance—can suddenly be outperformed by AI. In other words, a large part of one’s human capital can very quickly be devalued.

So what does one do? I think the only answer is to adapt and learn. One advantage of AI is that it is incredibly easy to get the hang of, provided you are willing to try.

In the end, this wave is going to affect different people very differently. If you are adaptable, willing to learn, and open to change, your anxiety will probably ease a little, and you will still be able to find the areas where you can make a greater contribution, areas that may, in fact, create a great deal of value for you. But if you refuse to change, refuse to learn, and remain rigid, then once the tide of the times comes in, it may be very hard to avoid being swept along by it.

So I think all of us could do with a certain degree of tension, enough to motivate change, but not so much that it paralyses us.

Host: A healthy sense of urgency, but not so much that it prevents action. That is very practical advice.

Listening to both of you, one thing has struck me in particular. Faced with AI, we do have to learn how to use it, to let it help us solve problems and improve efficiency. But there is another point that matters just as much: the more powerful the tools become, the more important it is not to lose our own judgment and capacity for thinking.

Thank you, Guo Kai, and thank you, Zhu He. We have covered a great deal today. The core judgment from both of you is that China’s economy is undergoing a mild but sustainable recovery, driven not by brute-force stimulus, but by internal clearing. The process may not be rapid, but it could turn out to be healthier and more sustainable for that very reason.

Whether that judgment proves correct, and whether China can truly move beyond demand deficiency this year, remains to be seen.

Thanks again to both of you, and thanks to everyone for listening. Economics is not boring; research can be fascinating. See you next time.

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The Iran crisis loomed large in discussions when Sheikh Khaled bin Mohamed bin Zayed Al Nahyan, the crown prince of Abu ‌Dhabi, and Spanish Prime Minister Pedro Sanchez met President Xi Jinping on separate visits to Beijing last week. Both meetings focused on the need for a comprehensive and sustainable security architecture for the Middle East.

This week, on a phone call with Saudi Crown Prince Mohammed bin Salman, Xi reiterated China’s support for an immediate and comprehensive ceasefire and for any disputes to be resolved through diplomacy. China, a long-time peace advocate in global politics, has advanced a four-point proposal for maintaining peace.

The first round of high-level talks between the United States and Iran in Islamabad ended without a breakthrough. It is clear neither side can impose its preferred outcome through sheer force.

The closure of the Strait of Hormuz affects everyone, with delays in its reopening increasing the pain even for those living well outside the conflict zone. This includes China, which sources 49.4 per cent of its crude and refined oil from the Middle East.

Reopening and stabilising this corridor is therefore not only in China’s interest. It would help major Asian importers, reduce pressure on Europe’s energy markets and ease inflationary strain far beyond the region. On this point, de-escalation is not a favour to one side; it is a genuinely shared interest.

Beijing has not stayed on the sidelines during this conflict. Beyond Xi’s meetings with leaders from Spain and the United Arab Emirates, Foreign Minister Wang Yi had made 26 phone calls with counterparts from relevant countries. China’s special envoy on Middle East affairs Zhai Jun has made several stops around the Gulf and the wider region.

Pakistan – China’s “iron brother” and close partner – hosted the US-Iran talks, and on March 31, the Chinese and Pakistani foreign ministers jointly issued a five-point initiative calling for a continued ceasefire, dialogue, protection of civilians, protection of civilian and commercial maritime navigation and a greater role for the United Nations in restoring peace and stability.

Beijing is positioned to support the process not as a power seeking to dictate terms, but as a participant with working ties across several camps and a strong interest in regional stability. In addition to China hosting the China-Arab States Summit this year and its continuing multilateral engagement through the China-Arab States Cooperation Forum, China and Pakistan have an all-weather strategic cooperative partnership rooted in friendship and mutual trust. With Iran, China has a strategic partnership and deep commercial ties.

However, China’s role should not be overstated. Beijing is not in a position to guarantee a final settlement in the military sense. What it can do is help create political conditions in which a settlement becomes easier to sustain: by supporting talks, by backing a broader multilateral framework, by mobilising reconstruction and trade-based incentives, and by giving all sides confidence that diplomacy will not simply collapse the moment pressure eases. That is a different model from the Western habit of equating influence with force projection.

There is precedent for taking that possibility seriously. China was the broker of the 2023 Saudi-Iran rapprochement, and today it remains a major economic partner for both Iran and the Gulf economies.

The wider lesson is that crises of this kind are increasingly exposing the limits of unilateral diplomacy. No single actor, including the US, can simply impose lasting order on a conflict of this complexity. Stabilisation now depends on coordination among major powers, regional actors and diplomatic intermediaries. If China’s diplomacy, working in parallel with Pakistan and alongside others, helps preserve a pathway back to talks, that will be another reminder that durable order now depends less on unilateral dominance than on negotiated, plural forms of coordination.

China’s assistance with the Iran crisis could provide a template for other contemporary conflicts where a single side cannot carry the day. In Russia’s invasion of Ukraine, the problem has long ceased to be how to convert battlefield momentum into victory. It is now how to convert stalemate into negotiation.

If the Islamabad process gains traction, even slowly, it will show that diplomacy backed by leverage, guarantees and reconstruction-minded statecraft still has room to operate in a fractured world.

In Iran, the logic of further negotiation is stronger than the logic of indefinite escalation. China has more reason than most to help ensure the process does not fail. In a crisis where force has proved costly and incomplete, the more important question is not who can dominate the battlefield but who can help hold together a path to settlement.

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CCG Update - Center for China and Globalization

Zichen in Foreign Policy: China Won’t Play Security Patron for Iran

Zichen Wang, deputy secretary-general of the Center for China and Globalization (CCG), published the following analysis in Foreign Policy on Friday, March 6, 2026…

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2 months ago · 16 likes · 4 comments · CCG Update

It is, in fact, an undergraduate admissions event: prospective high school applicants and their parents are allowed onto campus so they can speak with current students and faculty. Even on this exceptionally generous occasion, however, the university’s official notice makes clear what “open” means in practice: students and parents must enter on foot by swiping their government-issued ID documents, admission is limited to a single entry, and students must also bring their student IDs—provided, of course, that they were fortunate enough to secure a reservation at one of four designated times before all the slots vanished.

In other words, the annual “Open Day” does not so much demonstrate openness as commemorate its absence. It serves as a polite yearly reminder that Peking University, like Tsinghua University, remains closed to the general Chinese public.

This is now four years after the end of the COVID-19 pandemic. Yet the country’s two most prestigious universities—both overwhelmingly funded by taxpayer money—continue to cling stubbornly to the closed-campus habits of the Covid era, as though ordinary citizens wandering through a university quad posed an intolerable institutional threat.

There was, to be fair, a burst of public criticism in 2023. Chinese media voices called on these universities to reopen their gates and stop treating the public as an intrusive force from which higher learning must be protected.

Below are two such examples, one by Hu Xijin, a Chinese opinion leader and former editor-in-chief of the Global Times, and the other an editorial from Banyuetan/China. Commentary, a magazine published by Xinhua, China’s state news agency.

The calls changed little at PKU and THU. And so the spectacle continues: universities financed by the public, celebrated as national treasures, and invoked endlessly in the language of service to society remain, in practice, walled off from the society that pays for them.

大学的校门该打开了

University Gates Should Be Opened

by Hu Xijin on December 17, 2023

I strongly agree with Peking University Associate Professor Li Zhi’s call to open Peking University’s gates. It really is time for a change. Leading elite universities such as Peking University and Tsinghua University should take the lead in ending the rules requiring outside visitors to make reservations and even insiders to use facial recognition to enter.

People say that abolishing the reservation and identity-check system for entering campuses would affect school security, disrupt teaching order, and so on. But all of these are thoughts produced by a way of thinking that has become overly accustomed to control. One very simple fact is that before 2008, Peking University was open to everyone, and many schools allowed people to come and go freely for even longer. The requirement for outsiders to make reservations to enter campus was, for the most part, only added during the pandemic period. In past years, Old Hu often went to major universities in Beijing to give lectures and attend meetings. He could simply drive in by himself, and when leaving, all he had to do was pay the parking fee. Before the pandemic, I had never had the experience of making a reservation to enter a university. Back then, nothing particularly serious happened on campuses, and teaching was not disrupted either. So why have all these worries now suddenly appeared?

There is only one reason: controls have gradually increased over the years. Originally, a given measure was introduced for a specific situation, but after that situation passed, some of the added control measures could not be removed and instead became normalized. For example, the reservation system became widespread during the COVID pandemic. Now that the pandemic is over, all the control measures from that time should have been cancelled and things restored to how they were before the pandemic, but many institutions have kept the reservation system in place. In the past, ordinary employees at many state-owned institutions did not need to report when leaving their place of residence, but that reporting requirement began during the pandemic and has continued to this day. These are clearly inertial leftovers from the mentality of heavy control during the pandemic.

There are undoubtedly more security measures in society today than there were a few years ago. Back then, the rampancy of cult activity, the surge of violent terrorist activity in Xinjiang, and the COVID pandemic can be seen as the three major reasons pushing up security measures. But today, those three reasons have basically been removed, and from the perspective of the broader cycle, our public security situation has clearly been improving. Logically speaking, even if security and various control measures do not decrease, they should at least remain broadly stable; there absolutely should not be a trend of “becoming stricter and stricter.”

The gates of universities being controlled this tightly simply makes no sense, no matter how one looks at it. An environment like this implants in students an abnormal basic understanding of what security standards should be. They come to feel that a university is supposed to look like this: gates closed, facial recognition required to enter, relatives and friends needing reservations to visit. But schools were never supposed to be like this. Not only are universities around the world almost all open, our own universities were also open not long ago. Controlling campus gates was only the result of a special period and special circumstances. Once that period passed, the situation should have returned to normal, rather than turning closed campus gates into the new normal from then on.

Last week, Beijing Foreign Studies University, my graduate alma mater, announced the cancellation of its reservation system. Anyone can now enter the campus simply by presenting an ID card. This is a step forward toward fully opening university gates. Schools such as Peking University and Tsinghua University have a demonstrative significance for the whole country. I believe they should all the more set a good example in opening up their campuses.

Our society as a whole is safe, and universities are as well. Some of the sense of insecurity and anxiety comes from the fact that, as control measures have gradually increased, we have become dependent on those measures, and we ourselves have grown more fragile. If this trend continues, we will forever feel that things are not safe enough and that even more control measures are needed. That would be a vicious cycle. We practice a socialist market economy; there must be a necessary degree of social looseness under the constitutional order led by the Party, and free entry and exit at universities should be among the most basic standards of that looseness. Once campuses are open, whatever problems arise can be dealt with as they come. We must not, out of fear of possible problems, block off campuses one after another. Seeking safety through blockage must never become our habitual logic, nor should it become an option.

Back when campuses were all open, we got through things just fine. Now, in the name of safety and teaching order, universities are closing their gates. Universities ought to ask themselves: who exactly are they trying to guard against, what exactly are they guarding against, and is it really necessary? Do not use closed university gates to tell teachers, students, and the public that Chinese society today is less safe than it was more than ten years ago, or even less safe than it was three or four years ago, and that students today are more afraid of disturbance than students used to be. That is not the case, is it?

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大学校门，该打开了

University Gates Should Be Opened

Editorial by 半月谈 Banyuetan/China Commentary, a biweekly under Xinhua News Agency

September 20, 2023

With the autumn semester now beginning, the question of whether university campuses should be fully opened has drawn widespread public attention. Some universities have already announced that they will fully open their gates, but some others are still extending campus management policies adopted during the pandemic period. Although they have gradually relaxed restrictions on the “small gates” used by faculty and students, the “main gate” to the general public remains firmly shut, which is quite regrettable.

During the COVID-19 pandemic, it was understandable that universities across the country, out of concern for the health and safety of faculty and students, adopted the expedient measure of comprehensively restricting entry to and exit from campuses. But today, all walks of life have already returned to the normal state that existed before the pandemic. Cinemas, museums, tourist attractions and the like are once again teeming with crowds. Yet universities, which have always been expected to lead social trends, are still clinging to the expedient measure of closed gates when it comes to openness. That is inevitably disappointing.

The harms caused by keeping university gates fully closed to the public are obvious. Since the end of the pandemic, some alumni (or parents) returning to their alma maters to obtain transcripts or handle administrative matters have gone through great difficulty just trying to get through the gates. The difficulty of entering university campuses also affects free and smooth exchanges among scholars. More importantly, this sweeping, one-size-fits-all practice of closing campuses off isolates universities from society. It not only weakens the basic functions of higher education institutions in serving society, transmitting culture, and leading innovation, but also runs counter to the public’s broad expectation of experiencing the humanistic environment of universities, and goes against the university’s very genetic makeup of openness and inclusiveness.

Some argue that closed management can, on the one hand, improve the efficiency of school administration and reduce the likelihood of students encountering danger; and on the other hand, strengthen campus security, prevent wrongdoers from entering campus, and avoid disruptions to normal teaching order. Such views may appear self-consistent, but in substance they are the product of a lazy-governance mindset.

Before the pandemic, universities generally practiced an open-campus policy. At that time, the public could freely enter and leave universities, and nearby residents could freely go to campuses to take walks or play ball games. People were accustomed to this, and very few took a negative view of it. To be sure, fully opening campuses would certainly make campus management more difficult. But university administrators should have a sense of responsibility: they should use their minds and find ways to solve new problems, rather than simply relying on security guards to keep the public outside the gates.

Openness and inclusiveness are an indispensable part of the spirit of the university. As a public resource, the university campus is not only an important place for social learning, exchange, and cultural transmission, but also an important foundation for cultivating high-quality talent and promoting social progress. Therefore, opening university campuses to the public is of great significance. China’s Ministry of Education once issued a document stating: “Openness is a basic educational philosophy that universities ought to have.” A glance through the mottos of many universities shows recurring key phrases such as “embracing all rivers” and “inclusiveness and broad-mindedness.” Recently, an official from the Guangdong Provincial Department of Education publicly stated: “Universities should of course be open; schools cannot rely on being closed.” This statement was widely praised by the public and reflected the mainstream voice of society.

Universities have never been isolated, closed “ivory towers”; openness is part of their inborn character. Looking back at history, university campuses across China and abroad, in both ancient and modern times, have all had a tradition of openness. Openness has not brought more risks or trouble to schools; on the contrary, it has made them a beautiful calling card for their cities. History and present reality have repeatedly shown that openness is a win-win choice and the very source of the enduring vitality and charm of universities.

To let the greatness of universities merge into the greatness of society is a blessing for society as a whole. In any city, places where universities are clustered are often places with a higher cultural quality and better social order, and it is widely recognized that universities help drive regional economic development. A city with universities is often filled with youthful vitality, while universities gain a broader arena in which to play their role because of the city. In some cities, universities have already become local architectural and cultural landmarks. People travel from far away, drawn by admiration for universities and renowned teachers, simply to catch a glimpse of them and receive a kind of cultural baptism. Historically, among Peking University’s “auditing students” emerged such distinguished cultural figures as Qu Qiubai, Shen Congwen, and Ding Ling. In recent years, there have also been occasional cases of campus security guards striving upward and gaining admission to prestigious universities. Whenever such news appears, it inspires more people to strengthen themselves and move courageously toward a better vision.

Recently, Harbin Institute of Technology announced that it has decided to fully open its campus. Visitors do not need to make reservations, there is no limit on visitor numbers, and no institution or individual will be charged any fee for visiting. This has set a good example and established a model for other universities.

A new academic year should bring a new atmosphere. One hopes that more universities will open their campuses and open their arms, reactivating the genes of openness and inclusiveness. Openness and inclusiveness should not exist only in university mottos; they should be reflected in action as well.

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There, Zhu inscribed sixteen characters for Focus Report (焦点访谈）, the prime-time program that aired nightly: “media oversight, the voice of the masses, a mirror for the government, a vanguard of reform.” (舆论监督，群众喉舌，政府镜鉴，改革尖兵)

Zhu was not a man given to calligraphy for ceremony’s sake. He made an exception because, like countless Chinese viewers at the time, he was a loyal watcher of Focus Report, a program that had earned extraordinary public acclaim through its relentless exposure of official abuses and social wrongs.

He went further still, saying: “Focus Report, through its powerful impact, has won the support of the people across the country. Media oversight points out the problems on our path forward, reflects the sufferings of the masses, gives encouragement to the broad public, and lets the people see hope. Therefore, officials at all levels and all sectors of society should support media oversight.”

A few nights ago, for one fleeting evening, Focus Report seemed somehow to remember what it once was. No one is holding their breath for the next such moment of lucidity. But on April 14, 2026, this is what it broadcast.

In Junan County, Linyi City, Shandong Province, there is a project called the “Modern Agriculture Public Training Base,” with a total investment of more than 700 million yuan. Media reports once said that the project was “expected to serve 17,000 person-times annually,” that it would “make every effort to build a training base integrating agricultural varieties, technology, and services,” and that it was a “large-scale agricultural training base” capable of “simultaneously meeting the conference, training, dining, and lodging needs of more than 1,000 people.” Yet after this key project, once entrusted with great expectations, was completed, did it in fact fulfill its intended purpose? And was the huge investment really spent where it mattered most? Our reporters conducted an on-the-ground investigation.

Junan County is an agriculture-oriented county under Linyi City, Shandong Province. In the northern part of the county seat, a striking cluster of buildings covering nearly 140 mu and with a total floor area of more than 90,000 square meters stands out conspicuously.

According to official documents, this is the “Junan County Modern Agriculture Public Training Base Construction Project,” with a total investment of more than 700 million yuan. It was meant to make every effort to build a training base integrating agricultural varieties, technology, and services. However, when reporters entered the complex, what they saw was far removed from “agricultural training.”

The Modern Agriculture Public Training Base that Junan County built at a cost of more than 700 million yuan, judging from its project name and planning, should have been a place dedicated to modern agricultural training and the cultivation of agricultural skilled personnel.

But after investigating the site for several days, reporters found an auditorium

a hotel

apartments, small gardens,

a gym,

and even leisure and entertainment facilities such as a card room.

What they could not find was a single venue or piece of equipment related to planting, breeding, or agricultural machinery training. The only thing on the site that had anything to do with agriculture was a small signboard.

On the complex’s core buildings, signs reading “Qiushi Building” (Building for Seeking Truth); “Qiuzhen Building” (Building for Seeking Authenticity); “Yingbin Building” (Guest Reception Building); and “Yanbin Building” (Banquet Building) were large and unmistakable

standing in sharp contrast to the inconspicuous little sign by the side gate.

inside Yanbin Building (Banquet Building), reporters also noticed large private dining rooms that could accommodate more than 20 people at the same time.

There were many other settings here as well, all of which appeared completely unrelated to agricultural training.

Why, then, did an agricultural training base built with an investment of more than 700 million yuan not actually end up being used for agricultural training after completion?

Reporters reviewed the project filing documents, which clearly stated that the construction content should consist of three major training bases—agricultural technology, agricultural machinery training, and planting and breeding—along with related supporting facilities. Yet at the planning stage, all of these training bases and related supporting facilities were renamed, becoming entirely different from what appeared in the filing documents.

In the feasibility study report, the project clearly specified that it would mainly build training facilities, training support facilities, and business and technical facilities, including an underground breeding base. But none of these items appeared in the final plan; instead, additional construction content such as a hotel and a conference center was added. Why was there such a major discrepancy between the construction content in the filing documents and the planning and design? The construction side said that the final plan had been determined after multiple rounds of deliberation.

It is not hard to see that such planning and design were in fact intentional on the part of the county. The project, though called an agricultural training base, was planned to have an annual training capacity of as many as 17,000 person-times. But how much actual demand for agriculture-related training has there been in Junan County over the past two years?

Wang Shouhai, member of the Party leadership group of the Agriculture and Rural Affairs Bureau of Junan County, Shandong Province: “Based on what I learned earlier, for our annual vegetable and fruit training courses, including strawberry and blueberry training courses, plus aquaculture training courses, the total is only a little over a thousand trainees a year. A classroom that can hold more than 100 people would be enough.”

On one side was the actual demand of only around a thousand trainees per year; on the other, a grand project costing more than 700 million yuan and benchmarked against training tens of thousands of people. The construction scale far exceeded the county’s real agricultural training needs. According to materials provided by the local authorities, in the nearly two years since the base was completed, its training records show only 10 agriculture-related training sessions.

This means that if the project had only been built as a genuine agricultural training base, a large amount of space would have remained idle after completion. That is why, after round after round of deliberation, county leaders ultimately planned additional construction content such as a hotel and conference center.

Even more concerning than the “distortion” of the buildings’ functions is the source of the enormous funding and the associated risks. It is understood that of the project’s total investment of more than 700 million yuan, 368 million yuan came from government special-purpose bonds. Special-purpose bonds are issued for public welfare projects with a certain level of revenue generation and are supposed to be repaid with the project’s own income. In this project, those special-purpose bonds were all meant to be used for constructing agriculture-related training bases. As early as September 2023, the Junan County Finance Bureau had commissioned a third-party company to produce a performance evaluation report specifically for this project. The report clearly recorded problems such as “the use of part of the special bond funds not conforming to the contents of the feasibility study.”

Zhao Feng, deputy director of the Finance Bureau of Junan County, Shandong Province: “We followed up on it later, but because all of the project funds had already been invested into project construction, and construction had proceeded according to the earlier planning and design, no major adjustments were made.”

Although the performance evaluation report pointed out that the three agricultural bases originally intended for construction had not been built and that the use of special bond funds did not conform to the feasibility study, the special bond funds were not effectively supervised or adjusted and were still used in this project.

Zhao Feng: “According to the normal workflow for fiscal performance evaluation, once problems are found through performance evaluation, the finance department should immediately carry out rectification and verification, and then come up with a rectification plan. But at the time, this project was considered to have undergone only minor changes, so major rectification was not deemed necessary.”

Can a transformation from an agricultural training base into a comprehensive office building, expert apartments, a conference center, and other such buildings really be considered only a minor change? And what problems would result from the failure to rectify it in time? The performance evaluation report also mentioned that projects financed by government special-purpose bonds must rely on their own revenues for repayment.

According to the project’s original plan, it had been intended to cooperate with a local agricultural school in Linyi, with annual revenue expected to exceed 80 million yuan. In reality, however, the school’s total annual student tuition income was only a little over 10 million yuan. This huge numerical gap made the project’s basis for approval appear exceptionally fragile. After the project was completed, cooperation with the Linyi agricultural school was also shelved.

Zhao Feng: “Looking at it now, the project’s revenue has indeed deviated somewhat from the original idealized projections. The design at the beginning was idealized; there was no stress-tested design, including with regard to revenue.”

Such a massive construction project deviated seriously from reality in its planning and design, the use of special-purpose bonds, and revenue projections alike. Yet over the two years from project approval and the feasibility study report through planning, construction, and acceptance, it was completed smoothly under the “supervision” of all the relevant departments.

Zhao Feng: “Later, with regard to the project managing unit and the operating unit, namely the Finance and Economics Group, we have already issued written notices concerning this project’s low utilization rate and insufficient revenue, requiring them to quickly find ways to realize project income.”

In order to avoid idleness and generate revenue, two training buildings were rented out to the county Party School, and the original three student apartment buildings were leased externally to a hotel. Apart from a handful of agriculture-related training programs, the more than 90,000 square meters of space has been split up for a variety of different uses.

Because there has been very little agriculture-related training, the two “expert apartment” buildings within the complex have also been left idle. After considerable effort, reporters obtained several lease contracts. The contracts show that some of the apartments had been rented out to the Office of the People’s Government of Junan County.

Today, many spaces in this massive complex still remain vacant. The project’s own revenue has fallen far short of expectations, yet the 368 million yuan in special bond funds still requires the payment of more than 10 million yuan in annual interest, creating a heavy financial burden.

Pei Jiansuo, deputy dean and professor at the School of Applied Economics, Renmin University of China: “Local governments must clearly recognize that debt should not be used lightly; it has a cost. If funds are allocated, say, to a training base, but in the end the actual use is not for a training base, that means a large amount of capital has been tied up there, and ultimately the rate of return is not high. Good projects are in urgent need of resources and funding, but if bad projects occupy those resources, that creates a situation in which bad money drives out good, resulting in a misallocation of resources and a loss in the efficiency of capital.”

From what was promoted as a benchmark for agricultural training to what has in reality become a vast building complex with an ambiguous positioning and difficult operations, the gap embodied by this project exposes prominent problems in some places’ major investment decisions: emphasizing project approval while neglecting actual results, inadequate scientific demonstration, and the absence of supervision throughout the entire process. People’s livelihood projects should be people-centered, and funding should seek real results. Planning divorced from reality and execution lacking oversight cause not only enormous waste of resources, but also aggravate local debt risks and overdraw the government’s credibility. Spending money where it matters most and getting things done in ways that truly reach the hearts of the people—this is the proper underlying character of any people’s livelihood project, and it is also the bottom line of duty performance that governments at all levels must uphold.

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On KMT Chair Cheng Li-wun’s recent visit to the Chinese mainland, some commentary has moved beyond interpretation into claims that the available record does not support.

Brian Hioe, a commentator, recently titled his analysis in his co-founded New Bloom on Cheng Li-wun’s visit to the Chinese mainland as Cheng Li-Wun Redefines 1992 Consensus, Calls for United Front Against Independence in Xi Meeting, where Hioe argued (all emphasis below are ours)

Before Cheng’s meeting with Xi, Cheng had already made a major policy address in Nanjing, at Sun Yat-Sen’s Mausoleum. Notably, Cheng advocated commitment to the 1992 Consensus, but this was framed as “One Country, Oppose Taiwanese independence” rather than “One China, respective interpretations.”

Cheng’s shift in her framing of the 1992 Consensus was rapidly noted by analysts in Taiwan. During the comments by Xi Jinping that did, in fact, occur in full view of the media, Xi echoed this framing.

…To this end, Cheng called for the establishment of an institutionalized mechanism for cross-strait exchanges, on the basis of the 1992 Consensus and One China Principle…

As such, it is possible that, with Xi echoing her language on the 1992 Consensus being “One China, Oppose Taiwan Independence,” Cheng has accomplished what previous KMT leaders failed to do. Namely, if such language continues to be used, Cheng may have successfully redefined the 1992 Consensus.

Hioe repeated those assertions several days later in a piece in The Diplomat

Cheng’s comments at the Sun Yat-Sen Mausoleum were also notable because of how she framed the 1992 Consensus. The 1992 Consensus has historically been referred to as the consensus that there is “One China,” with “different interpretations” of that “One China” between the ROC and PRC. In past years, the CCP has been criticized for dropping the “different interpretations” aspect of the 1992 Consensus, to only emphasize “One China.”

Cheng, however, phrased the 1992 Consensus as “One China, oppose Taiwanese independence.”…

Cheng’s meeting with Xi mostly took place behind closed doors. Media heard Xi’s opening remarks – which included framing the 1992 Consensus as “One China, oppose Taiwanese independence”

The problem is Hioe’s central factual claim about what Cheng actually said is not supported by the public record.

On Cheng’s speech at the Sun Yat-Sen Mausoleum in Nanjing, we published the full transcript based on a full videotape and the KMT’s transcript of Cheng’s speech. Not once did “One Country, Oppose Taiwanese independence,” as Hioe alleged in his co-founded New Bloom, or “One China, oppose Taiwanese independence,” as Hioe alleged in The Diplomat, come up in her speech.

In other words, Cheng did not say “One Country, Oppose Taiwanese independence” or “One China, oppose Taiwanese independence” at the Sun Yat-Sen Mausoleum in Nanjing.

On the 1992 Consensus, what she said in Beijing to Xi was, according to the KMT-provided transcript, which hasn’t been disputed:

在堅持九二共識、反對臺獨的共同政治基礎上

On the shared political foundation of adhering to the 1992 Consensus and opposing Taiwan independence

She later went on to explain the content of the 1992 Consensus in full terms:

1992年兩岸雙方授權機構達成各自以口頭聲明方式表達堅持一個中國原則的共識，同時求同存異，成為兩岸協商與聯繫機制的政治基礎。

In 1992, the authorised bodies of both sides reached a consensus that each side would respectively express verbally its adherence to the one-China principle, while seeking common ground and setting aside differences. This became the political foundation for cross-Strait consultation and communication mechanisms.

She also noted:

臺灣曾在九二共識的基礎上，以適當方式參與世界衛生大會、國際民航組織大會，但是得而復失。

On the basis of the 1992 Consensus, Taiwan once participated, in an appropriate capacity, in the World Health Assembly and the International Civil Aviation Organization Assembly, only to lose that opportunity later.

Xi Jinping also did not frame “the 1992 Consensus as ‘One China, oppose Taiwanese independence’,” as Hioe alleged. Xi said, as live video showed [2:24:44-2:24:58]

我们愿在坚守九二共识、反对台独的共同政治基础上

We are willing, on the common political foundation of upholding the 1992 Consensus and opposing Taiwan independence

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In the German Marshall Fund of the United States (GMF)’s latest Global China Podcast, Bonnie S. Glaser and Amanda Hsiao, director in Eurasia Group's China practice, had this exchange in a chapter called “Shifting Positions on the 1992 Consensus”

Bonnie S. Glaser

So I’m going to ask you about the 1992 Consensus because I think there’s an interesting, maybe, debate that’s emerging among experts in the immediate aftermath of this meeting.

So, of course, during Ma Ying-jeou’s period in power, the 1992 Consensus was often referred to as “一中各表 One China, respective interpretations”, meaning we Taiwan will call our One China the Republic of China, and the other side is going to call One China the People’s Republic of China. But we just won’t emphasize our differences. We will just say “respective interpretations.”

And Cheng Li-wun, in her definition that she gave to Xi Jinping that was quoted in the public part of the meeting, she quoted, I believe, the definition of the 1992 Consensus that was actually given in 1992, long before the phrase “1992 Consensus” existed. But the understanding that she referred to did not use the phrase “respective interpretations.” It just says “One China.”

Some people are saying that Cheng Li-wun is trying to change the 1992 Consensus to mean “One China and opposition to Taiwan independence.” So she’s not talking about “respective interpretations.” She is emphasizing “One China”, and she may be saying “One China, Opposition to Taiwan Independence,” and not really tying this to either the Republic of China or its constitution.

So do you think that she has this intention, and was this signal sent during the visit?

Amanda Hsiao

I don’t know what Cheng Li-wun’s intentions are or her definition of the 1992 Consensus and whether it deviates from that of her party’s. What I did notice was that in her press conference following the meeting, she said that she reiterated the full content of the 1992 Consensus and she explained very clearly during the talks with Xi what that content was.

Of course, the problem here is that the two sides of the Strait have never—or rather, the KMT and Beijing—have never fully agreed on the exact content of the 1992 Consensus. And so, I do think there is some risk to leaving that to ambiguity.

I don’t think it’s surprising that she didn’t say the words “一中各表” [Zichen’s note: One China, respective interpretations] in this meeting. I highly doubt that the Chinese would have accepted the meeting if she had said it. And I sense that much of the speeches and the engagements were highly coordinated. One had this sense of extreme alignment, let’s say, in messaging, right? So there was a sort of carefulness in how both sides spoke about the more sensitive issues. So I’m not surprised she didn’t say that exact phrase.

This exchange is more nuanced than Hioe’s, in our view baseless, summary. But, with all due respect to Glaser and Hsiao, it’s still highly misleading.

As I have recorded above, the KMT-provided transcript showed Cheng saying

1992年兩岸雙方授權機構達成各自以口頭聲明方式表達堅持一個中國原則的共識，同時求同存異，成為兩岸協商與聯繫機制的政治基礎。

In 1992, the authorised bodies of both sides reached a consensus that each side would respectively express verbally its adherence to the one-China principle, while seeking common ground and setting aside differences. This became the political foundation for cross-Strait consultation and communication mechanisms.

Contrary to what Glaser and Hsiao characterized, Cheng did not just say “One China.” Her 各自 respective(ly) is right there. Importantly, Cheng’s wording 求同存異 seeking common ground and setting aside differences means there are differences between the two sides’ respective adherence to the one-China principle.

Hsiao’s assertion “I highly doubt that the Chinese would have accepted the meeting if she had said it” is hence simply wrong.

Hsiao was correct in observing Cheng, in her televised press briefing after meeting Xi, “said that she reiterated the full content of the 1992 Consensus and she explained very clearly during the talks with Xi what that content was.”

A truly rigorous tea leaves reading into Cheng’s public, if not proud, announcement would require me to circle back to one correct sentence Hioe wrote

the Chinese government has increasingly dropped the “Respective Interpretations” aspect of the 1992 Consensus, to only refer to “One China”–what is also known as the “One China Principle.”

So, in fact, Cheng Li-wun not only made no concession on the 1992 Consensus; she defended the KMT’s own formulation of it directly to Xi Jinping, clearly and to his face.

That is, in no small part, why I bothered to write this piece. Instead of backing down, Cheng succeeded in fostering a friendly atmosphere and then, at the very heart of cross-Strait relations, reaffirmed the KMT’s version of the 1992 Consensus—even though the party, after a decade out of power, holds few cards.

She is a hell of a politician.

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Hioe also alleged in his co-founded New Bloom piece

Cheng denied having shifted the contents of the 1992 Consensus from “One Country, Respective Interpretations” to “One Country, Oppose Taiwanese Independence”, suggesting that “enemies of peace” were distorting her words. Cheng went on to state that “Taiwan will lose nothing” in adhering to “One China, oppose Taiwanese Independence.”

Cheng’s words were, as reflected in the KMT press release, available in English in our transcript

關鍵其實很簡單，就是「九二共識、反對台獨」；台灣不必犧牲任何事情，也不必放棄任何事情，就有機會重新開啟交流對話。

It is simply this: the 1992 Consensus and opposition to Taiwan independence. Taiwan has sacrificed nothing, Taiwan has given up nothing

So Hioe himself distorted Cheng’s words.

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Well, since I’ve already offended people tonight, I might as well add one more to the list: The Long Handshake: Xi’s Quiet Grip on Taiwan’s Soul, the latest WSJ China newsletter

The last time a leader from this camp sat across from Xi, back in 2015, the vibe was one of cautious parity—a meeting of equals held on the neutral turf of a Singapore hotel. Back then, Xi and the KMT leader, Ma Ying-jeou, even swapped their official titles for a simple, mutual “Mister” to maintain the appearance of balance.

A decade later, the power balance has changed as much as the scenery.

Cheng’s trip had every look of a pilgrimage to the imperial heart of Beijing. There were no neutral hotels or balanced protocols this time. Instead, Cheng was received beneath the high, gilded ceilings of the Great Hall, framed by the rigid hierarchy of the Chinese state.

The last time a leader from KMT meeting Xi was not in 2015. It was 2016 between then KMT chair Hung Hsiu-chu and Xi.

When Ma Ying-jeou met Xi Jinping in Singapore in 2015, then KMT leader was Eric Li-luan Chu, who never met Xi.

The meeting between Ma and Xi took place in Singapore with under the title of “Mister” was because at the time Ma’s official title was the President of the Republic of China, and Xi was the President of the People’s Republic of China. They were not there as the respective top leaders of their respective political parties.

This time, Cheng and Xi were meeting as party leaders.

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Lastly, let’s get back to the 1992 Consensus that Cheng said to Xi

1992年兩岸雙方授權機構達成各自以口頭聲明方式表達堅持一個中國原則的共識，同時求同存異

In 1992, the authorised bodies of both sides reached a consensus that each side would respectively express verbally its adherence to the one-China principle, while seeking common ground and setting aside differences.

Many people do not actually understand what “seeking common ground while setting aside differences” means in this context. It is often treated as a vague and generic slogan, as if it simply meant being flexible or agreeing to disagree. But here it has a much more concrete and substantive meaning.

The “common ground” is that both sides adhere to one China. The “differences” are over what exactly “one China” means. In other words, the phrase points to a very specific political arrangement: affirming a shared one-China position while leaving the two sides’ differing interpretations unresolved.

Zhang Ronggong, a former KMT vice chairman, offered a clear explanation after accompanying Cheng to Beijing:

It was always about seeking common ground while setting aside differences. When the 1992 Consensus was reached, it was Taiwan that proactively offered this formulation to the mainland: “Both sides of the Strait adhere to the one-China principle, but they differ in their understanding and interpretation of what ‘one China’ means.” That was our own proposal. That is precisely what it means to seek common ground while setting aside differences.

The “common ground” is the “one-China principle”; the “differences” concern the meaning of “one China.” We then set those differences aside.

If Taiwan rejects the common ground and keeps wrangling over the differences, then cross-Strait relations become a matter of political confrontation. That is exactly the situation we are in now. That is why the Kuomintang must step forward to help avert a crisis in the Taiwan Strait.

The East is Read

Full text: Cheng Li-wun's speech at the Sun Yat-sen Mausoleum in Nanjing

Cheng Li-wun, chair of Taiwan’s opposition Kuomintang (KMT), visited the Sun Yat-sen Mausoleum in Nanjing on Wednesday, retracing a stop made on Lien Chan’s landmark 2005 “Journey of Peace” and using the occasion to pledge cross-strait reconciliation and peace as part of Sun Yat-sen’s unfinished mission…

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21 days ago · 12 likes · Yuxuan JIA

The East is Read

Full Transcript of Xi Jinping and Cheng Li-wun's Remarks and Cheng's Press Conference

Xi Jinping, general secretary of the Communist Party of China (CPC) Central Committee, met Kuomintang Chair Cheng Li-wun in Beijing on Friday, the first meeting in a decade between the leaders of the two parties, with both sides centring their public message on peace across the Taiwan Strait…

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19 days ago · 20 likes · 1 comment · Yuxuan JIA

The victory, with a commanding 3.685-second lead, quickly went viral across Chinese social media. Soon, Zhang’s achievement was highlighted in interviews with Xinhua News Agency, the state news agency, and the China Media Group, the state broadcaster.

Zhang’s win was all the more remarkable against his humble background. Born in rural Hunan and without formal engineering training or even a secondary school education, Zhang developed his skills in motorcycle repair shops, defying conventional pathways to success.

In many ways, Zhang’s journey highlights a larger issue within China’s academic and industrial sectors, argued a recently viral article on Chinese social media.

The commentary, published on the WeChat blog Dream on 5 April 2026, draws on a comparison between the author’s doctoral supervisor, who made many “breakthroughs” on motorcycle engines within China’s academic research ecosystem, yet never been able to produce a commercially successful product, while Zhang, who, despite lacking formal academic credentials, managed to create a championship-winning motorcycle.

The article emphasises how China’s academic system, with its focus on publication and grant metrics, sidelines the gritty, exhausting trial-and-error process essential for real-world innovation. The fear of failure, which can derail academic careers, discourages risk-taking and experimentation. As a result, while academic institutions excel at producing theoretical breakthroughs, they often fail to translate those ideas into marketable technologies.

The larger question the commentary raises is: how can China bridge the gap between its academic research and practical innovation? If China wants to compete globally, it must support creators like Zhang—individuals who are not bound by the constraints of institutions but are driven by the desire to create something real and lasting.

By 13 April, the original post had been viewed more than 100,000 times, not including the many reposts across other WeChat blogs. The author of the article is anonymous.

—Yuxuan Jia

我的博导也是干摩托车发动机的，他为什么没干出来

My doctoral supervisor also works on motorcycle engines. Why has he never made one that could win?

When Zhang Xue’s bike won at Superbike World Championship (WSBK), my phone got carpet-bombed from two directions at once: the academic world and the industrial world.

One person shared the championship headline with the caption, “A grassroots comeback story.” Another forwarded an analysis of Zhejiang Venture Capital leading a 90 million yuan Series A and sighed, “So state capital has finally put its glasses on.”

Then someone DMed me: “Isn’t your doctoral supervisor also in motorcycle engines? How come he never made anything like this happen?”

Ouch. That hurt.

My supervisor is a doctoral adviser in internal combustion engines at one of China’s elite 985 universities. A professor. A State Council special allowance expert. Principal investigator on major national projects. Papers piled high. Patents in the dozens. He studies things so microscopic that he can give you thirty pages on the turbulent combustion mechanism inside a cylinder.

And yet after thirty years of this, never mind a world title, he has not even produced a genuinely decent Chinese motorcycle engine.

Meanwhile, Zhang Xue, who did not even finish secondary school and started out repairing bikes, managed in a few short years to shove a Chinese motorcycle onto the top of the world.

So what exactly is the missing ingredient here? Is it really a PhD diploma?

I. Why the professor’s engine lives forever in PowerPoint

Let me start with a true story.

While I was doing my doctorate, my supervisor took on an industry-funded project from a major original equipment manufacturer (OEM) to develop a 350cc twin-cylinder engine. The budget was several million yuan, and the morale was sky-high. We ran combustion simulations in ANSYS, performance optimisation in GT-Power, produced hundreds of CAD drawings, and wrote more than 10,000 pages of technical reports.

A year later, the project was wrapped up. The review panel loved it. “Internationally advanced in theoretical level.” “Technically sound and feasible.”

And then?

Nothing.

The drawings went to sleep on a hard drive. The reports were tucked away in a cabinet. That engine was never built, never mind fitted into a bike, road-tested, or let loose anywhere near a racetrack.

Why?

Because between the drawing and actual prototype lies a swamp of tooling, casting, machining, heat treatment, assembly, dyno runs, and on and on. Every step costs money. Every step needs people. Every step needs suppliers. Universities are not set up for that, while companies regard the risk as too high. When the project money runs out, the whole thing quietly expires.

In the university valuation system, “built it” does not count as an achievement. “Published it” does. So who is going to waste precious time on grubby little things like prototyping and tooling?

My supervisor used to tell us, “We do scientific research, not products. Our job is to explore mechanisms, not build engines.”

Fair enough. But after thirty years of “exploring mechanisms”, may I gently ask how, exactly, not a single usable engine has ever materialised?

Zhang Xue does not have this distinction between “research” and “product”. He wants an engine that runs and wins. If he cannot build it, he cannot sleep. If the supply chain is weak, he goes and fixes it. If the moulds are too expensive, he finds a way to pay for them anyway. If the dyno run fails, he tears it apart and starts again.

To him, an engine is not a symbol in a paper. It is a lump of metal that has to be touched, tuned, tightened, and made to work.

II. The university’s “good student trap”

My supervisor is not uncommon. In fact, among Chinese university teams working on engines, the number that can genuinely turn out a real product is vanishingly small.

The reasons are complicated, but the heart of it is simple: universities and industry are playing two completely different games of evaluation.

In academia, your worth is measured in papers, grants, prizes, and titles. The more cutting-edge, theoretical, and “esoteric” your work appears, the easier it is to publish in top journals, win funding, and climb the ladder. Whether the thing can actually be used, whether it works well, whether anyone would pay for it— that’s not important.

In industry, there is one test: can the thing you make perform, can it win, can it make money?

My supervisor has spent his whole life playing the first game, and he has been very successful. But his success is academic success, not product success.

Zhang Xue, from the start, was never invited into the first game. He had to play the second. And yet the second is the one that produces real value.

This is not to say academic research is meaningless. Genuine theoretical breakthroughs matter, of course. The question is: how much university research actually amounts to a real theoretical breakthrough, and how much is produced for the sole purpose of generating yet another paper?

My supervisor’s research area is “spray combustion mechanisms in direct-injection engines”. Very frontier. Very publishable. But the fuel he studies is iso-octane, not real petrol. The injector is a custom-built, idealised unit, not a mass-produced component. The combustion chamber is a simplified, optically accessible model for visualisation, not a real cylinder head.

In other words, it is nowhere near a real engine.

And that, ironically, is precisely why this kind of research—far from reality and close to publication—does so well in winning grants and producing SCI papers.

So who is left to do the filthy, exhausting, long-cycle, hard-to-publish work of real engine development?

III. Writing grant proposals and building machines are two different species of talent

My supervisor has another strength: he is magnificent at writing project applications.

National Natural Science Foundation of China, key R&D programmes, the 863 programme, the 973 programme—whatever the funding scheme, he writes proposals like a concert pianist. The technical roadmap is elegant. The innovation points are crisply extracted. The expected outcomes glitter like New Year decorations.

The reviewers take one look and think: solid foundation, clear thinking, strong innovation, give him the money.

Then the project gets done, and the actual output often trails the original proposal by several orders of magnitude.

This is not just his problem. It is practically endemic in academia. “Proposal-writing” has become a craft in its own right, with only a passing acquaintance with the actual business of doing research. One could even argue that the more gorgeous the proposal looks, the more one should brace for disappointment.

Zhang Xue cannot write proposals. He has never even written an undergraduate dissertation. But he can build machines.

He can assemble an engine blindfolded. He can hear a glitch and tell you where the problem is. He can run a few laps and know exactly what needs tuning. He can spend three days and nights in a supplier’s workshop just to shave a part tolerance down from 0.05 mm to 0.02 mm.

My supervisor cannot do those things. More to the point, he doesn’t want to.

In the academic reward system, being good at building machines counts for nothing. You do not make professor by improving machining accuracy by 0.01 mm. You get promoted by publishing an SCI paper with an impact factor of 3.

So the people who really can build machines either go into companies or start their own businesses. The people who stay at universities are the ones who can write the proposals.

And that creates a tragic mismatch: universities are full of people who are excellent at writing proposals, funded by the state to study problems ever farther removed from real demand, while the practical problems that actually need solving are left untouched because no one wants to and is not equipped to tackle them.

IV. In universities, trial and error is a luxury item

Zhang Xue’s success was built on a mountain of failure.

He got pushed around by investors. He borrowed money to make payroll. Prototype tests blew up. Bikes crashed on the track. Every failure could have wiped him out. He took the blow, got up, and kept going.

That loop of trial, learning, and iteration is an essential part of engineering innovation.

But in academia, trial and error is a luxury item.

For one thing, grant-funded projects do not really tolerate failure. Foundation money comes with budgets, timelines, milestones, and inspection targets. If you spend it on trial and error and then arrive at the review deadline with nothing to show, that does not go down well.

For another, academia does not really let you fail either. You need a steady stream of papers, a constant round of grant applications, and the continuous accumulation of academic reputation. One major failure can leave you limping for years.

So university researchers naturally choose low-risk, high-output topics, use mature methods, make tiny tweaks, and publish safe papers. The genuinely high-risk, high-return breakthroughs are left alone because almost no one can afford to touch them.

Zhang Xue does not carry that burden. He does not need papers. He does not need grants. He does not need promotion reviews. He just needs to build an engine that wins. If it fails, it fails. He tries again.

Having nothing to lose turns out to be just the thing breakthrough innovation needs.

V. The industrial chain’s little “vacuum zone”

At this point, someone may ask: if universities cannot do real machine development, why do companies not step in?

That leads to one of the deeper structural problems in Chinese manufacturing: the vacuum in the middle of the industrial chain.

Take motorcycle engines. Between basic research and mass production, there is a huge engineering gulf. Universities do the research. Companies do the mass production. But who translates the research into an engineering solution that can be mass-produced?

In other countries, that role is often taken by engineering development firms or by central research institutes inside large companies. They do not handle mass production directly, nor do they engage in pure basic research. Instead, they focus on the engineering work of getting from principle to prototype.

But in China, such institutions are extremely rare. Large firms want short-term returns and have little appetite for long-cycle engineering development. Universities cannot do real machine work. Start-ups have the drive, but not the resources.

Zhang Xue is, in essence, a sort of engineering developer. He took existing technical principles and, through endless engineering tests and iteration, turned them into an engine that can run and win.

But there are too few people like that. And they often do not get the support they deserve.

My supervisor once tried engineering development. He assembled a team and wanted to turn a lab prototype into an engineering prototype that could be mass-produced. Yet halfway through, they realised the cost was far beyond what was expected. Tooling would cost millions. Dyno runs would cost millions. Road testing would cost millions more. The university would not pay. The company would not invest. So the project died.

My supervisor sighed and said, “Forget it. Better to write proposals.”

And so the prototype reverted to several papers preserved in a laboratory.

VI. The institutional question: who pays for the Zhang Xues?

Zhang Xue succeeded because he ran into Focus Capital and Zhejiang Venture Capital Group.

One was willing to put in 20 million yuan at the angel stage. The other led a 90 million yuan Series A. And Zhejiang Venture Capital, despite being state-backed, astonishingly did not impose any requirement to reinvest locally. They let him stay in Chongqing instead of forcing him to move to Zhejiang.

That is extremely rare.

Most capital will not back a hard-tech founder who did not finish secondary school, will not back a company showing losses on paper, and will not back a technical route that takes five years to validate.

Later, one of Zhejiang Venture Capital’s investment managers said they invested because they saw his obsession with technology and his determination to make it succeed.

But this kind of investing that comes down to backing the person depends heavily on the judgment and courage of individual investors. It cannot be systematised or scaled.

What is needed is a system that gives the Zhang Xues of the world some soil to grow in.

That does not mean every grassroots founder should be handed 90 million yuan. It means the evaluation system, the financing system, and the support system should be able to recognise people and firms that are “not highly credentialled but startlingly capable”, “currently loss-making but hugely promising”, or “working on a non-consensus path that is nonetheless the right one”.

At the moment, the system plainly does not do this. Before Zhang Xue won the championship, Chongqing had not given him “a single cent”. He had to borrow money to pay his staff.

Meanwhile, doctoral supervisors collect millions in public funding every year to work on “advanced technologies” that will never be used in the real world.

Isn’t this ridiculous?

VII. Coda: the professor’s awkward moment

My supervisor also watched the news of Zhang Xue’s championship that day.

He was silent for a long time. Then he said, “That kid is the real deal.”

I asked him, “Professor, do you regret it? If you had not stayed in academia, if you had gone into industry instead, could it have been different?”

He cut me off. “Regret what? I’m suited to writing proposals. If you asked me to do tooling, run supply chains, and argue with suppliers, I couldn’t do it. Everyone has their lot in life.”

It was honest and clear-eyed. But there was bitterness in it, too.

It is not that he did not want to make something real. It is that he could not.

Because the system does not let him. The evaluation system does not reward it. Capital does not trust that he can do it.

Zhang Xue made it happen not because he is necessarily cleverer than my doctoral supervisor, or because he worked harder, but because he happened to occupy one of the few positions from which such a thing was possible: outside the system, free of academic assessment pressure, nothing to lose, and lucky enough to meet investors who understood him.

But China cannot keep relying on the luck of the occasional Zhang Xue.

What is needed is a system in which every capable “Zhang Xue”, regardless of education, regardless of whether they are inside the establishment or outside it, has a real chance to build something that works.

That means reforming the evaluation system so that actually solving problems is valued more than publishing actual papers. It means opening financing channels so that “non-consensus innovation” can get support. It means rebuilding the university-industry ecosystem so that academic theory and factory-floor practice truly align.

Otherwise, the next Zhang Xue may still be in some repair shop, unnoticed.

And supervisors like mine will go on writing proposals, publishing papers, and sighing at PowerPoint decks.

Engines do not spin up on their own. They need people willing to get their hands dirty.

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But that is not how Washington, many of America’s partners, or, admittedly, many people in Taiwan see it. They see the drills as rehearsals for coercion or invasion. In that view, the greatest threat to peace in the Taiwan Strait is the mainland itself: a rapidly growing and increasingly sophisticated military power that may be losing patience with the status quo.

That fear has, over the past few years, come to crystallise around one number: 2027. The number traces back most famously to Adm. Philip Davidson’s March 2021 testimony before the U.S. Senate Armed Services Committee, when he warned that the threat over Taiwan could become manifest “in the next six years.”

More recently, a Foreign Affairs essay argued that something had changed in Beijing’s thinking in 2025: this time, China not only speaks more insistently about “reunification,” but may also believe that a window of opportunity has opened that may not come again.

I have long been sceptical of that line of argument. As I wrote in Foreign Policy this week,

In a closed-door workshop in Hawaii in March on U.S.-China relations, an American participant asked a question that has now surfaced repeatedly in Washington: Does the war with Iran increase the risk that China will use force against Taiwan?

The question reflects a familiar assumption: China is a tactical predator, waiting for a moment of U.S. distraction to strike. But that view misreads how Beijing frames the Taiwan issue. Beijing is not looking for an opportunity to use force, as Peking University professor Jie Dalei and I responded at the workshop. It is looking for every possible way to not to have to use it.

A sharp reminder of that logic is the ongoing visit to the mainland by Cheng Li-wun—the chair of the Kuomintang (KMT), the opposition and largest single party in Taiwan’s legislature, from April 7 to April 12 at the invitation of Chinese President Xi Jinping and the Chinese Communist Party Central Committee. If she meets directly with Xi, which is likely, it will be the first meeting in a decade between the leaders of the KMT and the Chinese Communist Party.

Xi Jinping’s meeting in Beijing today with Cheng Li-wun further strengthened my view, and undercuts the argument — now common in Washington and beyond — that the mainland is essentially growing too impatient to wait on Taiwan.

Today’s meeting was widely covered around the world. But the real news, at least to me, has not yet been spelled out:

Beijing is not rushing reunification

In his televised opening remarks, Xi told Cheng

Today’s world is far from tranquil, and peace is all the more precious. Compatriots on both sides of the Strait are all Chinese, members of one family. To seek peace, development, exchanges, and cooperation is the shared aspiration. The meeting between the leaders of our two parties today is precisely to safeguard the peace and security of our common home, advance the peaceful development of cross-Strait relations, and enable future generations to share in a better future.

This matters. In one of the most politically significant cross-Strait meetings in years, Xi did not publicly frame the encounter as an occasion to press the KMT toward endorsing a timetable for unification. He framed it as an effort to preserve peace and keep relations moving in a peaceful direction.

In the same televised opening remarks, Xi also said

The KMT and the Communist Party should consolidate political mutual trust, maintain positive interactions, unite compatriots on both sides of the strait, and work hand in hand to create a bright future of national reunification and national rejuvenation.

国共两党要巩固政治互信，保持良性互动，团结两岸同胞，携手共创祖国统一、民族复兴的美好未来。

Reunification is indeed mentioned here. But especially to anyone whose native language is Chinese, the meaning is not hard to grasp. What is being described is a future horizon with no defined timetable. It is a vision, not a deadline.

After her talks and lunch with Xi, Cheng said at a televised press conference, according to the KMT’s own news release:

Chair Cheng relayed General Secretary Xi Jinping’s remarks in the closed-door meeting as saying that real differences do exist across the Strait, and that those differences have deep historical roots. They cannot be resolved overnight. They must be approached with patience, perseverance, and the spirit of Yu Gong moving mountains and Jingwei filling the sea — just as “three feet of ice does not form in a single day.” So long as both sides can achieve a meeting of minds, then things should be talked through calmly, matters should be discussed more, and indeed everything is open to discussion.

鄭主席轉述習近平總書記在閉門會議中的談話表示，兩岸之間確實存在歧異，且有其長久歷史形成背景，不可能一蹴可幾，要透過耐心、恆心，「愚公移山、精衛填海」的精神面對，正如「冰凍三尺非一日之寒」。只要大家有共同的心靈契合，「有話好好說、有事多商量，而且也一切都好商量」。

There was also this Q&A, according to our transcript of Cheng’s televised press conference

NBC

Thank you, Madam Chairwoman. When we spoke recently, you said that this trip was about seeking reconciliation with the Mainland as the best way forward for Taiwan. Having made this trip and having met with President Xi, would you now say that you share his goal of unification for Taiwan? Is that the way forward?

Cheng Li-wun

I think that, throughout today’s talks, what was truly highlighted and valued was the sense of kinship that comes from belonging to the Chinese nation. As I mentioned just now, in his remarks, General Secretary Xi in fact recognised and respected Taiwan’s different way of life and system, and also hoped that this would be reciprocal—that Taiwan, too, would respect and acknowledge the Mainland’s development achievements. He also specifically mentioned that he hopes there will be no conflict across the Strait, and that in future both sides, as one family, can engage in more exchanges and grow closer to one another.

……

I think that, on this point, General Secretary Xi and I were both very pragmatic, and hope to proceed step by step, just as I said earlier. At the very outset, General Secretary Xi in fact said that although social systems and political propositions may differ, our common ancestors and the bloodline of the nation cannot be severed; differences in social systems should not be used as an excuse for division.

So I believe this was a very major expression of goodwill. We face pragmatically the many differences that have arisen over the course of the long historical development of cross-Strait relations. But Taiwan’s achievements today and the Mainland’s achievements today are both great and remarkable achievements of the Chinese nation. We can appreciate one another, respect one another, and even learn from one another. In the future, there are even greater opportunities for cooperation, so that the achievements both sides have already attained may be expanded further, to benefit not only both sides of the Strait but also humanity.

So, in answer to your question, we hope to consolidate and strengthen a peaceful and stable relationship. On that basis, we should handle matters one by one and move forward steadily, step by step. Thank you.

That is not the language of compressed political time. It is the language of patience.

This point matters because one of the most common arguments in Washington is that Beijing must feel increasing pressure to act sooner rather than later, since public opinion in Taiwan is unlikely to move in a more mainland-friendly direction over time.

I disputed the assertion in Foreign Policy just ahead of today’s meeting

As Beijing sees it, it can afford to be strategically patient and hope for peaceful reunification because it has sufficient strength to outlast the independence movement and the DPP (Democratic People’s Party)

Today, Xi does not seem to be speaking like a leader who believes time is running out.

In his televised remarks, Xi said

At present, changes unseen in a century are accelerating across the world. Yet no matter how the international landscape or the situation in the Taiwan Strait may evolve, the overarching direction of human development and progress will not change, the prevailing trend toward the great rejuvenation of the Chinese nation will not change, and the great tide of compatriots on both sides of the Strait becoming closer, more connected, and coming together will not change. This is the verdict of history, and we are fully confident of it.

According to Beijing’s official readout, Xi also said

We are firmly convinced that more and more Taiwan compatriots will come to understand the Mainland’s social system and development path more accurately, and to recognise more deeply that Taiwan’s future prospects lie in a strong motherland, and that the interests and well-being of Taiwan compatriots are tied to the great rejuvenation of the Chinese nation.

Overall, Beijing’s own political messaging, even at a time of heightened external anxiety, remains anchored less in impatience than in long-term confidence.

Today’s most important signal was that Beijing is still not talking like a side that believes it must seize Taiwan soon. It is talking like a side that recognises that cross-Strait differences are real, historically rooted, and not something that can be resolved all at once. Beijing still seems to believe that history is moving in its direction, that time is not yet its enemy, and that the preferred path remains peace, exchange, and step-by-step movement approached with patience and persistence.

At a moment when much of the world sees Taiwan as one of the most dangerous flashpoints on earth, and some even believe war could break out before long, the fact that Cheng Li-wun’s trip has helped facilitate such a signal is, in my view, already a contribution of immense significance.

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The East is Read

Full Transcript of Xi Jinping and Cheng Li-wun's Remarks and Cheng's Press Conference

Xi Jinping, general secretary of the Communist Party of China (CPC) Central Committee, met Kuomintang Chair Cheng Li-wun in Beijing on Friday, the first meeting in a decade between the leaders of the two parties, with both sides centring their public message on peace across the Taiwan Strait…

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17 days ago · 8 likes · Yuxuan JIA

CCG Update - Center for China and Globalization

Zichen in Foreign Policy: Beijing Prefers Peace to Force on Taiwan

Beijing Prefers Peace to Force on Taiwan…

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19 days ago · 13 likes · 1 comment · CCG Update

The East is Read

Full text: Cheng Li-wun's speech at the Sun Yat-sen Mausoleum in Nanjing

Cheng Li-wun, chair of Taiwan’s opposition Kuomintang (KMT), visited the Sun Yat-sen Mausoleum in Nanjing on Wednesday, retracing a stop made on Lien Chan’s landmark 2005 “Journey of Peace” and using the occasion to pledge cross-strait reconciliation and peace as part of Sun Yat-sen’s unfinished mission…

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20 days ago · 10 likes · Yuxuan JIA

The East is Read

Full text: Cheng Li-wun’s speech at Nanjing welcome banquet

Cheng Li-wun, chair of Taiwan’s opposition Kuomintang (KMT), arrived in the Chinese mainland on Tuesday, leading a party delegation after accepting an invitation from Xi Jinping, general secretary of the Communist Party of China (CPC) Central Committee, in the first visit by a sitting KMT chair to the mainland in a…

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20 days ago · 18 likes · 1 comment · Yuxuan JIA

The East is Read

Transcript: Cheng Li-wun embraces Beijing trip

Beijing announced this morning that Xi Jinping had invited Cheng Li-wun, leader of Taiwan’s opposition Kuomintang (KMT), to visit the Chinese mainland with a party delegation from April 7 to 12…

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a month ago · 10 likes · 1 comment · Yuxuan JIA

Rather than a simple institutional retreat, Zhou argues that this shift reflects a broader transformation in global governance: as great-power politics intensify, key decisions are increasingly made outside multilateral institutions, leaving them to provide financing rather than set the rules.

Zhou Yongmei is now Professor of Practice in Institutional Development at the Institute of South–South Cooperation and Development (ISSCAD) and the National School of Development (NSD), Peking University, a role she has held since 2020. She received her PhD in economics from the University of California, Berkeley, in 1999, specialising in new institutional and development economics. From 1999 to 2020, she worked at the World Bank, advising leaders in Africa and South Asia, managing the Fragility, Conflict and Violence Group, and co-directing the 2017 World Development Report.

The article was published on Zhou’s personal WeChat blog on 17 March 2026.

Zhou has kindly authorised, reviewed, and revised the translation.

从“守门人”到“转账员”：世界银行在战后重建中的角色转变

From “gatekeeper” to “handler of funds”: the World Bank’s shifting role in post-war reconstruction

Recently, World Bank President Ajay Banga accepted an invitation to join the “Board of Peace” initiated by Donald Trump. The body has been controversial from the outset: Trump serves as its lifetime chair, his son-in-law holds key roles in both the Board and the Executive Board, and the entry fee for members can reach as high as $1 billion.

Consider a simple thought experiment: if China were to lead the creation of a similar body, with its leader serving as lifetime chair, relatives occupying key positions, and the Asian Infrastructure Investment Bank invited to create a financing platform for post-war reconstruction, how would international opinion respond? One can reasonably expect immediate outcry over political alignment, nepotism, and the erosion of the independence of multilateral institutions.

Yet when the same arrangement is led by Trump, it is accepted by more than twenty countries. Even the World Bank—my former employer—has been drawn into it. Such double standards are, unfortunately, hardly new in international politics.

There are also small but telling signs of unease within the Bank over the President’s decision to join the Board of Peace. In normal circumstances, an appointment to a body presented as central to peacebuilding and reconstruction would warrant a formal announcement. Yet the Bank has not even issued a press release. An international development institution that once prided itself on neutrality has, in recent years, appeared increasingly responsive to the preferences of its largest shareholder, the United States. Boardroom debate and staff concerns have done little to arrest this broader drift towards politicisation.

Nor is the Bank the only institution placed in an awkward position. The UN Security Council, effectively sidelined by Trump’s Board of Peace, nonetheless adopted Resolution 2803 in November 2025 by 13 votes to none, with two abstentions, approving a U.S.-backed “Comprehensive Plan to End the Gaza Conflict”. That resolution provided formal international authorisation for the Board to assume responsibilities for post-war governance and reconstruction in Gaza.

The World Bank has since established a Financial Intermediary Fund for Gaza reconstruction and development. Yet the announcement appeared only on the regional webpage for the West Bank and Gaza. That deliberately low-profile handling reflects, in part, the Bank’s discomfort and the internal debate.

Under the Gaza Reconstruction and Development Fund, the Bank’s role is explicitly confined to that of a limited trustee. In practice, this means receiving donor contributions and transferring funds to the Board of Peace. Project design, contract allocation, implementation, and oversight all lie within the remit of the Board of Peace, not the World Bank.

What is particularly striking is that, although President Banga is an Executive Committee member of the Board of Peace, the World Bank has repeatedly stressed on its website that it does not participate in the Board’s decision-making and bears no responsibility for implementation or supervision. This careful insistence on boundaries appears designed to establish an institutional firewall: once funds leave the World Bank account, responsibility for how projects are run, contracts are awarded, and money is used no longer rests with the Bank.

The “gatekeeper” role of the World Bank that I knew

For decades, post-war reconstruction was typically led by multilateral institutions. The United Nations provided political legitimacy, governments and donors supplied financing, and the World Bank—sometimes alongside UN agencies—offered professional management.

The Bank’s role in reconstruction was never simply to finance projects or transfer money. Its more important function was to ensure that funds were used professionally and transparently in complex political environments. In post-conflict countries, absent strong institutional safeguards, reconstruction finance can easily become a political resource rather than a public one. That is why the Bank’s role was, in a very real sense, that of an institutional gatekeeper. It was responsible for a full suite of governance functions, including project appraisal, procurement review, financial management, implementation supervision, regular audits, and disclosure.

During the reconstruction of Iraq and Afghanistan, the U.S. government had sought to align the Bank more directly with American political arrangements. Yet under President James Wolfensohn, the Bank insisted on operating through multi-donor trust fund structures to preserve the independence and professional management of reconstruction finance.

The Afghanistan Reconstruction Trust Fund, established in 2002, is a clear example. More than thirty donor countries pooled over $10 billion into a single financing mechanism. I worked in the World Bank Afghanistan country team, which managed this large fund.

The fund’s core institutional design was to treat the Afghan government as a genuine partner rather than a passive recipient. The World Bank and Afghanistan’s Ministry of Finance co-chaired the steering committee. Strategic decisions and funding allocations were agreed jointly by donors, the Bank, and the Afghan government. Core budget expenditures, such as salaries for roughly 250,000 civilian personnel, were supported through performance-based incentives, with disbursements contingent on institutional progress verified by the Bank. This model of “co-governance plus incentives” recognised the legitimate role of the sovereign government while ensuring transparency and performance through institutional rules.

The International Reconstruction Fund Facility for Iraq, established in 2003, presented a different picture. With no sovereign government in place, the design leaned more heavily on international oversight. The UN and the World Bank managed separate trust funds, with resource allocations guided by joint UN-World Bank needs assessments. Iraq also established two oversight bodies—the Strategic Review Board and the Ministry of Planning and Development Cooperation—to guide donor decisions and help ensure fair distribution of funds. In parallel, under the UN-authorised Development Fund for Iraq, an International Advisory and Monitoring Board composed of the UN, the Arab League, the IMF, and the World Bank provided independent audit oversight of oil revenues and public expenditures.

What these two cases had in common was the Bank’s commitment to verifiable institutional procedures: joint assessment, shared decision-making, independent audit, and performance-based review. Whether or not a sovereign government was fully in place, the Bank maintained its role as an institutional gatekeeper. That role gave donors confidence, while also helping recipient countries rebuild institutions and state capacity.

A global governance system in transition

Why was President Wolfensohn able to uphold the Bank’s role as an institutional gatekeeper in Afghanistan and Iraq, while under Banga, the Bank in Gaza appears to have been reduced to a provider of financing and transfers?

Some would attribute the difference to personal authority. Before becoming World Bank President, Wolfensohn was already a towering figure in international finance, with extensive standing on Wall Street and across European financial circles. That personal stature gave him considerable room for independent judgement in dealing with governments. Although Banga also came from the global corporate world, he has had far less time to establish equivalent authority within the multilateral development system.

But at a more macro level, the Bank’s shift from “institutional gatekeeper” to “handler of funds” reflects changes in the wider political environment and the structure of global governance.

Wolfensohn’s presidency coincided with the post-Cold War high point of multilateralism. The United States, although dominant within the international system, still sought to work through multilateral institutions to advance international cooperation. In that context, defending the professional governance norms of multilateral institutions aligned with the prevailing consensus. Today, the landscape is very different. Against a backdrop of great-power competition, the space for multilateral institutions to preserve genuine independence has narrowed sharply.

The Bank now finds itself in a dilemma. Refusing to engage risks accusations of abandoning Gaza; deep involvement risks becoming a political instrument and exposing itself to significant reputational and legal liabilities. In that sense, the Financial Intermediary Fund is a compromise. It allows the Bank to signal support for reconstruction finance while keeping its distance from project decision-making and implementation.

But once the “gatekeeper” is reduced to a “limited trustee”, a broader question arises: if governance functions increasingly sit outside multilateral institutions, how will standards in post-conflict reconstruction be maintained—and by whom?

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At the core of new structural economics is the argument that developing countries are structurally distinct economies, with different factor endowments, different comparative advantages, and therefore different paths to industrial upgrading. Their failures stem not from an absence of the industries or institutions found in rich countries, but from policies that ignore the production structure they actually possess.

Developing countries should start with sectors aligned with their current comparative advantage, use those sectors to build savings, capital, and productive capacity, and then upgrade gradually into more sophisticated industries. Technology can be upgraded through latecomer learning, finance should fit the needs of the real economy, capital flows should be opened selectively rather than indiscriminately, and the government should act actively and pragmatically in support of structural transformation

Justin Yifu Lin, Dean of the Institute of New Structural Economics, Honorary Dean of the National School of Development (NSD), and Dean of the Institute of South-South Cooperation and Development at Peking University, delivered the lecture at 太学 TAIXUE, a TED-style lecture series of the New Economist, an online Chinese media outlet, and the first installment of the NSD’s public lecture series.

The compiled lecture transcript was published on the New Economist’s WeChat blog on 6 January 2026.

林毅夫: 新结构经济学的基本点

Justin Yifu Lin: The Basics of New Structural Economics

Hello everyone, I’d like to take this opportunity to introduce new structural economics to you all. Proposed as the third generation of development economics, new structural economics emphasises that countries at different stages of development exhibit structural differences, and these differences are not arbitrary but endogenous. By introducing this perspective, it represents a paradigm shift in the understanding of mainstream neoclassical economics.

Why did I propose the new structural economics?

I would like to take this opportunity to begin with a basic question: if development economics already exists, why is there a need for a new development economics, that is, the new structural economics that I advocated? What is its core meaning?

Theory is meant to help people understand the world and change it. The question, then, is whether the new structural economics that I have proposed can do a better job in helping people understand the world and transform it. Can it explain why, in the past, most developing countries failed, while only a few succeeded? Can it explain why mainstream economics today requires a structural revolution?

Let me conclude with one simple point: Why is it necessary to reflect on development economics?

As everybody knows, the purpose of any theory, whether in the natural sciences or in the social sciences, is to help people understand the world, explain the social and economic phenomena they observe, and, on the basis of that understanding, make sound decisions to transform the world more effectively.

If a theory cannot help people understand reality, then it needs to be re-examined. The same is true if a theory appears persuasive, yet fails when put into practice. In such a case, reflection becomes necessary. Through reflection, existing theories can be improved, and new theories can be developed.

The dilemma of first-generation development economics

Development economics emerged after the Second World War, when most developing countries had freed themselves from colonial or semi-colonial status and began, under their own national leadership, to pursue industrialisation and modernisation in the hope of catching up with the developed countries. To assist these developing countries, a new subdiscipline, development economics, emerged within mainstream economics.

In fact, development economics only emerged as a modern branch of economics after the 1940s. The earliest version of this field is now generally referred to as structuralism. The reasoning at the time appeared quite persuasive: if developing countries wanted to catch up with the developed countries, they needed to reach similarly high income levels; if they wanted to achieve similarly high income levels, they also needed to achieve similarly high levels of productivity.

Why, then, were developed countries more productive? They possessed modern, large-scale technology, advanced capital, and capital-intensive modern industries. By contrast, developing countries remained dominated by traditional agriculture and simple processing industries, both of which were associated with low productivity.

Following this logic, if developing countries wanted to catch up in terms of productivity, they had to develop modern, large-scale, advanced manufacturing industries. But at that time, it was widely believed that this could not be achieved through market forces alone. Advanced, capital-intensive manufacturing requires large-scale investment. Large-scale investment, in turn, requires capital, and capital comes from savings. Yet the finding at the time was that households in developing countries were unwilling to save and tended instead to consume what they earned.

From the perspective of modern economics, a higher interest rate should increase the incentive to save, because price signals are supposed to guide behaviour. But what was observed at the time was that, even when interest rates were raised in developing countries, ordinary households still did not save much. The conclusion, therefore, was that people in those countries did not respond to market prices due to traditional culture and customary ways of life. Such constraints were seen as structural obstacles. That is why this approach came to be known as structuralism.

If the market could not mobilise resources, increase savings, accumulate capital, and support investment in modern manufacturing, then some other mechanism had to do so. At precisely that moment, Keynesian economics was rising in macroeconomics and emphasising the role of government. The government, therefore, was expected to step in directly to mobilise resources, allocate resources, and promote the development of modern, advanced industries. The diagnosis appeared clear, and the prescription also appeared clear.

After the Second World War, this kind of policy was widely adopted, not only in socialist countries, but also in non-socialist developing countries, such as those in Latin America, South Asia, and Africa, to promote national industrialisation and modernisation. Before government intervention, modern products in developing countries were generally imported. Machinery, equipment, and industrial goods all came from abroad. Now the goal was to invest in and produce them domestically. That is why it was called the import substitution strategy.

Under the guidance of this first generation of development economics, namely structuralism, developing countries, by relying on government mobilisation of resources, generally experienced rapid, investment-driven growth for five years, or even ten years. But it was then found that, once these modern manufacturing industries had been established, their efficiency was very low.

There is an English term for this: “white elephant”. Like a white elephant, these industries looked very large, but were slow-moving and highly inefficient. Because efficiency was so low, and because the population in developing countries continued to grow, the demand for employment also kept rising. As a result, this import substitution strategy led to slow economic growth, failed to create sufficient employment, and generated many social and economic problems.

Developing countries eventually found that, under the guidance of the first generation of development economics, namely structuralism, they not only failed to catch up with the developed countries, but, because of various crises and social problems, the gap with the developed countries actually became larger and larger. So, in terms of understanding the world, structuralism seemed very powerful. But when policies based on structuralism were actually put into practice, the result was that the gap with the developed countries widened rather than narrowed. Under such circumstances, reflection became necessary.

Second-generation development economics and the lost two decades

By the 1980s, China had begun reform and opening up. In fact, at that time, both socialist countries and developing countries were undertaking reforms and reflecting on the import substitution strategy and the heavy-industry-first strategy that had been guided by structuralism.

The reflection of the 1970s and 1980s focused on a basic question: after gaining political independence and beginning to pursue national industrialisation and modernisation, why did developing countries experience such low efficiency, and why did the gap between them and the developed countries continue to widen? The view at the time was that these developing countries did not have the kind of well-developed market institutions found in the developed countries. These included prices determined by the market, resource allocation guided by market prices, a government whose role was mainly to maintain market order, and private property rights.

After the Second World War, under the import substitution strategy, these developing countries relied on direct government mobilisation and allocation of resources. As a result, prices were basically not determined by the market, and resources were not allocated by the market, but by the government. In the process of allocating resources, state-owned enterprises were often used to promote development. So the view at the time was that the developed countries had done well because prices were determined by the market, industry was based on private ownership, incentives were stronger, and resource allocation was more efficient. This was the view of neoliberalism, which emerged in the 1970s and became highly influential throughout the 1980s. It is also the view of new institutional economics, which remains highly influential even today.

According to neoliberalism, or new institutional economics, developing countries had performed poorly because there was too much market distortion and too much government intervention. This gave rise to what later became known as the Washington Consensus. According to this view, if developing countries wanted to achieve good economic performance, they had to establish modern and advanced institutions like those of the developed countries. The most basic requirements of such institutions were marketisation, with prices determined by the market, and privatisation, with clearly defined property rights. The responsibility of the government, then, was to maintain budget balance, preserve macroeconomic stability, and promote liberalisation. This was the view of the Washington Consensus.

From this theoretical perspective, the explanation for why developing countries had performed poorly also seemed very powerful. Government intervention in market prices led to the misallocation of resources. And, on the surface, developing countries at that time did indeed appear to suffer from misallocation of resources: the industries the government wanted to develop were inefficient, while industries that were competitive and efficient failed to grow. Government intervention also gave rise to rent-seeking, and state-owned enterprises were generally inefficient. These explanations were highly persuasive. As a result, after the 1980s, the Washington Consensus took shape, and the transformation of developing countries came to be guided by international development institutions. Many people found this highly convincing.

As a result, the transformation of developing countries in the 1980s, the 1990s, and even after 2000 was basically carried out in accordance with the then-dominant second generation of development economics, namely neoliberalism and new institutional economics. But now it seems that, although these theories sounded very persuasive in explaining the problems of developing countries, the developing countries that followed them generally experienced economic collapse or stagnation, repeated crises, and poor performance, whether in the transition of the socialist countries in the Soviet Union and Eastern Europe, or in the countries of Latin America and Africa.

Moreover, during the 1980s and 1990s, that is, during the twenty years dominated by second-generation development economics and neoliberalism, the average growth rate of these countries was actually lower than it had been in the 1960s and 1970s under structuralism, while the frequency of crises was higher. For this reason, some economists have described the 1980s and 1990s, the twenty years dominated by second-generation development economics, or neoliberalism, as the lost two decades for developing countries. From the end of the Second World War until today, the vast majority of countries have remained trapped either in the poverty trap or in the middle-income trap.

Why did the four Asian tigers succeed?

However, there were also a small number of developing economies that achieved very rapid growth during this period, narrowed the gap with the developed countries, and even caught up with them. The vast majority of these economies were in East Asia, especially the four Asian tigers, with which everyone is very familiar.

The four Asian tigers began to grow rapidly after the 1950s. Researchers found that these successful East Asian economies did not follow the structuralist development economics of the 1950s, 1960s, and 1970s. According to structuralist development economics, if a country wanted to catch up with the developed countries, it should develop modern manufacturing industries as advanced as those in the developed countries. But the four Asian tigers started instead from traditional, labour-intensive, small-scale manufacturing.

At that time, the prevailing view was that the productivity of modern manufacturing in the developed countries was so high that it was impossible to catch up by starting industrialisation from traditional, backward, and small-scale manufacturing. This was regarded as the wrong path. Moreover, the mainstream approach at the time was import substitution, whereas the development of this traditional, labour-intensive, small-scale manufacturing in the four Asian tigers was export-oriented rather than import-substituting. So, from the perspective of the mainstream theory of the time, this too was considered wrong. But these economies nevertheless achieved stable and rapid development, became emerging industrialised economies, narrowed the gap with the developed countries, and even caught up with them.

In the 1980s, when all socialist countries were undergoing transition, the prevailing view was that government-led economies under planned systems and import substitution strategies were inferior to market economies. If they were to move towards a market economy, then the institutional arrangements required for a modern market economy should be established all at once. This was shock therapy, also known as the Washington Consensus.

At that time, Vietnam, Cambodia, and the African island country of Mauritius shifted from their earlier import-substituting, government-led development model to a market-oriented model, that is, a market-guided development model. Mauritius began this transition seven years earlier than China. But during their transition, these countries did not follow the mainstream theory of the time by putting in place, in one step, all the institutional arrangements required for a market economy, namely marketisation, privatisation, macroeconomic stabilisation, and liberalisation. What they generally adopted was a gradual, dual-track approach: government intervention was retained, while market-based resource allocation was also allowed to expand. In other words, both the government and the market were present.

In the 1980s and 1990s, this approach was believed to produce even worse results than those under a government-led planned economy. The view at the time was that, if both the market and the government allocated resources at the same time, there would be two different prices: a lower government-set price and a higher market price. This would create rent-seeking and corruption, and would make resource allocation even worse than before. So the conclusion was that, since a government-led planned economy was inferior to a market economy, any successful transition to a market economy required all the institutions of the market to be put in place at one time.

If, as in China at the time, a policy of “old rules for old stakeholders, new rules for new entities” was adopted, so that both the government and the market were allocating resources at the same time, this was then regarded as an economic arrangement even worse than a planned economy or a government-led economy. But looking back now, after more than thirty or forty years, it turns out that among the developing countries in transition, those that were able to maintain stability and rapid growth were precisely the countries whose transition policies had been regarded at the time as wrong.

These successful developing economies share one common characteristic. On the one hand, they are market economies, such as the four Asian tigers, or, in China’s case, economies that moved from a government-led system towards a market economy. So the market does seem to be very important. But these countries and economies also share another feature: the role of government has been very large. If the market is important, that seems to resemble what second-generation development economics, namely neoliberalism, emphasised. But if the government also plays a very important role, that seems somewhat closer to first-generation development economics, namely structuralism, which also emphasised the role of government. So these economies contain traces of both structuralism and neoliberalism. But they are neither structuralist policies nor neoliberal policies.

As mentioned earlier, theory is meant to help people understand the world. But if one looks at the record from the perspective of understanding the world, then the countries that followed the policy recommendations derived from mainstream theory were, by and large, not successful. Theory is also meant to help people change the world. But what has been found is that the countries that followed the highly persuasive mainstream theories generally failed, while the countries that succeeded were, from the standpoint of those same mainstream theories, pursuing the wrong policies. Under such circumstances, reflection becomes necessary. What is the logic behind success in developing countries, whether in development or in transition? That is why I proposed new structural economics.

Returning to Adam Smith’s method

When I first proposed new structural economics, I emphasised that there should be a return to Adam Smith. But when I speak of returning to Adam Smith, what I mean is different from what people usually mean today when they talk about returning to Adam Smith.

Usually, when people speak of returning to Adam Smith, they mean returning to the conclusions set out in The Wealth of Nations: that there is an invisible hand in the market, that the market should allocate resources, that the division of labour is important, and that a constitutional system should be established to support that division of labour. These are the conclusions found in Adam Smith’s The Wealth of Nations.

But when I speak of returning to Adam Smith, I do not mean returning to those conclusions. What I mean is returning to the way Adam Smith arrived at those conclusions.

As is well known, Adam Smith wrote The Wealth of Nations after studying why Britain, and some other European countries in the seventeenth and eighteenth centuries, developed more rapidly than other countries and regions in the world. He asked why they developed so quickly, what lay behind that development, and what the underlying reasons were. It was based on that research that he arrived at those views. So what is being emphasised here is Adam Smith’s method.

In fact, Adam Smith’s research methodology is encapsulated in the title of The Wealth of Nations itself. The full title is An Inquiry into the Nature and Causes of the Wealth of Nations. Based on his study of those European countries that developed rapidly in the seventeenth and eighteenth centuries, he examined the nature of their wealth growth, its causes, and its determining factors. It was from that research that he arrived at such views as the importance of the invisible hand, the importance of the division of labour, and the importance of a constitutional system.

In my view, a body of thought should, as the old saying goes, teach people how to fish rather than simply give them fish, because conditions differ. In fact, the development of modern economics after Adam Smith, and the emergence of new theories, have for the most part followed Adam Smith’s method rather than simply extending his theory. They did not merely add to his theoretical framework, nor simply apply his conclusions. What was truly carried forward was Adam Smith’s method of studying problems: examining their essence and identifying their underlying determinants.

When I proposed new structural economics, I was doing the same thing. The focus was on returning to the essence of the problem and its fundamental determinants, rather than proceeding from the theory of a particular person or the doctrine of a particular school.

The essence of modern economic growth lies in structural transformation

For developing countries, the central concern is, of course, how to develop the economy and how to catch up with the developed countries. It is also well known that, before the Industrial Revolution in the eighteenth century, the world was, in today’s terms, flat, because almost all societies were still in the stage of an agrarian economy.

People back then were largely trapped in poverty, or what may be called the Malthusian trap. Since economic life depended on agriculture, living standards were low, and life expectancy at birth was only about thirty-five years. If society remained stable and the population increased, famine would follow, and then war. Famine and war would reduce the population, per capita cultivated land would increase, output would rise, and then the population would increase again. That is the Malthusian trap.

It was only after the Industrial Revolution in the eighteenth century that rapid growth began to emerge, first in Britain, and later in other countries in Western Europe. According to the research of economic historians, before the eighteenth century, the average annual growth rate of those economies was only about 0.05 per cent. At that rate, it would take roughly 1,400 years for per capita GDP to double. After the Industrial Revolution, however, industrialisation and modernisation began to take shape, and the growth rate of per capita GDP increased twentyfold, from 0.05 per cent to 1 per cent. Then, from the eighteenth century to the middle of the nineteenth century and beyond, with the First Industrial Revolution followed by the Second and then the Third, per capita GDP growth in those early industrialising countries rose further to 2 per cent. The time needed for per capita GDP to double, therefore, fell from 1,400 years to 70 years, and then to 35 years. This is what modern growth means.

Modern growth may be described as a product of the Industrial Revolution. It first appeared in the countries of Western Europe, and later in their settler colonies. Other countries in the world did not keep pace with this trend, and as a result, the gap between them and the early industrialising countries became larger and larger. That is the phenomenon that can be observed.

Generally speaking, the shift from pre-modern to modern growth was reflected, after the Industrial Revolution, in the emergence of those leading countries where technology continued to innovate, industries continued to upgrade, and productivity continued to rise. As productivity increased, infrastructure and the various institutional arrangements also improved accordingly. In essence, therefore, modern economic growth is a process in which structural transformation brings about rising productivity and continuously rising income levels.

It is this phenomenon that I wanted to understand. Guided by the basic Marxist principle that material conditions are primary, and using the methods of neoclassical economics, that is, modern economics, I sought to study the essence of modern economic growth and its determining factors. In other words, the question was how, since the eighteenth century, the economic structure associated with rapid economic development has evolved, what determines those changes, and what effects they produce. This is precisely in line with Adam Smith’s method of studying the essence of a phenomenon and its determining factors.

The naming and core hypotheses of new structural economics

According to the naming convention of modern economics, since my main research concerns structure, the determinants of structural change, and its impact, it should, in principle, be called structural economics. In modern economics, the study of agriculture is called agricultural economics, and the study of finance is called financial economics. So if the subject of study is structure and structural change, it should be called structural economics. But because the first generation of development economics was structuralism, and I wanted to distinguish this framework from structuralism, I called it new structural economics.

As mentioned earlier, new institutional economics is now very influential. Last year’s Nobel Prize winner was a new institutional economist. Why is it called new institutional economics? In fact, as early as the 1960s, Douglass North, who later received the Nobel Prize, began to use the methods of modern economics to study institutions and institutional change. Logically, it should have been called institutional economics. But because there had already been an earlier institutional school in the United States in the late nineteenth and early twentieth centuries that used a different method, the term new institutional economics was adopted in order to distinguish it from the earlier institutional school. In this sense, the “new” in new structural economics has something in common with the “new” in new institutional economics. In both cases, it is used to distinguish it from an earlier school that had a similar name. That is why it is called new structural economics.

What is the main theoretical content of new structural economics? Put simply, new structural economics holds that, at any given point in time, what determines the productivity level of an economy is the industries that exist in that economy at that time and the technologies used by those industries.

The industries and the technologies they use may be called the production structure. At each point in time, the production structure is determined by the factor endowment of the economy and its structure, and it can change over time. Different production structures represent different industries and technologies, and these differ in their scale characteristics, risk characteristics, and transaction characteristics in the market. They therefore require corresponding infrastructure and institutional arrangements. Since the production structure determines the level of productivity, while the quality of infrastructure and institutional arrangements determines transaction costs, productivity is, in fact, embedded in the production structure. Only when transaction costs are sufficiently low can that productivity be released. This is a basic core hypothesis.

What is the logic behind this hypothesis? At any point in time, every economy has factors of production such as capital, labour, and land. The importance of these factors lies in the fact that they are material and that they are the smallest constituent elements of all social and economic activities. Whatever the activity may be, it must be supported by these elements.

At any given point in time, the factor endowment of a country or a society, namely its capital, labour, and land, is in effect the total budget available to that economy at that moment. This is because all activities require land, labour, and capital, and the amount of land, labour, and capital available determines the range of production activities, or of social activities, that can be undertaken. Moreover, in countries at different levels of development, the relative scarcity of capital, labour, and land differs. And that relative scarcity determines the relative prices of those factors. The composition of the same production activity in terms of capital, labour, and land may be the same, but in countries at different levels of development and different factor endowments, because relative factor prices differ, the relative cost of the same production activity will also differ.

Understanding the importance of these relative prices is crucial because factor endowments and their relative scarcity determine the composition of social production activities through their effect on relative prices. If a production activity requires a great deal of land and relatively little capital, then the cost of carrying out that activity will be lower in a country with abundant land and relatively scarce capital. Conversely, if a production activity requires a great deal of capital but relatively little land and labour, then in a country where capital is abundant and therefore relatively cheap, the cost of that same activity will be lower. In other words, a country’s factor endowments and their structure determine the level of comparative advantage it has in particular production activities. It is able to achieve relatively low factor costs in those activities, and those factor costs in fact determine where that country’s potential comparative advantage lies.

Why is it called potential comparative advantage in production? Because market competition is competition in terms of total costs, and total costs are determined by both factor costs and transaction costs, while transaction costs are determined by infrastructure and institutional arrangements.

The structure of factor endowments determines in which production activities a country may have the lowest factor costs, and in that sense, it has a potential comparative advantage. But if that potential comparative advantage is to be turned into an actual comparative advantage, there must be suitable infrastructure and institutional arrangements so that total costs can be brought down.

Appropriate infrastructure and institutional arrangements are, in fact, endogenous to the production structure determined by the factor endowment structure at a given stage of development. Therefore, infrastructure and institutional arrangements must be compatible with the characteristics of the production structure determined by the factor endowment structure. Only then can total costs be minimised, and only then can potential comparative advantage be turned into actual comparative advantage. This is new structural economics.

The optimal approach to fostering firms’ viability and development

In the analysis of new structural economics, there is a very important micro-level concept called the viability of firms. What does the viability of firms mean? It means that industries develop through firms, and if the industry in which a firm operates is consistent with the comparative advantage determined by that country’s factor endowment structure, then the firm can have the lowest factor costs of production. At the same time, if the country in which that industry is located has suitable infrastructure and institutional arrangements, then transaction costs will also be the lowest. Under such conditions, the firm will have the lowest total costs. If a firm has the lowest total costs in both the domestic and international markets, then it will naturally be competitive. It will not need government protection or subsidies. As long as it is well managed, it can survive and develop. This is what is meant by viability.

Conversely, if a firm operates in an industry that goes against the comparative advantage determined by the factor endowment structure, then its production costs will be higher. Or if there is no suitable infrastructure or institutional arrangements, its transaction costs will also be higher. Under such circumstances, it will not be competitive, either in the domestic market or in the international market. It can survive only with government protection and subsidies. In that case, it is nonviable. So in the analysis of new structural economics, viability is the foundation of micro-level analysis. It is a defining and key concept.

The purpose of studying development is, of course, to raise income levels continuously. From the perspective of new structural economics, if income levels are to rise continuously, productivity must also rise continuously. And if productivity is to rise continuously, there must be continuous technological innovation and industrial upgrading, moving towards a production structure that is more capital-intensive and more advanced. Only in this way can the economy develop.

But since the production structure is endogenous to the factor endowment structure, the precondition for moving from industries with low productivity, which are labour-intensive and land-intensive, to industries that are more capital-intensive and technology-intensive, is that the factor endowment structure itself must first change. That means moving from a situation in which capital is relatively scarce to one in which capital becomes relatively abundant. Put differently, it means moving gradually, through capital accumulation, from a situation in which labour and land are relatively abundant to one in which land and labour become relatively scarce. Once such a change takes place in the factor endowment structure, the economy’s potential comparative advantage will also change, and then productivity may rise.

But if potential productivity is to be released, potential comparative advantage must be turned into actual comparative advantage. That means the infrastructure and institutional arrangements required by the production structure determined by the factor endowment structure must be continuously improved. Only then can the economy continue to develop, the structure continue to transform, productivity continue to rise, and income levels continue to increase.

From this analysis, it becomes clear how income levels can be raised. One step back, the key is to raise productivity. And to raise productivity, the factor endowment structure, the production structure, and the infrastructure and institutions must all be continuously improved. But all of this is ultimately built on the most fundamental and material basis at the micro level, namely, factor endowments. In other words, the economy must move gradually from relative capital scarcity to relative capital abundance.

How, then, can capital become relatively abundant? The best way is to choose industries and technologies according to the potential comparative advantage determined by the factor endowment and its structure at that particular point in time, and then to provide the appropriate infrastructure and institutional arrangements. If this can be done, the economy will be competitive, because its total production costs will be the lowest. It will be able to capture the largest possible share of the domestic and international markets, create the greatest possible surplus, and, in industries consistent with comparative advantage, investment will generate the highest returns to capital. The incentive to save will then also be the strongest, and the pace of capital accumulation will be the fastest. Once capital accumulates more rapidly, the speed of capital deepening in the factor endowment structure, the pace of change in comparative advantage, the speed of industrial upgrading, and the rate of economic development will all be the fastest.

The necessity of an effective market and an active government

In this process, of course, technological innovation and industrial upgrading are both necessary for the development of new productive forces. But there is an important difference between developed countries and developing countries. In developed countries, industry and technology are already at the global frontier, so they must invent new technologies and create new industries by themselves. In developing countries, however, the level of industrial technology and productivity is still relatively low.

Technological innovation means that, in the next stage of production, better technologies are used than those currently in use. For developed countries, the technologies they are using are already the most advanced, so they must rely on their own invention. But for developing countries, technology can be introduced, digested, absorbed, and then re-innovated. This is what is called the latecomer advantage. If this latecomer advantage can be used well, then the cost and risk of innovation will be lower than in developed countries, the rate of economic growth will be faster, and the gap with developed countries can be narrowed, until eventually they can catch up.

How can entrepreneurs make decisions in a way that follows this economic logic? As is well known, entrepreneurs pursue profits. They do not ask whether what they are doing is consistent with comparative advantage. So the question is: how can the pursuit of profit by entrepreneurs spontaneously lead them, as new structural economics suggests, to choose industries and technologies according to the potential comparative advantage determined by the factor endowment and its structure at each point in time? This requires an institutional arrangement.

What is that institutional arrangement? It is that the relative prices of factors must accurately reflect their relative scarcity at that point in time. In other words, if capital is relatively scarce, while labour and land are relatively abundant, then capital must be relatively expensive, while land and labour must be relatively cheap. Conversely, if capital becomes relatively abundant, while labour and land become relatively scarce, then wages must rise while capital becomes relatively cheap, or land must become relatively expensive while capital remains relatively cheap.

How can such a price system be formed? Based on current knowledge, and although it is still unclear whether artificial intelligence may change this in the future, so far, the only mechanism that can provide such price signals is a sufficiently competitive market. Only when the prices of various factors are determined through market competition can those prices fully reflect the relative scarcity embodied in a country’s factor endowment structure. If such price signals exist, then in pursuing profit maximisation, entrepreneurs will generally choose industries and technologies in line with the comparative advantage determined by the factor endowment structure. That is to say, in a country where capital is relatively scarce and labour is relatively abundant, entrepreneurs seeking to maximise profits will enter industries that use more labour and less capital. Those are labour-intensive industries.

Once they enter such industries, firms will use more labour and less capital and technology. That is, they will adopt labour-intensive technologies. This is consistent with potential comparative advantage. Conversely, when capital continues to accumulate and becomes relatively abundant, while labour becomes relatively scarce, wages will continue to rise, and the price of capital will continue to fall. In that situation, entrepreneurs, in pursuit of profit maximisation, will enter industries that use more capital and less labour. Those are capital-intensive industries. Once they enter such industries, they will increasingly substitute machines for labour. That means technologies will become increasingly capital-intensive. This is also consistent with comparative advantage. For this reason, an effective market is necessary. That is why the market is so important.

But government is also very important, because the issue here is not one of static resource allocation. It is one of dynamic structural transformation. As the factor endowment structure changes, industries must upgrade, and the economic structure must change. Industries that are consistent with comparative advantage today may lose that advantage tomorrow, while new industries with potential comparative advantage will emerge.

Can these new industries with potential comparative advantage be turned into industries with actual comparative advantage? First, there must be pioneering entrepreneurs who are willing to take risks by entering new, more capital-intensive industries and adopting new, more capital-intensive technologies. This is inherently risky. They may succeed, or they may fail. If they fail, they bear all the costs of failure themselves, but in doing so, they also tell others that the industry or the technology is not suitable, so later entrants can avoid making the same mistake. They may also succeed. Once others see that they have succeeded, they follow, and many firms then enter. Once competition intensifies, the pioneering entrepreneurs no longer earn higher profits than others. So whether they succeed or fail, they provide useful information to later entrants. This is what is called an externality. But the pioneering entrepreneurs themselves bear the full cost of failure.

If pioneering entrepreneurs succeed, yet do not enjoy proportionately greater benefits than others, then they must be given some incentive and compensation. This kind of externality has to be recognised and rewarded by the government. Moreover, whether pioneering entrepreneurs succeed or not depends not only on whether their judgement is correct, but also on whether appropriate infrastructure and institutional arrangements are in place. The improvement of infrastructure and institutional arrangements requires coordination, and some of these must be provided directly by the government. In addition, there are many forms of market failure. For all these reasons, there must also be an active government, one that responds to changes in the factor endowment structure, encourages entrepreneurs to enter new industries with potential comparative advantage, and helps transform those potential comparative advantages into actual comparative advantages, so that firms can become competitive in the market.

This is why new structural economics emphasises both an effective market and an active government. The analytical framework of new structural economics can better explain the internal logic of economic development. As a third generation of development economics, it can better help people understand the world and change it.

Characteristics of successful economies and the “prescription” of new structural economics

When I went to the World Bank as Chief Economist in 2008, the World Bank released a Growth Report. For that project, the Bank invited two Nobel laureates in economics, Robert Solow and Michael Spence, to organise a commission. This commission included more than twenty senior officials who were very familiar with economics in developing countries and had also participated in national economic policymaking. China was represented at the time by Zhou Xiaochuan. The Growth Commission mainly studied 13 economies after the Second World War. Among nearly 200 developing economies, these 13 had performed exceptionally well, all achieving growth of 7 per cent or more per year for 25 years or longer.

As mentioned earlier, from the mid-nineteenth century to the present, the average annual growth rate of per capita GDP in developed countries has been about 2 per cent. If population growth of about 1 per cent is added, then over the past one hundred years or more, the average annual growth rate of developed countries has been about 3 per cent. So if a developing economy can grow at 7 per cent or more, what does that mean? It means that its growth rate is at least twice that of the developed countries, or even higher. After reform and opening up, China, in fact, grew at about three times the speed of the developed countries. If such growth can be sustained for 25 years or longer, then the gap with the developed countries can be narrowed.

It was found that these successful developing economies shared five common characteristics. First, they were basically open economies. Second, they all maintained relative macroeconomic stability. Third, they all had high savings and high investment. Fourth, they all had effective markets, either because they were market economies to begin with or because, like China, they had moved towards a market economy. Fifth, they all had active and capable governments, and in all of them the government intervened in the economy to a considerable extent.

These were the five common characteristics shared by the 13 successful economies. So after the Growth Commission’s report was released in 2008, many developing countries were very excited, because it seemed that the secret of success had finally been found. As a result, Michael Spence, the chairman of the commission, was often invited to give speeches and advise governments. But some leaders from developing countries asked Michael Spence: based on the report of the Growth Commission, how should development policy be formulated? Michael Spence’s answer was that these five characteristics were the ingredients of successful development, but not the prescription.

As everyone knows, ingredients alone cannot cure an illness if there is no prescription. The same medicinal ingredient, under one set of conditions, may be beneficial, but under another set of conditions, or in a different dosage, it may become poisonous. So if there is no prescription, the report is, in fact, of only very limited help in enabling people to understand the world and change it.

Is there, then, a prescription for success? From the perspective of new structural economics, there is. That prescription is precisely what new structural economics proposes: industries and technologies should be chosen according to the comparative advantage determined by the factor endowment structure of an economy at each point in time. That is the prescription offered by new structural economics.

If development follows comparative advantage, there are two institutional preconditions. First, there must be an effective market that can provide the correct price signals. Second, there must be an active government that can help entrepreneurs overcome market failures. These are exactly the fourth and fifth characteristics identified by the Growth Commission. The other three characteristics are, in fact, the results of development in line with comparative advantage.

If development follows comparative advantage and the economy performs well, then exports will naturally increase. Conversely, if something does not conform to comparative advantage, it will be produced less, or not produced at all, and will therefore be imported. In that sense, the economy will necessarily be open. By contrast, if development goes against comparative advantage, then production can only be pursued domestically, imports will be reduced, and limited resources will be used to support industries that do not conform to comparative advantage.

As a result, the industries that do conform to comparative advantage will not be able to develop well, and exports will also decline. So when exports are high, it may appear on the surface to be an export-oriented strategy, but in fact, it is the result of development in accordance with comparative advantage.

Moreover, if development follows comparative advantage, the industries that emerge will necessarily be competitive. In that case, endogenous crises will be fewer. Conversely, if development goes against comparative advantage, the industries that are developed will not be competitive, and many endogenous crises will arise. This is the first point.

What else does development in accordance with comparative advantage imply? It implies more exports, larger foreign exchange reserves, and healthier government fiscal revenues. Under such circumstances, when an external shock occurs, especially one like the shock in 2008, the government will have a stronger capacity to adopt counter-cyclical stabilisation measures. If endogenous crises are fewer, and if external crises can also be dealt with effectively, then the economy will naturally be relatively stable.

Conversely, if development goes against comparative advantage, then many crises are likely to arise internally. And when an external crisis occurs, because exports are fewer, foreign exchange reserves are smaller, and government fiscal revenues are also lower, the capacity to take counter-cyclical action will be weaker. The economy will therefore be more vulnerable to shocks, and there will also be less ability to intervene effectively. So macroeconomic stability is, in fact, also a result of development in accordance with comparative advantage.

The third point has already been discussed earlier. If development follows comparative advantage, then the economy will be competitive, surplus will be greater, accumulation will be higher, and returns on investment will also be higher. So both the rate of return on investment and the rate of accumulation will be high. Conversely, if development does not follow comparative advantage, surplus will be small, the amount available for saving will be limited, and the return on investment will be low. As a result, the willingness to invest will also be low.

Seen in this way, the five characteristics identified by the Growth Commission can in fact be understood as follows: two of them are the institutional preconditions for development in accordance with comparative advantage, as emphasised by new structural economics, and the other three are the results of such development. In this way, the phenomenon can be explained, and it also becomes clear what the prescription is.

Reinterpreting development failures and success stories

The first generation of development economics, namely structuralism, observed that developed countries had high levels of productivity because they had modern manufacturing industries. By contrast, developing countries were still based on traditional agriculture or simple processing industries, and therefore had low productivity. In this sense, it clearly saw the structural difference. It also saw that this structural difference was associated with low productivity, and on that basis, it recommended that developing countries should build modern manufacturing industries. It found that such industries could not be developed through the market alone, and therefore concluded that there was market failure. This explanation appeared quite powerful.

But the recommendation that developing countries should develop the same kind of modern manufacturing industries as the developed countries, in fact, contained a misunderstanding. What it failed to recognise was that industrial structure is actually endogenous to the factor endowment structure. If industries and technologies are chosen according to the production structure of developed countries, then those industries and technologies are consistent with the comparative advantage of developed countries, because in those countries, capital is relatively abundant. But in developing countries, capital is relatively scarce, so those same choices are not consistent with their comparative advantage. And if they are not consistent with comparative advantage, then firms will not have viability.

In reality, developing countries at that time were unwilling to invest in such capital-intensive industries. I think there were two reasons for this. One was that their productivity level was very low, and the surplus they generated was very small. What they produced was barely enough to eat. Under such circumstances, how could savings be expected? Raising the interest rate would not help, either. What they produced was not even enough for subsistence. Survival came first.

So this was not really a market failure. Under that kind of factor endowment structure, there simply was no capacity to invest. And even if the investment was somehow forced through, the costs would be too high, and the investment would not be profitable. So on the one hand, there was no capacity to invest, and on the other hand, there was no incentive to invest. In that sense, what was described at the time as market failure was actually the result of the endowment structure. But this was misjudged, and the endogeneity of the production structure was not understood. As a result, in the industries supported by the import substitution strategy, firms did not have viability. Firms were unwilling to invest, and if they were to be induced to invest, they had to be given protection and subsidies. And even after the investment was made, their production costs remained higher than those in developed countries, so protection and subsidies also had to continue. That is why those industries, which were then called infant industries.

Under such protection and subsidies, resources were misallocated. Once these firms had been established and were operating under government protection and subsidies, they had every incentive to keep telling the government that the existing protection and subsidies were not enough, that they needed more, and that if more were not provided, they would “die”, and with them modern industry would disappear. This naturally gave rise to a great deal of rent-seeking behaviour. In order to obtain more subsidies from the government, firms would bribe officials, and corruption became widespread. So the misallocation of resources, together with rent-seeking and corruption, that could be observed in developing countries at that time were in fact the result of a catch-up strategy that disregarded the country’s material foundations.

Why did a few East Asian economies succeed while the Washington Consensus failed?

Why did a small number of East Asian developing economies succeed? Because they developed labour-intensive industries that were consistent with their comparative advantage. These labour-intensive processing industries were in line with the comparative advantage of developing countries, but not with that of developed countries. Their production costs were therefore lower than those in developed countries. And once the government, in light of the circumstances, provided them with suitable infrastructure and institutional arrangements, their total costs also became low. In that case, they were able to export to developed countries and capture markets there.

Moreover, because this pattern of development was consistent with comparative advantage, these industries were competitive. As a result, they generated more surplus, profit rates were higher, and capital accumulated more rapidly. Once capital began to accumulate quickly, these economies were able, step by step and stage by stage, to make use of the latecomer advantage. At the same time, the costs of institutional innovation, technological innovation, and industrial upgrading remained lower than in developed countries. Their rate of development was therefore faster than that of the developed countries. Gradually, they were able to change their original factor endowment structure, making it increasingly similar to that of developed countries. As that happened, their comparative advantage also became increasingly similar to that of developed countries, until eventually they were able to reach the level of developed countries. This is why East Asia succeeded.

Why, then, did the Washington Consensus fail? One of the main reasons was that it saw only the government interventions and distortions in transition economies, but did not understand that those interventions and distortions existed for a reason. Under import substitution strategies, or under the strategy of catching up through heavy industry, the industries being developed were often inconsistent with comparative advantage, and the firms in those industries were not viable. In that sense, those protectionist measures, subsidies, interventions, and distortions were endogenous. They existed to allow nonviable firms to survive and to allow industries that went against comparative advantage to be established.

If, in accordance with the Washington Consensus, all of these market distortions had simply been removed, then many of the capital-intensive industries that had already been built would not have survived. Many of them would have gone bankrupt, leading to large-scale unemployment. Moreover, among those industries, some distortions could not in fact be removed even through privatisation. For example, every country needs electricity and telecommunications, but in some cases, those sectors could not survive without protection and subsidies. Even after privatisation, they would still require protection and subsidies. There were also industries related to national defence and security. These were capital-intensive and inconsistent with comparative advantage, but without them, national defence and security could be undermined. So even if they were privatised, they would still need protection and subsidies.

And in practice, once such industries were privatised, they often had an even stronger incentive to use the fact that they were inconsistent with comparative advantage, yet burdened with policy responsibilities that the state considered necessary, as a justification for demanding protection and subsidies from the government. In that sense, the incentive for rent-seeking became even stronger.

And when asking the government for protection and subsidies, they would try to influence government officials in all kinds of ways. They might say: “Your salary is only so much, why not give me a little more protection and subsidy? If you do, I can open an account for you in Switzerland and deposit the money there in your name. You can use it after retirement, or your son can use it when he studies abroad.” As a result, corruption became even more serious.

At the same time, in sectors such as electricity and telecommunications, where economies of scale were important, privatisation often gave rise to the oligarchic monopolies seen in the transition of the Soviet Union and Eastern Europe. These monopolies, in turn, interfered with politics and reduced the efficiency of economic operation still further. This was one of the main reasons why shock therapy failed.

The second reason was that neoliberalism, that is, the Washington Consensus, held that government should be limited. Apart from education, national defence, security, the legal system, and social order, the government should not intervene in economic activity. In particular, it should not provide targeted support to any specific industry. In other words, it opposed industrial policy. But once industrial policy is rejected, the old industries may collapse, while some may continue to survive only with reduced protection and subsidies. At the same time, new industries that are in fact consistent with comparative advantage may still fail to emerge, because without government guidance, there is no one to encourage pioneering entrepreneurs, and no one to help provide the infrastructure and institutional arrangements they need. As a result, countries that adopted shock therapy generally experienced premature deindustrialisation. They deindustrialised already at the middle-income stage. Under such circumstances, economic performance was naturally worse.

Advantages of the gradual dual-track reform

Conversely, China’s gradual dual-track reform performed better. The reason is that under the gradual dual-track approach, the old rules were retained for the old stakeholders. In those capital-intensive industries, it was recognised that they were inconsistent with comparative advantage and nonviable, but at the same time, they were regarded as necessary for national development. So protection and subsidies continued, and in this way, stability was maintained.

At the same time, new industries that were consistent with comparative advantage, and that had previously been barred from entry, were now allowed to enter. Not only were they allowed to enter, but industrial parks, export processing zones, and special economic zones were also established, so that infrastructure and institutional arrangements could first be improved within a limited area. In this way, industries consistent with comparative advantage were able to turn very quickly from potential comparative advantage into actual comparative advantage. They therefore became highly competitive, and the economy was able to grow very rapidly. In this way, stability and rapid development were both maintained.

Moreover, once this part of the economy began to grow rapidly, capital accumulated quickly. As capital accumulated, the industries that had originally gone against comparative advantage gradually came to conform to comparative advantage. Once they became consistent with comparative advantage, they no longer needed protection and subsidies, because firms then had viability. The government could therefore begin to remove the original protection and subsidies. This is somewhat similar to what was proposed at the Third Plenary Session of the Eighteenth Central Committee of the Communist Party of China, namely that the market should play a decisive role in resource allocation.

By that stage, after forty years of rapid capital accumulation following reform and opening up, the heavy industries that had originally gone against comparative advantage had in fact become industries in which comparative advantage now existed. Under those circumstances, there was no longer any need to continue providing protection and subsidies. Various forms of government intervention and price distortion that had existed before could therefore be removed, and the market could then be allowed to allocate resources.

Of course, the economy must continue to upgrade its structure, and in the course of structural upgrading, there will also be many new forms of market failure. So the government must continue to play an active role. This is why an institutional arrangement that was once regarded as the worst, and perhaps even worse than a planned economy, in fact proved to be more effective.

The implicit structure dilemma in mainstream economics

Dialectical materialism holds that matter is primary. When this principle is applied to the study of the development of human history, it becomes historical materialism. Historical materialism posits that the economic base determines the superstructure, while the superstructure in turn reacts upon the economic base. So between the economic base and the superstructure, the primary role belongs to the economic base.

The economic base is made up of the productive forces and the relations of production determined by those productive forces. Together, these constitute the economic base. But what determines the productive forces? In Marxist political economy, this question was not really explained in a systematic way. Only recently, after General Secretary Xi put forward the concept of new quality productive forces, has exploration in this area begun.

In fact, the level of productive forces is determined by the production structure of the economy. If an economy is based on traditional agriculture or simple processing industries, then its level of productive forces will be low. If it is based on capital-intensive technologies and advanced manufacturing, then its level of productive forces will be high. But when the level of productive forces is low, workers’ wages are also low, and workers remain very close to the subsistence line. Because wages are low, they can survive only if they have work; without work, they cannot survive. Capitalists, by contrast, can survive on their wealth and do not face the same survival crisis.

Under such circumstances, when workers bargain with capitalists, whether those capitalists are factory owners or landlords, workers are in a disadvantaged position. If they do not work, they cannot survive, whereas capitalists can rely on their wealth to survive. In that situation, workers’ bargaining power is weak, and capitalists are therefore more able to suppress wages and take away more of the surplus.

As the economy develops, capital becomes more abundant, and wages rise. Once wages rise, workers are also able to save. And once they have savings, they can survive for three months, half a year, or even a year without working. But capitalists, as is well known, cannot make capital appreciate if they do not employ labour in production. So at that point, the bargaining position begins to change.

Once capital becomes more abundant and wage levels are higher, workers gain more freedom. Under such conditions, the ability of capitalists to extract surplus labour becomes weaker and weaker. As a result, workers’ conditions, including their working environment, also improve.

It is well known that the production structure determines the level of productive forces, and that the level of productive forces in turn determines the relations of production. From the perspective of new structural economics, since the level of productive forces is determined by the production structure, and since the production structure is in fact determined by the factor endowment structure emphasised by new structural economics, new structural economics provides a way of bringing political economy together with modern economics to examine these traditional propositions.

The various theories of mainstream neoclassical economics are summarised from the experience of developed countries, or are designed to solve the problems of developed countries. When such theories are proposed, they basically take the structure of developed countries as an implicit structure and assume that these theories are universally applicable. What they have not recognised is that countries at different levels of development, in fact, have different structures.

Because these theories assume that their structure is universally applicable, and because that structure is in fact the structure of developed countries, they generally treat it as the only structure. Many theories of macroeconomics are based on what is called a one-sector model, with only one sector, and sometimes even only one factor within that sector, perhaps human capital. In such a theoretical model, there is no qualitative difference between developed countries and developing countries. At most, there is only a quantitative difference.

Some theories may appear to contain structure. For example, in trade theory, there may be labour-intensive industries and capital-intensive industries. But even in those models, it is assumed that the industries of developing countries and developed countries are exactly the same. The only difference is that one country has more capital and another has less, so that one produces somewhat more of the capital-intensive industry and the other somewhat less. But in reality, many industries exist in developing countries and not in developed countries, and conversely, there are many industries that exist in developed countries and not in developing countries.

So modern mainstream economics takes the structure of developed countries as its implicit structure. That implicit structure may be one-dimensional, or it may be two-dimensional. It may contain both labour-intensive industries and capital-intensive industries. But modern mainstream economics still assumes that developed countries and developing countries are fundamentally the same.

The “three-dimensional” revolution of new structural economics

New structural economics holds that countries at different stages of development have different production structures, that is, different industries and different technologies used by those industries. The infrastructure and institutional arrangements appropriate to a country must also be compatible with its production structure. In other words, at different stages of development, the structure of infrastructure and the structure of institutions will also differ. What new structural economics seeks to do, therefore, is to turn the one-dimensional and two-dimensional theories found in textbooks today, which take the structure of developed countries as their implicit structure, into a three-dimensional theory in which countries at different stages of development have different structures.

In such a three-dimensional theory, development is the process of transforming from a production structure with a low level of productivity, together with the infrastructure structure and institutional arrangements suited to it, to a production structure with a higher level of productivity, together with the infrastructure structure and institutional arrangements suited to that higher level. That is what development means.

Transformation, by contrast, means moving from a distorted structure to an undistorted structure. For example, when capital becomes abundant, the production structure should become more capital-deepening. If the production structure does not become more capital-deepening under such conditions, that too is a distortion.

Similarly, if the production structure has already undergone capital deepening in line with the factor endowment structure, but the institutional structure has not been improved in accordance with the needs of the new production structure, then institutional distortion will arise. Such distortion exists because different structural changes require different kinds of decisions, and market failures that need to be overcome are also different. So there will often be a time lag.

In addition, some distortions arise from policies that are well-intentioned but misguided. For example, under the import substitution strategy, when capital is still very scarce, capital-intensive modern manufacturing is nevertheless developed. That is a distortion because it goes against comparative advantage. And once that happens, the corresponding infrastructure and institutional arrangements will also become distorted.

Transformation means moving from a distorted structure to an undistorted one. But what is the biggest difference between transformation in new structural economics and transformation in the current mainstream approach? In the mainstream view today, transformation basically means transforming towards the structure of developed countries: industries are to become the industries of developed countries, and institutions are to become the same as those of developed countries. In new structural economics, however, transformation means transforming towards a structure that is appropriate to one’s own stage of development, including the industrial structure, the infrastructure structure, and the institutional structure. That is transformation.

Then there is the question of economic operation. Since countries at different stages of development have different structures, those structural differences mean that the economies of scale in industries, their risk characteristics, and the forms of market failure they face are also different. Economic operation is, in essence, about how to achieve economies of scale and how to solve market failure. Since economies of scale, risks, and market failures all have characteristics that correspond to a particular stage of development, economic operation will also have its own structural characteristics. Of course, there are common features in economic operation, but there will also be specific features in countries at different stages of development.

As mentioned earlier, if an economy is to develop, it must continuously foster new quality productive forces, and that in turn requires continuous innovation. But innovation does not mean the same thing for all countries. For developed countries, innovation necessarily means invention, because their industries are already at the global frontier. For developing countries, however, the situation is different. In some sectors, they may already be able to compete directly with developed countries, for example, in areas related to the fourth industrial revolution, such as artificial intelligence. But in many other sectors, they are still catching up. In those sectors, introducing, digesting, absorbing, and then re-innovating existing technologies is far less costly and far less risky than relying solely on independent invention. So although countries at different stages of development may share certain common features in economic operation, and innovation is one of them, the way innovation is pursued has its own specificity. If an industry is already at the global frontier, then innovation means invention. But if it is still behind the frontier, then the more appropriate path will often be to introduce, digest, absorb, and then re-innovate. That is where the specificity lies.

New structural economics’ new perspectives on macroeconomics

Under such circumstances, basically every subfield of modern economics can yield new insights. Let me begin with monetary theory, fiscal theory, and cycle theory in macroeconomics. For example, when macroeconomic textbooks discuss monetary theory today, they immediately introduce the idea of monetary neutrality: that in the long run, an increase in the money supply only brings inflation, and cannot bring economic growth. This is the foundation of modern monetary economics. But if one looks carefully, why is money neutral?

The reason is that its theoretical models have no structural transformation. The analysis is carried out under a given industrial structure, that is, under a given level of productivity. Since the level of productivity is taken as given, an increase in the money supply cannot raise productivity. And if productivity cannot rise, then the result of increasing the money supply can only be inflation. This is the root of the theory of monetary neutrality.

Of course, Keynesian economics is a little more nuanced. It argues that, because prices are sticky in the short run, monetary expansion may boost growth for a time. But in the long run, the conclusion is still the same. That is why it is called super-neutrality. In the long run, money is neutral, and monetary policy cannot be used to affect a country’s economic growth.

But in new structural economics, the economy is seen as a process of continuous structural transformation, in which productivity keeps rising, and the structure keeps evolving. If productivity is to keep rising, there must be continuous technological innovation and industrial upgrading. And that depends on investment, which in turn depends on the interest rate. If monetary conditions are relatively loose and interest rates are relatively low, then there will be more investment in technological innovation and industrial upgrading, and productivity will rise more quickly. Under such circumstances, money is no longer neutral. Of course, if monetary expansion proceeds at the same pace as productivity growth, then an increase in the money supply will bring growth without bringing inflation. But if the money supply grows faster than productivity, then inflation will, of course, appear. Productivity may still rise, but inflation will also be present. Even then, the rate of inflation will still be lower than the rate of monetary expansion.

After reform and opening up, from 1978 to 2024, whether measured by M0, M1, or M2, China’s money supply grew by roughly 15 per cent a year. But according to mainstream monetary theory, for example, Friedman’s theory, a country’s money supply growth should be kept at about 3 per cent. In China’s case, however, the average annual increase in the money supply was much higher. Yet inflation remained very stable, averaging less than 4 per cent over more than forty years. Why? Because per capita economic growth was close to 9 per cent. Growth was very fast. Without such rapid monetary expansion, there would have been deflation, investment costs would have become too high, and growth potential could not have been realised.

So if structural transformation is taken into account, then in comparing developed countries and developing countries, Friedman’s 3 per cent monetary growth rule in fact reflects the situation of developed countries: as discussed earlier, their per capita GDP growth is about 2 per cent, that is, average productivity growth is about 2 per cent, and with population growth added, it comes to about 3 per cent.

For developing countries, if development follows comparative advantage, the rate of monetary growth can be higher than in developed countries. Of course, if monetary expansion is used first to support technological innovation and industrial upgrading, then it is in effect subsidising innovators, and it has a wealth effect. Under such circumstances, innovators in fact receive lower interest rates and are thus subsidised, so there is also a redistributive effect on wealth.

Now consider fiscal policy. The current theoretical foundation of fiscal policy is Ricardian equivalence. According to Ricardian equivalence, fiscal policy cannot influence economic growth. And if one follows that logic, one will oppose proactive fiscal policy.

Whenever this issue is discussed, many people oppose active fiscal policy. They argue, in line with Ricardo, that fiscal policy should not be used to influence economic growth. But from the perspective of new structural economics, the process of economic development is a process of structural transformation. In that process, infrastructure must be continuously improved. The improvement of infrastructure involves market failure and, therefore, must be undertaken by the government. If fiscal policy is used to support infrastructure improvement, then once infrastructure improves, technological innovation and industrial upgrading can proceed more quickly. In that case, fiscal policy will affect the rate of economic growth.

Moreover, it is actually even better to undertake infrastructure investment during an economic downturn. In a downturn, the government has the responsibility to maintain stability. According to mainstream theory today, maintaining stability basically means paying unemployment benefits. But if, during a downturn, investment is directed towards infrastructure that removes bottlenecks to economic growth, then at the same time as investment is taking place, jobs are also being created, and the need for unemployment benefits is reduced. Once that infrastructure is completed, the bottlenecks to growth are removed, the rate of growth rises, and with a higher growth rate, the government can use the increase in future tax revenue to repay the debt incurred for today’s infrastructure investment. In such a scenario, Ricardian equivalence does not hold.

The reason mainstream theory has no concept of structural transformation. It assumes that productivity is given, and it is basically concerned only with how resources can be efficiently allocated under a given level of productivity.

That is the way mainstream theory is framed today. Under such circumstances, of course, Ricardian equivalence follows. But once it is recognised that economic development is a process of structural transformation, Ricardian equivalence no longer holds, provided, of course, that government policy is made in accordance with comparative advantage.

A third major idea in mainstream macroeconomics today is real business cycle theory. In developed countries, there is technological innovation, and this technological innovation is described as endogenous growth. Such innovation carries uncertainty and appears in the form of shocks. That is the background of what macroeconomics now calls real business cycle theory.

The argument is that when a new technology suddenly appears, it creates many investment opportunities and brings economic growth. But once investment reaches saturation, investment opportunities become fewer and the rate of economic growth declines. In this way, developed-country business cycles are explained by sudden, innovative, and exogenous shocks.

But in developing countries, as the factor endowment structure accumulates and comparative advantage continuously changes, new potential comparative advantages emerge. When that happens, industries that previously had comparative advantage may lose it, and the new comparative advantages create very good investment opportunities. Many entrepreneurs will then invest, and waves of investment will appear.

A large wave of investment can bring relatively rapid economic growth. In fact, such an investment tide is endogenous to changes in the factor endowment structure. It is not like the exogenous and unpredictable shock described in real business cycle theory. In reality, cyclical fluctuations arising from changes in the factor endowment structure can be anticipated. In 2003, I wrote an article published in the Economic Research Journal entitled “Wave Phenomena and the Rebuilding of Macroeconomic Theory for Developing Countries”, which was essentially an application of this idea.

In addition, mainstream theory in developed countries argues that during an economic downturn, there may be a liquidity trap, in which monetary expansion does not lead to more investment. This has indeed happened in recent years. Monetary policy has been extremely loose, yet investment has remained weak. The main reason is that when developed countries enter a recession, their industries are already at the global frontier. Once demand falls, overcapacity appears. But the emergence of new industries is very limited, because these countries must rely on invention. Under such circumstances, existing industries suffer from excess capacity, and even when monetary conditions are loose and interest rates are very low, firms still do not invest. That is why a liquidity trap arises.

But for developing countries, although some industries may indeed have excess capacity at present, they can still be upgraded into new industries, and there remains a great deal of room for upgrading within traditional industries. Under such circumstances, the so-called liquidity trap does not arise. So the structural differences between developed countries and developing countries give rise to many different specific features in both monetary phenomena and monetary policy.

Finance, human capital, and soft budget constraints from the perspective of new structural economics

Take financial economics as another example. Finance mainly deals with financial structure and corporate finance, and another important area is asset pricing. If one looks at mainstream finance today, what it basically teaches is how to develop modern finance: large banks, stock markets, venture capital, and so on. But this kind of modern finance is mainly suited to developed countries, where industries and technologies are already at the global frontier, capital intensity is high, and risks are also high. Finance should serve the real economy.

But the characteristics of the real economy differ across countries at different stages of development. In China, for example, there are certainly advanced manufacturing sectors comparable to those in developed countries, and opportunities can be seized in the fourth industrial revolution, whether through venture capital, stock markets, or large banks. Those arrangements are suitable for such sectors. But in the “five, six, seven, eight, nine” contribution of the private economy [contributing more than 50 per cent of tax revenue, more than 60 per cent of GDP, more than 70 per cent of technological innovation, more than 80 per cent of urban employment, and more than 90 per cent of the total number of enterprises], the vast majority of agriculture and manufacturing is still traditional and small in scale. If one relies only on modern large banks, stock markets, venture capital, or corporate bonds, it is actually very difficult to provide appropriate financial services for those sectors. In reality, this traditional part of the economy consists of mature industries, mature technologies, and small-scale firms. For them, local and regional banks are more suitable providers of financial support. So the financial structure should be compatible with the characteristics of the production structure.

Then there is asset pricing. If an investment is consistent with comparative advantage, that is preferable. If it is not consistent with comparative advantage, returns will be lower and risks higher, so its asset price should also be lower. By contrast, if it is consistent with comparative advantage, risk will be relatively lower and returns relatively higher, so the asset price should also be relatively higher. This is the view of new structural economics on asset pricing.

In addition, even if an industry is consistent with comparative advantage, there are still differences. If it is an emerging industry that is consistent with comparative advantage and has large market potential, or if it is what may be called a transitional industry, that is, one that used to be consistent with comparative advantage but is now gradually losing that advantage, then even though both may still be consistent with comparative advantage, the asset pricing will be different. The asset price of the newly emerging industry will be higher, while that of the traditional industry that is on its way out will be lower.

The most obvious example is Tesla. Its market capitalisation is now more than one trillion U.S. dollars, while the combined market value of the traditional automobile companies, including General Motors, Ford, and Chrysler, is only around 150 billion U.S. dollars, less than one-seventh of Tesla’s. One belongs to an industry that is in decline, and the other to an industry that is emerging. So asset pricing is also related to the characteristics of the industry in which a firm operates. In this respect, too, new structural economics offers a new perspective.

Human capital is extremely important. But it must also be suited to the production structure. As capital intensity rises, the demand for human capital also rises, because human capital is what helps deal with uncertainty, manage risk, and adapt to new technologies through a stronger learning capacity.

Traditional industries rely on traditional technologies. That is why there used to be sayings like, “If you do not listen to your elders, you will suffer for it soon enough.” But in emerging industries, that kind of saying no longer really applies.

If a country wants to move into modern manufacturing today, where technological change is rapid and industrial upgrading is constant, then the right kind of human capital becomes essential. But this does not mean that more human capital is always better. If industrial upgrading does not keep pace, then once investment has been made in human capital, many highly educated people may still find it difficult to obtain suitable opportunities at home. Some may leave for the United States or Europe, leading to what is often called brain drain. And for the much larger number who remain at home, if they have high levels of human capital but no suitable opportunities, that can easily lead to social discontent.

In recent years, as greater emphasis has been placed on human capital, many developing countries have significantly increased investment in education. But most of them have still fallen into the middle-income trap, and new industries have not continued to emerge. As a result, people with high levels of education often find it difficult to secure suitable jobs at home, which in turn creates a great deal of social tension. So investment in education must also be aligned with changes in the production structure.

In addition, education investment has one important characteristic. People usually learn at a lower cost when they are young, and once those skills are acquired, they can be used over a long period of time. So in a rapidly developing country, educational investment should move ahead of development itself. In that way, the cost of investment in education can be lowered, while the return on that investment can be increased.

There is also the issue of the Lewis turning point and the demographic dividend. In the past, the demographic dividend was usually discussed in a two-sector model. As labour moves from agriculture to manufacturing, productivity rises continuously, and that gives rise to a growth dividend. That is the logic of the two-sector model. It is often said today that all surplus rural labour has already been transferred out, and that China therefore no longer has any demographic dividend. But that statement is not entirely accurate. Even within manufacturing, there is still a hierarchy of manufacturing industries. Some are relatively labour-intensive, and labour productivity in them is relatively low. As long as capital continues to deepen, and labour moves from lower-return manufacturing to higher-return manufacturing, that too is a demographic dividend. So once the perspective of structural transformation is introduced, many issues can be seen in a way that differs from the mainstream view.

Then there is the issue of soft budget constraints. This is a concept often discussed in transition economies. It was first introduced by the Hungarian economist János Kornai. His argument was that state-owned enterprises in socialist countries faced soft budget constraints because they were state-owned. In his view, the relationship between the enterprise and the government was like that between parent and child: if the enterprise lost money, the government had to rescue it with subsidies. That, in his view, was what a soft budget constraint meant. And if that was the problem, then the natural solution was privatisation.

But in fact, from the perspective of new structural economics, the main reason why enterprises in socialist countries, as well as in many developing countries, face soft budget constraints is that the industries in which they operate are industries that the government has chosen to prioritise, even though those industries run against comparative advantage. In that case, the firms are carrying policy burdens; they do not have viability, and the government therefore has to subsidise them.

From the perspective of new structural economics, whether an enterprise operates in an industry consistent with comparative advantage or not leads to a very different understanding of soft budget constraints, and therefore also to a very different approach to reforming state-owned enterprises. If soft budget constraints were caused simply by ownership, then privatisation would indeed be the best solution. That is why most countries influenced by neoliberalism placed so much emphasis on privatisation. But as discussed earlier in relation to transition, when the industries concerned are capital-intensive, yet at the same time regarded as necessary for the country and burdened with policy responsibilities, privatisation often does not solve the problem. In many cases, it actually makes soft budget constraints even more serious, intensifies rent-seeking and corruption, and lowers efficiency further.

So if policy burdens are to be removed and budget constraints hardened, the key is for the industry itself to become consistent with comparative advantage, and to operate in a fair and competitive environment free of policy burdens. That is the central point.

If some industries carry policy burdens because they are tied to national security, to the national economy and people’s livelihood, or to future development needs, then under such circumstances, state ownership may in fact be a suboptimal arrangement. But if that is the case, regulation must be strengthened. On the one hand, subsidies may still have to be provided. On the other hand, supervision must also be tightened. That is also why the fight against corruption must always remain ongoing.

Opening strategies, capital flows, and the resource curse from a new structural economics perspective

Is economic openness a good thing? During the era of the Washington Consensus in the 1980s, great emphasis was placed on economic openness. But in many countries, opening up led to economic collapse and then to premature deindustrialisation. As a result, many people began to oppose openness itself. But in fact, the real issue lies in how the transition is carried out and how opening up is managed, because only industries that are consistent with comparative advantage can truly survive without protection and subsidies.

If, during transition, there are industries that were originally built under the import substitution strategy and are still important for employment, national defence and security, or the functioning of the economy, then removing protection and subsidies may cause them to collapse, and economic performance will suffer. Under such circumstances, a gradual dual-track transition is reasonable. It can preserve stability, while at the same time allowing industries in which the country has comparative advantage to grow rapidly. This way, industrialisation can deepen rather than giving way to premature deindustrialisation.

Then there is international capital flow and the opening of the capital account. Originally, the capital account was regulated in every country. After the 1970s, financial liberalisation was promoted. But the result was that many developing countries experienced repeated financial crises. In fact, the frequency of financial crises in the 1980s and 1990s was higher than in the 1960s and 1970s. At that time, the idea was to remove controls, promote financial liberalisation, and encourage international capital flows. But no clear distinction was made between real capital and financial assets. If foreign direct investment enters the real sector, that is, of course, beneficial. It increases capital, brings new technologies, and opens access to international markets. All of this is helpful for developing countries. But opening the capital account to financial assets is something that must be approached with great caution, because such capital usually does not go into the real economy. It is generally speculative in nature, and it can easily surge in or rush out.

When a country’s currency is not an internationally accepted hard currency, opening the capital account too early and allowing financial assets to flow in and out freely can easily lead to large swings in capital flows, and repeated crises usually follow. That is why even institutions such as the IMF have changed their position. They now emphasise that developing countries should manage the capital account, which means that capital flows should not be allowed to move in and out completely freely.

Then there is the Lucas puzzle. Robert Lucas observed that capital is relatively scarce in developing countries and relatively abundant in developed countries. So logically, capital should flow from developed countries to developing countries. But in reality, in most developing countries, capital has tended to flow out to developed countries. This is what is known as the Lucas puzzle.

The main reason, from the perspective of new structural economics, is that many developing countries adopted import substitution strategies, with extensive government intervention and distortion, and as a result, the return on capital investment was low. Under such circumstances, foreign capital naturally cannot be attracted.

At the same time, much domestic wealth is generated through rent-seeking and corruption, and those who hold it often do not feel safe keeping it at home, so it also flows abroad. By contrast, in places such as the four Asian tigers, or the Chinese mainland after reform and opening up, development proceeded broadly in line with comparative advantage, and returns on investment were much higher. As a result, foreign capital flowed in. So whether capital flows into or out of a developing country depends, again, on whether its development strategy is consistent with comparative advantage.

So far, most of the discussion has focused on manufacturing. But agriculture and mineral resources are also very important, especially for developing countries, because the majority of their labour force is still employed in agriculture. Agricultural development can help reduce poverty. And when agriculture develops well, it can also generate surplus, provide capital accumulation, and create a market for industrial products. The development of agriculture likewise requires technological innovation, upgrading, and diversification. In analytical terms, the logic is actually much the same as in manufacturing.

Then there is the question of how resource-rich countries, or resource-rich provinces and regions, should develop. Resource abundance is certainly a comparative advantage. But in the course of development, many resource-rich countries have experienced what is called the resource curse. Why does this happen? Because natural resources lie underground, and extracting them requires government approval.

But once government approval is involved, many non-transparent dealings can arise. This easily creates opportunities to bribe officials who control approvals, and corruption then leads to the concentration of wealth in the hands of a few. As a result, inequality widens, the majority of the population does not benefit from resource development, and social and economic problems intensify. This is the resource curse.

But if resources are well managed, and if the revenues from resources enter the national fiscal system and are then used to support the development of non-resource industries, the situation can be changed. In general, at a low-income stage, resource abundance is a comparative advantage, and an abundant supply of low-cost labour is also a comparative advantage. If resource revenues are used to support the development of labour-intensive manufacturing, while also helping to improve infrastructure, education, and other necessary conditions, then resources can become a positive force for development.

So whether resources become a curse or an advantage depends, on the one hand, on how they are managed, and on the other hand, on the broader development strategy. The United States, for example, is a resource-rich country that has developed relatively successfully. One important reason is that a large share of the gains from its resources was used to support the development of non-resource industries. That is why its economy performed well.

So, in sum, new structural economics was proposed as a third generation of development economics. But once structural heterogeneity and structural endogeneity are introduced, it becomes not only a theory of development, but also a structural revolution in modern economics with implications for every subfield of economics.

Today, I have only discussed fiscal policy, monetary policy, and financial policy. But in fact, every field of modern economics is potentially open to this kind of structural rethinking, because most existing theories are still drawn from the experience of developed countries and take the structure of developed countries as their implicit structure. Yet countries at different stages of development have different structures. That is where theoretical innovation lies.

And such theoretical innovation can better help people understand the world and change it. In that sense, it helps bring knowledge and action into unity. That is why new structural economics places such strong emphasis on the unity of knowledge and action.

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Justin Yifu Lin: How China avoided transition collapse

Pekingnology today presents 中国在过去40年间向市场经济的转型之路 China’s transition to market economy in the last four decades by Justin Yifu Lin…

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Justin Yifu LIN is Dean of Institute of New Structural Economics, Dean of Institute of South-South Cooperation and Development and Professor and Honorary Dean of National School of Development at Peking University. He was the Senior Vice President and Chief Economist of the World Bank, 2008-2012. Prior to this, Mr. Lin served for 15 years as Founding Di…

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Justin Yifu Lin warns U.S. AI bubble will burst in 5 years, causing another international crisis

Justin Yifu LIN is Dean of the Institute of New Structural Economics, Dean of the Institute of South-South Cooperation and Development and Professor and Honorary Dean of the National School of Development (NSD) at Peking University. He was the Senior Vice President and Chief Economist of the World Bank, 2008-2012…

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5 months ago · 35 likes · 4 comments · Yifan YAN and Yuxuan JIA

Now, at the end of March 2026, it is clear that neither the Government Work Report released earlier this month nor the 15th Five-Year Plan points in that direction. That is striking because calls to raise pensions for urban and rural residents became arguably the biggest social-policy story of this year’s Two Sessions, which adopted the two documents. Public attention was intense, the pressure was real, but at the level of top-line policy signaling, Beijing still stopped well short of endorsing the kind of meaningful increase many had hoped for.

To understand why the issue has become so charged, it is worth recalling that China’s pension system is not one system but two. One covers urban employees and functions as contributory social insurance, with benefits linked to wages, contributions, and years of payment. The other covers urban and rural residents outside formal employment, including most farmers. Participants in that scheme made very little contribution, so its benefits are, in practice, dominated by the state-funded “basic pension.” Because that basic benefit has long been set at a very low level, pensions for urban and rural residents remain meagre. In 2024, their average monthly pension was just $35, compared with $548 for private sector retirees.

What was once a marginal issue has therefore moved firmly into the mainstream of public debate. For many advocates, this is not just a question of government handout but of historical justice. Today’s rural elderly belong to the generation whose labor helped build the roads, reservoirs, embankments, ports, and other infrastructure that underpinned China’s early industrialization and modern prosperity. Yet many of them now live at the bottom of the pension hierarchy. Seen in that light, calls to raise rural pensions carry not only economic logic but considerable moral force.

Few commentators have pursued the issue as persistently as 彭远文 Peng Yuanwen, a veteran journalist across Chinese media outlets and my classmate in the 9th cohort of the Finance and Media Scholarship Program at the People’s Bank of China School of Finance (PBCSF) at Tsinghua University from September 2021 to June 2023.

Since January 2025, he has published more than 30 articles on China’s rural pension problem, ranging from explainers and rebuttals to commentaries tied to current events. Taken together, they amount to an unusually sustained effort to push a long-neglected issue into public view. Yuanwen was recently honored by a grassroots, non-governmental journalism award in China for his persistent effort.

And yet, despite the absence of any real policy breakthrough, Yuanwen has become more, rather than less, optimistic. That is what gives his essay much of its force. His confidence does not rest on concrete progress from the top, because there has been little of that. It rests instead on what he sees as a decisive shift in the terms of public debate: an issue once ignored is now widely discussed, a token 20-yuan yearly increase no longer passes as meaningful action, and the case for substantially higher pensions has moved from the margins toward the center of public argument. In his telling, the lack of immediate results is not proof of failure but a sign that the campaign has entered a new stage—one in which political change still lags behind social awareness, but may eventually be compelled by it.

The essay below was published there on March 12.

农民养老金：春天已来，秋天还会远吗？

Pensions for Farmers: Spring Has Come, Can Autumn Be Far Behind?

It was disappointing to see farmers’ pensions go up by only another 20 yuan this year. But I would not go so far as to say I feel disheartened, or that all hope is lost. In fact, I would say quite the opposite.

Let me put it this way: what was the hottest topic at this year’s Two Sessions? Without question, it was the call to raise farmers’ pensions. It overshadowed almost everything else, to the point that one could almost get the impression this was the only real issue on the agenda. In my twenty years of observing the Two Sessions, I have never seen anything like it.

By a rough count, at least nine NPC deputies publicly called for higher farmers’ pensions. And the online response was enormous: posts on the subject regularly attracted tens of thousands, even hundreds of thousands, of likes. The media, naturally, rushed in to cover the story, whether through original reporting or reposting. The issue was everywhere across the internet.

More importantly, the terms of the debate have changed. A 20-yuan increase is no longer an amount that can plausibly be defended. The conversation has already moved on to 300, 500, or even 1,000 yuan, with calls for those targets to be reached within three to five years.

That was not the mood in the past. As recently as last year, news achor Bai Yansong was still talking about “small but quick steps”. Now that phrase has become the biggest joke of his career, something he probably never saw coming.

On the very day the Report on the Work of the Government announced raising the minimum basic old-age benefits for rural and non-working urban residents by 20 yuan, Yicai ran a commentary titled “Farmers’ pensions deserve a bigger raise”. The very next day, Beijing News published another commentary: “To boost domestic demand, farmers’ pensions need to go up”. As far as I can recall, it has been rare in recent years for the media to express dissatisfaction immediately after the report’s release.

This is very much a product of the circumstances. In the space of just one year, a great deal has changed.

Over the past year, it was not only individual commentators like me who kept pressing the issue. A great many experts, scholars, and government officials also spoke out, and they did so consistently, from the beginning of the year to the end.

For example, at the start of 2025, Liu Shijin, the former Deputy Director of the Development Research Centre of the State Council, proposed a clear target and timetable: raise rural pensions to 620 yuan—the level of the Rural Minimum Living Standard Guarantee (Rural Dibao)—within three years, and then strive to increase it to 1,000 yuan within another two years. Over the course of 2025, this gradually became a consensus, which explains why so many NPC deputies made such remarks during this year’s Two Sessions.

Then there was Guo Shuqing, who said at the Boao Forum for Asia on 25 March 2025 that farmers’ pensions were too low: “I think the issue should be addressed as soon as possible. Perhaps, over the next five or six years, the pension for urban and rural residents could gradually be brought into line with the lower end of urban employees’ benefits.” To date, Guo is the most senior official to have publicly argued for an increase in farmers’ pensions. He has served as chairman of the China Securities Regulatory Commission, governor of Shandong, and chairman of the China Banking and Insurance Regulatory Commission, and was for many years a member of the Central Committee of the Communisy Party of China (CPC). His remarks created a noticeable surge of attention and helped push the issue into public view.

Following him were a series of economists, among whom I was most impressed by Ting Lu, Chief China Economist at Nomura, and Xing Ziqiang, Chief China Economist at Morgan Stanley.

Lu had already argued in 2024 that farmers’ pensions should be raised. In 2025, he repeated in multiple settings that no policy would do more to boost consumption today than reform of the social security system. In his view, the single most important reform for the next five years is to raise pension income for urban and rural residents. Xing made a similar case in recommending that during the 15th Five-Year Plan period, farmers’ pensions should be increased step by step until they reach 1,000 yuan a month to unlock consumption potential.

On the target, the roadmap, and even the funding sources, Lu, Xing, and Liu Shijin were broadly aligned. Over time, their position began to harden into a consensus in the economics community. Economists were, in fact, the single most important group pushing for higher farmers’ pensions in 2025. Others in the same camp included David Daokui Li, Professor of Economics and Director of the Academic Center for Chinese Economic Practice and Thinking (ACCEPT) at Tsinghua University; Luo Zhiheng, Chief Economist and President of the Research Institute at Yuekai Securities; and Xiang Songzuo, former Chief Economist at the Agricultural Bank of China.

It is widely recognised that insufficient domestic demand is the biggest challenge facing the Chinese economy. Among the various remedies on offer, increasing farmers’ pensions stands out as the most effective: it is easy to implement, and its effects would ripple through the entire economy. To economists, that is self-evident. And viewed through the lens of boosting domestic demand, it also offers ample room for argument and policy justification.

In terms of media coverage, the Economic Observer has put considerable effort into the issue, and Beijing News has also run multiple commentaries on it. But the most important outlet is undoubtedly Caixin. Caixin has followed social security issues for years, and no other media organisation can really match it either for professional depth or for influence among the people who matter.

Also worth noting is “Liaoyibo 聊一波”, the personal interview show of Wang Boming, Secretary-General of the China Securities Market Research and Design Center and former editor-in-chief of Caijing. Most of the figures mentioned above have appeared on it, and it has become an important platform for making the case for higher farmers’ pensions. The latest episode featured Xu Shanda, former Deputy Director of the State Tax Administration of China. Xu argued for establishing a basic pension system that would eliminate the gap between urban and rural basic pensions, a proposal at the institutional level.

Many people feel powerless. They think that as ordinary individuals, their voices carry little weight and they can’t make a difference. I do not see it that way at all. In my view, the participation of ordinary people is the most important factor of all.

Take one example. The biggest public reaction at the end of 2025 was triggered by a remark from the social security expert Zheng Gongcheng, member of the NPC Standing Committee, Vice Chairman of the Central Committee of the China Democratic League, and President of the China Social Security Society. He said that basic pensions should offer help to low-income groups, not add comfort to those already secure. That line struck a nerve. It set off a huge wave of discussion. Written coverage was widespread, but the circulation of short videos was even more striking, with many drawing millions, and in some cases tens of millions, of views. At this year’s Two Sessions, Zheng argued that priority should be given to substantially raising the basic pension for elderly rural residents, and he gave interviews to multiple media outlets. I believe public encouragement played a part in that. After all, everyone wants to feel that their voice is being heard and recognised.

The public shares and amplifies the issue; more influential figures then speak out; more media outlets follow up; and a virtuous cycle takes shape. The issue gathers momentum like a snowball rolling downhill. That is how the question of farmers’ pensions came to look like the single defining issue of this year’s Two Sessions. But this did not come out of nowhere. It was built on the accumulation of the past year or two.

The public actively shared and spread the word—more influential figures spoke out—and more media outlets covered the story, and a virtuous cycle takes shape. The issue gathers momentum like a snowball rolling downhill. This led to the remarkable phenomenon of the farmers’ pensions becoming the single defining issue of this year’s Two Sessions. This result was built on the accumulation of the past year or two.

What remains now is for the government to listen to these voices from society, take the final step, and bring this reform to a fitting close through sound governance. If the problem of farmers’ pensions is genuinely resolved, the impact on China will be profound. In the eyes of countless farmers and their children, it would rank as an achievement of the highest order, one that would eclipse any other political accomplishment and earn a lasting place in history.

So there is no reason at all to feel discouraged. Think back to where things stood just one or two years ago. At that point, most urban residents did not even know that farmers were living on pensions of only one or two hundred yuan a month. Now, it would be hard to find many people who still do not know. Back then, a 20-yuan increase could still be presented in mainstream media as a reasonably satisfactory figure. Now that argument has all but disappeared. To describe the shift in public feeling as undergoing a “dramatic transformation” is no exaggeration. That is how much has changed in such a short time. Why, then, should anyone feel discouraged?

Hu Shih often said that no effort is ever wasted. As he put it, “No effort simply disappears. Look, at moments and in directions we cannot yet foresee, the seeds we planted have already taken root, put out leaves, flowered, and borne fruit.” Each seed sown in spring will bring a harvest manyfold in autumn. The seeds have already been planted. They have already begun to take root and sprout. Looking across the fields now, they are already a sea of vibrant green. Friends, spring has come, can the harvest of autumn be far behind?

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Investing in people, in Rmb20 instalments

At China’s annual Two Sessions, discontent is usually filed down into ceremony. Delegates praise, endorse, and occasionally offer carefully padded suggestions. They are not meant to look as though they are rebelling against the headline promises of the…

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2 months ago · 39 likes · 3 comments · Zichen Wang

Pekingnology

Calls to address pension inequality grow

A retired top financial regulator has lent his support to the growing calls for the Chinese government to significantly increase pension payouts for its farmers. In a high-profile national forum, he advised that Beijing should bridge the gap between the pensions of farmers and urban retirees…

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a year ago · 25 likes · 1 comment · Zichen Wang

The East is Read

Reading China through its most courageous reporting

Announced on 28 February 2026 via the WeChat blog of Liu Hu 刘虎, a veteran investigative journalist, the winners of the 7th Journalists Home News Prize offer a rare guide to some of the strongest Chinese journalism still being produced today. In stark contrast to the state-run…

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a month ago · 7 likes · 1 comment · Yuxuan JIA and JINGYUAN JIANG

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As the Chinese saying goes, the people see with clear eyes. In an era when the rich and the powerful, in China and beyond, keep shattering expectations and exposing themselves as little more than self-serving mediocrities, ordinary people have not lost their judgment. They know who is fake and who is authentic, who is sanctimonious and who is sincere, who speaks the language of virtue while protecting privilege, and who actually cares about the fate of ordinary families.

That is why the mourning for Zhang mattered. It was not merely grief for a dead internet personality. It was a verdict. A verdict delivered by countless ordinary Chinese on a man they felt had spoken to them, stood with them, and never pretended to be above them. —— Zichen

The following was a July 22, 2023, Pekingnology post

The People’s Republic of China is unitary with no fedearlist system but its universities, all state-run in the socliast country, do NOT admit students fairly across provinces. All universities overwhelmingly favor local candidates in admission - that is to say, discriminate against candidates from outside the universities’ provinces or municipalities.

For example, in 2022, Tsinghua University and Peking University admitted 550 students from 54,00 candidates from Beijing, but only 424 from the central province of Henan, where there are a whopping 1.2 million candidates.

Numbers do not lie: if you grow up in the wrong province, your chance of getting into China’s indisputably top two universities is at least 25 times more difficult.

In the application process, a key step is to fill in one’s target school, because admissions overwhelmingly rely on a candidate’s one-time written test administered by the state.

For college applications, that’s the annual National Higher Education Entrance Examination ("Gaokao"). For the vast majority of students in China, it serves as the only determinant for admission into undergraduate programs at Chinese universities. The candidate with the lowest score who is admitted by a university sets the university’s acceptance cut-off point of that year. And candidates fill in their target university and major after getting their scores.

For graduate school applications, the writtest test is taken AFTER candidates fill in their target school. If the scores they later achieve meet the threshold ascertained after the test, they will be admitted; otherwise, they may be reassigned to other schools willing to accept their scores.

It is not hard to see that the fill-in phases of both Gaokao and the graduate school application exams can be very confusing and challenging. For Gaokao, the cut-off score can only be known after the admission process, so the students have to refer to the cut-off score of the previous years to extrapolate if their scores attained this year would be enough for entering their target university and major.

For graduate school applicants, the fill-in phase would be even more of a gamble since one hasn’t even taken the test before filling in, while their score attained would determine which program they may enroll in.

Since the expansion of higher education enrollment in China at the beginning of the 21st century, college students are no longer considered the so-called "pride of the world (天之骄子)," especially for those who enter non-prestigious universities. They do not have access to the career opportunities and resources available at top universities. They are not the focus of public attention, and their competitiveness in the job market is relatively low as the best Chinese companies commonly exclude those outside prestigious universities.

With the economic growth momentum slowing down, they face even more significant employment pressure and higher levels of anxiety. For the non-elite high school students or undergraduates, going to which major at which more prestigious college or graduate school could well be the best - if not the last - hope to climbe the ladder.

And that’s where Zhang Xuefeng comes into rescue. The northeast-born, Henan-educated, plain-spoken, and non-elite tutor dispenses astute counsel pertaining to Gaokao and graduate school applications: which university, major, and program should you fill in?

Zhang recently engendered fervent debates in over the journalism major in Chinese universities - and by extension, the journalism career in China.

Zhang said during a live broadcast what was perceived as an open disparagement of the journalism education and profession in China "If a child insists on majoring in journalism, I will knock him out!"

Zhang’s remarks echo the pragmatic concern of his core target followers, an anxious middle class caught in the middle of the rat race of modern Chinese educational tests who desperately try to secure a margin in the fill-in and pragmatic test preparation strategies, as well as the apparently growing though muted suspicion towards journalism as a profession in China.

“If you come from a well-off background, you have more choices, and there's no right or wrong (for your fill-in choices). But for most families, conditions are not that favorable, so you should choose a major that suits you and can secure your future livelihood,” replied Zhang to Professor Zhang Xiaoqiang from Chongqing University's School of Journalism and Communication, who advised against “being misled” and argued that journalism is a versatile field and China’s mainstream media is still an industry with employment opportunities.

This is not the first time that Zhang Xuefeng’s bluntness caught public eye. Today, we are sharing one example of his straight-forward, down-to-earth, and sometimes vulgar expressions and comments that resonate with the excessively competitive Chinese society and won him loads of followers - seven million alone on Weibo, China’s equivalent to Twitter.

The following is a pep talk by Zhang at the Jilin University of Finance and Economics to hopefuls for a graduate school education. Shot on smartphone, the video recording circulated for years in Chinese social media and sheds light on the colorful Zhang, his experience-based view of Chinese edcuation, and the pressure facing China’s non-elite undergraduates. (To be fair, they already do much better than the many more who haven’t made it into universities.)

You will definitely succeed in getting into graduate school! Even though I have no knowledge of your academic background or whether you have ever failed any courses in your undergraduate studies, let me tell you: you will definitely make it! Do you know why? Because you will come to realize that studying is one of the simplest things you will encounter in your entire life. There is indeed nothing easier than studying. Some of you may argue, “I find studying quite difficult.” Here, apart from earning money, let me give you a few examples of the challenges you might face when you enter the workforce. 

For instance, even if someone looks foolish, you have to say he looks handsome because he is  your boss's child; you have to tolerate an irritating colleague because you need that job, just like some of you currently have to endure annoying roommates. Furthermore, for some female students here, in your future business endeavors, you will often find yourself having to dine with nauseous middle-aged men, unwillingly. And for male classmates pursuing business careers, imagine your clients insisting that you must drink a glass of alcohol, or they won't cut the deal. You have no choice but to drink even though you cannot drink anymore. Which one do you think is more challenging? Clearly, studying is much simpler, isn't it? That's why I say you will definitely succeed in getting into graduate school. People often ask me, "Do you think I can make it?" Don't ask me, I'm not a fortune teller. If I say you can make it, then you can, why would I still be here? I would have started a fortune-telling business long ago. The opportunity lies in your hands, not in my words. 

When I studied management in university, our professor often talked to us about "financial independence," which, as the professor said, entrepreneurs always hope to achieve. Do you know what “financial independence” really means? At that time, some of my classmates said that financial independence means having a lot of money and being able to do whatever you want. Our professor said they were wrong. Actually, it means having so much money that you can choose not to do things you don't want to do.  — you have the right to say "no." 

Do you have this right? If you do, when you are forced to drink a glass of hard liquor for business, you could say no. Actually, I can relate to this. Do you think I want to stand here and give lectures — the microphone doesn't work well, and I have to strain my voice. I don't want to give lectures either, but I have no choice. The pay is so attractive. See? I don't have financial independence yet. Do you still think studying is difficult? No, it is too easy. 

Let me tell you, it's not easy to make a living in first-tier cities such as Beijing, Shanghai, Guangzhou, and Shenzhen. Think twice before you decide to venture there. I’ve been living in Beijing for over a decade, and some of the  fans who have followed me for a long time probably know that I bought an apartment in Beijing a long time ago. However, to be honest with you all, I have never felt like Beijing is my home. 

My apartment is located outside the fifth ring road, in the northwest of Beijing, near a road called Houchangcun Road. Now, what kind of road is it? Well, you would be extremely grateful if any of you ever get the opportunity to work on Houchangcun Road in the future. Because on that street, you will find the headquarters of some prominent companies such as NetEase, Baidu, Sina, Sohu, and Tencent, which are just 10-15 minutes drive to my place. As a result, the housing prices in my neighborhood have skyrocketed, reaching an astonishing 75,000 to 80,000 yuan per square meter. However, where is this expensive apartment located? Let me put it this way. From my place, taking a taxi to Beijing West Station costs around 140 yuan, to Beijing South Station 180 yuan, to Beijing Capital International Airport 220 yuan, and to Beijing Daxing Airport, a staggering 450 yuan. 

Every time I return to Beijing, my thought isn't, "I'm coming home." Instead, it's, "How am I going to get home?" Public transportation isn't available after 11 p.m., so I have no other choice but to rely on taxis, making me a premium member of DiDi Chuxing (a Chinese vehicle for hire company headquartered in Beijing with over 550 million users and tens of millions of drivers.). I spend around four to five thousand yuan per month on DiDi alone, since a round trip to Beijing Daxing Airport costs over a thousand yuan. There's simply no alternative.

When you visit Beijing in the future, don't go to places like the Summer Palace. Those are not the real Beijing. Let me recommend two places for you. The first one is called Bawangfen (八王坟). Bawangfen is not in the outskirts of Beijing, but in the city center, just one subway stop away from the most bustling area of Beijing, Guomao (China World Trade Center). After you leave the subway station, there is a Bawangfen bus station, take bus number 830, which starts from Bawangfen and bounds for Yanjiao(燕郊). You can experience what it feels like to have “a thousand people” on a single bus, what it feels like to have your feet off the ground without falling, and what it feels like to not have to squeeze onto a bus because you'll be squeezed onto it. 

The second place I recommend is Tiantongyuan (天通苑). Have you heard of it? It is said to be the largest community in Asia. Well, it is actually the largest community in the world. Do you know Tiantongyuan is home to four million people? There are even three subway stations in the community: the Tiantongyuan South, Tiantongyuan, and Tiantongyuan North stations. Try catching the first subway train at 5 a.m. from Tiantongyuan North and see whether you can get on or not. That's the real Beijing, you know? You need to understand that Beijing is not easy to get by in, and it's not suitable for everyone. It's suitable for people like me.

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What kind of person am I? First and foremost, my fellow students, you must be extremely resilient. If you can't handle hardships, Beijing is not the place for you. I am the kind of person who can endure significant challenges. When I first arrived in Beijing, I slept in basements, offices, kitchens, living rooms, and even corridors. Even to date, I am still quite occupied, and I can share with you if you are interested: giving lectures, writing books, reading books, rushing somewhere, etc. Some people say, “Well, that's acceptable, as long as I receive the rewards I deserve.” Ah, you got it right. Hard work pays off. 

Second, you must have dreams. Beijing is not the place for those without dreams. For example, you want to become the most outstanding graduate from our class; you want those girls who turn down you to deeply regret their choices. If you have such aspirations, Beijing is a must for you. Only in Beijing can your ambitions be realized. Actually, it was precisely why I ventured into Beijing back in the day. 

When I was in college, I had a girlfriend from a province in the southern part of China. One day, her father called me on the phone and asked, "Are you Zhang Xuefeng?" I replied affirmatively and greeted him respectfully. However, he immediately dismissed my pleasantries and said, "Don't give me that. Let me tell you, Zhang, you're just a poor guy from Northeast China. Do you think you're worthy of our daughter? Even if you two were together, would our family approve? Let me make it clear, even if she agrees, I will definitely tear you two apart. You’d better think carefully" With that, he abruptly hung up the phone. It was at that moment I made a decision: "Damn it, I'm going to venture into Beijing." Since then, whenever I faced some difficult and helpless moments, whenever I desperately wanted to leave Beijing, I would take out my wallet and look at her father's photo therein, which provided me with a surge of determination and strength.

I'm not joking. Some students may ask, "Mr. Zhang, why do you push yourself so hard? Why are you so tough on yourself? Life could be simple and ordinary, right?" Well, every year there are students saying this, mostly female. They chat with me online and say, "Mr. Zhang, my desires are simple. I just want to find a man who loves me forever, have a cute baby, and raise an adorable dog. I think that is great." Hey, if you have such thoughts, do you think it's necessary for you to strive for universities in first-tier cities? Honestly, it's not necessary. Instead, you can aim for a university/college in your own Province. Take Jilin Province for example. Jilin University of Finance and Economics is not bad. If you work hard and aim to pursue a graduate degree at Jilin University, it is definitely not without hope, right? After graduating from Jilin University, you can find a job in Changchun (the capital of Jilin Province) without much difficulty. The monthly salary may not be too high, but as a Jilin University graduate student, earning around 10,000 to 15,000 RMB per month is quite common. 

Then you find a partner who earns 10,000 to 15,000 RMB per month. Someone might ask, "Why would my partner only earn 10,000 to 15,000 RMB?” Well, birds of a feather flock together. You attract someone who is similar to yourself. Think about it, if you earn 3,000 RMB per month, how can you make someone who earns 30,000 RMB per month like you? Last time in Baoding, someone actually answered this question, and it almost drove me crazy, you know? I said, "How can you make someone who earns 30,000 RMB per month like you when you earn 3,000 RMB per month?" I was getting all worked up, and then a girl stood up and said, "Because I'm flirty." Later, upon careful consideration, I realized she had a point, but I couldn't just say she was right, could I? If you encounter an ordinary teacher, you're doomed, right? But if you encounter someone like me, do you know what I would say? I would say, "You said it's because you're flirty, right? Believe it or not, women become no more comparable when a man becomes flirty." If you don't believe me, let me introduce someone to you. I recently met someone who I believe is the most flirty man in the world. You've probably heard of him, Guo Lele (a Chinese internet celebrity who gained popularity through exaggerated performances but later got banned on the internet). If you haven't heard of him, listen to a song called "My Little Cutie" and feel it. You know what? When Guo Lele sang that song, he was singing it in front of me. I was almost frightened to death. He wanted to become famous through live streaming, but he shouldn't have done it that way. You see, he's going against the wind. Why would the rich and beautiful women want to be with him?

You find a partner, and the two of you can earn around 25,000 to 30,000 RMB per month in Changchun. But you can't expect to buy a house right after graduating from graduate school, can you? So, save money for a few years and seek some financial assistance from your parents, the down payment is not a problem either. Wouldn't that be an acceptable life? Remember, both of you come from a village or a small town, and through your hard work, you've established yourselves in the provincial capital. Isn't that progress? But why did I push myself so hard? Why did I make myself so exhausted? Don't you think it's time to ease up a bit? Because I have an “illness.” I have a severe “illness” of poverty. Since I was young, my family has been extremely poor, so poor that it's beyond imagination. There were times when our family struggled financially, so poor that we couldn't even afford the bare essentials. And not only was I poor, but I also constantly faced setbacks.

During the time I was in a relationship, my girlfriend's father called me, disagreed with our relationship, three times, and the most severe one was the third time. By that time, I had already started working. During the Lunar New Year, I sent my girlfriend to her family's home because I didn't want her to feel lonely, right? And I couldn't leave her there alone, so I accompanied her to their house. I took her to their doorstep, but her mother didn't even invite me inside for a glass of water. They told me to leave quickly. Later, even my mom couldn't bear it anymore. She called me and said, "Son, when you look for a partner in the future, don't mention that you have a family, otherwise it might hinder your opportunities. You could have found a really good partner, don't let us hold you back." I told her, "Mom, if someone accepts me, they must accept our family as well."

To be honest, my fellow students, do you think I haven't pondered over these questions? Why aren't my parents wealthy? Why am I not born with a silver spoon? Why do I have to work so hard? But as time went on, I realized that having my parents give me life is already a blessing. So why did I choose to take on such a demanding path? It's because I don't want my future generations to experience poverty again. I don't want their dreams to be shattered when they aspire to study abroad but I cannot afford it. Moreover, I don't want them to face discrimination in their relationships due to my unfavorable conditions. I don't want them to go through such hardships. However, I'm not telling you all of this to convince you that my choices are the right ones. I want to emphasize one thing: whether a person lives a good life or not, only they themselves truly know. Is the life of the person you envy exactly as you imagine it to be? Not necessarily. 

Let me give you an example of myself. During reunions with my elementary, middle, high school, and even university classmates, I am the one they all envy. Why? Because I earn a lot. Currently, I have three companies. One of them is about to go public, and the potential gains could reach several hundreds million yuan. In two years' time, you might not see me giving lectures anymore because by then, I might have achieved financial independence. Moreover, the current valuation of the second company is between 500 million and 800 million yuan. The third company is also doing well. I earn hundreds of thousands from writing books each year and millions from giving lectures. It seems like I make quite a lot, doesn't it? But do you know the price I have paid for all this? It is that I haven't been able to spend enough time getting together with my family for over a decade. Can those things be bought back with money? They cannot.

Some people say, "Why go through all this trouble when you can just settle down with a spouse and children to live an average but happy life?" But is it really that simple? Not necessarily.Today, we have more female students among us. If you are already in your third year of university, especially for the female students, when you go home for the Chinese New Year, your parents might have a deep conversation with you. Because you are about to graduate. Your parents might say something like, "You are our closest companion, so we don't want you to struggle too much outside. If things get too difficult, why not come back home? We can help you find a job in the local bank, right? If that doesn't work out, you can consider taking the civil service exam. It would be nice, wouldn't it? We and our relatives will be by your side to take care of you. Isn't that a good option?" Your parents might have such a conversation with you, you know? But let me tell you, if you listen to them, you will face an embarrassing situation. Because in your small county town, it will be challenging for you to find a partner who matches your expectations. Why is that? Because you have studied in a provincial capital city, where you have already experienced what outstanding men are like. You have a clear idea of the kind of man you want to spend the rest of your life together. But you will find that the one you like is not in your small county town , and for those who like you, you don't feel satisfied. Will you compromise or continue to wait? If you choose to wait, as time goes on, you might have less and less choices. 

Then your mother may have another conversation with you, "Let me tell you, it doesn't matter who a woman marries in her lifetime. Look at your father and me. We argue every day, but we still have made it through? Do you understand?” Then you listen to her and marry someone you may not even like that much. We could keep the grievances to ourselves. But you know what's even more troubling? When you send your child to school, you will find out that your child will study in the same primary school, middle school, and high school that you did.  What's worse, you will find out that your child’s head teacher is someone you know: your middle school classmate. You know exactly what kind of person he or she is, and he or she is not capable of being a teacher at all. And now your child has to be with him, do you think your child will be likely to have a prosperous future? Anyway, if you're interested, go back home and take a look. Most of your elementary school and middle school classmates are probably still stuck there. That's usually how it goes.

I went to high school at that time, but do you know what those who couldn't get into high school are doing now? They are working as doctors at our county hospital. When we gathered for the New Year and had drinks, do you know what they said to me? They said, "If your parents ever fall ill, come to the county hospital and find me." Find you? That's no different from seeking death! Tell me, what can you do? I know exactly what kind of people you are. I don't know how you managed to work at the county hospital, but you should be aware that medical resources differ between big cities and small cities. It's something you all should consider.

Sometimes, when I give lectures at universities, do you know what I feel when I look at all of you? The first feeling is envy. believe me, I genuinely envy you. Being young is such a wonderful thing. You have the flexibility to switch majors if you don't like what you're studying. You can even change universities if you think the one you're in is just average. You have the freedom to pursue what you want. You're like a blank slate. But can I do the same? I'm old now, and the education industry is the only path I could continue to do for the rest of my life. I can't do anything else. The second feeling I have is I think all of you are idiots. Because you frequently waste a significant amount of time on things that have no real bearing on your future. Right now, in university, you're at a stage where it's easiest to become complacent. Do you know why? It's because you lack comparison. In high school, you had grades to compare yourself with others. But now, you may feel that grades are not that important, and there are people who constantly feed you with speeches like, "It doesn't matter if your grades aren't good. Those who excel academically now may not necessarily succeed in the future." You lack comparison. For example, in your dormitory, do you compare yourself with your dorm mates? In the same major, you may think “I am average, and so is he”. For female students, “I can't afford expensive bags, and neither can she”, right?

However, do you really think you're all the same? No, the differences among you are not manifested in college. After ten years of graduating from your undergraduate program, each and every one of you will have taken different paths. Some of you will have achieved success, while others may not. Now, my fellow students, while you're still lying in your dorm beds, take a moment to imagine the way you will present yourselves at your ten-year college reunion. Will you be looking down on others or be looked down upon? This is especially pertinent for male students. Think about it: that girl you once pursued who didn't reciprocate your feelings, how will she view you ten years later? Will she be thinking, "Why didn't I choose you?" or "Thank goodness I didn't choose you!" What I'm saying may not resonate with you now, but when you reach my age, you will have a completely different feeling. 

I'm 35 years old this year, born in 1984. When you're my age, can you honestly say there won't be any ripples in your heart when you encounter your ex-boyfriend or ex-girlfriend and the people who you crushed on him or her? You're a person with emotions. Won't you wonder what would have happened if you had been together with them? You will undoubtedly have many thoughts and contemplations especially when it comes to the ten-year reunion, with some people doing well and others not. You may think you're doing great in school now, but if you're not doing well later, won't you feel upset?

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In his view, Beijing neither seeks nor intends to replace the United States in filling any so-called “vacuum”, nor should it be expected to do so. China’s position, he argues, is to integrate into the multilateral system and help improve it, not to replace one hegemon with another.

Da Wei is Director of the Center for International Security and Strategy (CISS) and a Professor at the Department of International Relations, School of Social Science, Tsinghua University.

The interview was published on 12 March 2026 by The Paper and is also available on CISS’s official WeChat blog. Da Wei reviewed the translation before publication.

达巍：中国不会也无意填补美国留下的“真空”

China neither seeks nor intends to fill any “vacuum” left by the United States

New Opportunities in China-U.S. Relations Require Direct Engagement Between the Two Heads of State

The Paper

Last month, the Chinese and U.S. presidents spoke by phone and stressed the need to “make 2026 a year where our two major countries advance toward mutual respect, peaceful coexistence, and win-win cooperation”. In your view, from the leaders’ phone call in February, to Trump’s possible visit to China at the end of this month, and then on to the APEC and G20 summits, what role can such high-frequency interactions between heads of state play in shaping both expectations for the bilateral relationship and its actual agenda?

Da Wei

There is no doubt that meetings between heads of state carry crucial strategic significance. In both China-U.S. relations and international affairs more broadly, national leaders—whether in China, the United States, or Russia—are playing an increasingly prominent role in shaping international relations. We are living in an era in which “leadership is key”. Compared with the more traditional model in which leaders, bureaucratic institutions, social groups, and economic forces jointly shape international relations, the personal role of leaders has now become especially important.

Against this backdrop, the importance of meetings between the Chinese and U.S. presidents is self-evident. This is particularly true at a moment when bilateral relations are at an important juncture and may be entering a window of opportunity. After a period of difficulties and fluctuations, there may now be some new openings in the relationship. That is precisely why the two leaders need to meet in person, so that new possibilities can emerge through direct engagement.

The Paper

You just mentioned that leaders’ personal influence is becoming ever greater. We noted that, after your recent visit to the United States, you said that there are at least four or five different views of China within the United States, and that Trump’s view is, relatively speaking, “more favourable”. How would you assess the sustainability of this “more favourable” view on Trump’s part?

Da Wei

Personally, I do not think Trump holds a particularly hostile view of China. His view of China is relatively neutral, and he is willing to engage in certain “deal-making”. Whether with regard to China’s leaders or to China as a country, Trump has also shown a certain level of respect. These factors constitute the more favourable side of Trump’s view of China.

I think Trump’s personal attitude towards China is, in all likelihood, sustainable. Looking back at his first term, his basic position had already become visible. However, although I have emphasised the personal role of leaders, no leader can be separated from their environment. His decisions and influence will be constrained by multiple factors, including the views of members of his team, differences in positions within government institutions, and broader shifts in the international landscape.

Therefore, Trump’s role cannot be understood too simply, as though personal will alone could reshape the external environment. For example, if he intends to move China-US relations in a positive direction while the broader environment is moving in a negative direction, the effect of his personal actions will be limited. Even so, I think that during his presidential term, Trump will most likely be able to maintain a certain degree of control over the overall situation.

I would also especially emphasise that once certain measures are put in place, they are often not easy to reverse. The tariffs imposed on China during the first Trump administration were not removed after the Biden administration took office and power changed hands; rather, they were further intensified.

This shows that both the broader environment and policy itself have considerable continuity. A change in leadership does not automatically mean a reversal of earlier policies. Once a precedent is set or a policy direction is established, it can easily outlast the term of any individual office-holder and display significant continuity.

The Paper

A follow-up question. Based on the two points we have just discussed—first, the possibility of frequent meetings between theChinese and U.S. heads of state this year, and second, Trump’s own attitude towards China—do you think these factors can help the two countries build a more durable framework for their relationship?

Da Wei

We cannot predict the future, but I do think this could open up a new possibility.

The Paper

From China’s perspective, how should China maintain the basic stability of China-U.S relations in the face of a highly uncertain domestic political environment in the United States?

Da Wei

On the one hand, China certainly hopes to use bilateral channels, high-level exchanges, and interactions at various levels to establish more institutional arrangements in specific fields such as the economy, trade, and military-to-military relations, to promote the stable development of bilateral ties.

On the other hand, more and more people recognise that stability in China-U.S relations cannot rest on goodwill from the American side, nor can it depend on chance or luck. If the relationship is to become more stable, it must ultimately be grounded in the strength of both countries, especially China’s own strength.

In that respect, sustained progress in economic development and technological innovation is particularly important. China already has considerable strength in the military sphere. In the current major power competition, if China can maintain solid momentum in the economic and technological domains, and convince the other side that it cannot secure overwhelming superiority over China and must instead accept the reality of coexistence, then I believe the relationship will become more stable.

China Must Continually Expand Its “Circle of Friends”

The Paper

Last year, you argued that U.S. tariff policy had, paradoxically, given rise to a kind of “WTO minus 1” scenario in global trade. Since then, with the United States taking more and more steps to pull back from international frameworks, some analysts have suggested that the world is now moving towards a “world minus 1” phenomenon. In your view, is this just a temporary transitional phase, or could it become a new normal?

Da Wei

The current international landscape cannot be reduced to a simple “world minus 1” formula. The reality is that the world is displaying a certain degree of fragmentation, along with trends towards multipolarity and regionalisation. These trends do not amount to a so-called “world minus 1” situation in which the rest of the world comes together to push the United States out.

In fact, as the United States has stepped back, other major forces in the world have also been going through their own processes of differentiation and realignment. There are tensions and disagreements among them, but at the same time, new opportunities for cooperation are also emerging. Europe, for example, is advancing free trade negotiations with South America and India. At the same time, there are differences between China and Europe, and between Russia and Europe. These are all part of the new shifts now underway, which is why I do not think “world minus 1” is an accurate description.

That said, it is true that current U.S. policies have affected the United States’s global position and contributed to a certain decoupling between the United States and the rest of the world. But “minus 1” is still not quite the right description because other parts of the international system are also fragmenting and recombining, a process often described as “multipolarisation”.

The Paper

How should China respond?

Da Wei

On the one hand, China’s relationship with the United States needs to remain stable, and cooperation should be maintained. On the other hand, it is equally important to develop relations with the world’s other major actors. This raises a question: what principles should China uphold, and what ideas should guide these relationships? Put simply, the objective should be to continually expand China’s “circle of friends” and to achieve overall stability in its relations with all parties, including the United States, Europe, India, and the wider Global South.

However, contradictions among states are unavoidable. Faced with that reality, China should firmly embrace multilateralism and globalisation. The key question is how to put these principles into practice in specific bilateral relationships, such as China’s relations with Europe and with Global South countries. Taking economic relations as an example, if one were to follow a purely absolute version of free trade, China’s powerful manufacturing capacity could produce an enormous trade surplus, and that would not be sustainable over the long term. Last year, China’s trade surplus reached the highest level in human history.

So the question China must consider is how it can work with other countries to build an inclusive and broadly beneficial form of globalisation, as well as an equal and orderly form of multipolarity. That means rebalancing bilateral relations. Principles are easy to state, but in real-world practice, what matters is whether interests can be coordinated and balanced in ways that make cooperation sustainable.

The Paper

Recently, leaders from countries including France, South Korea, Canada, the United Kingdom, and Germany have visited China in quick succession. Some commentators have described this as a form of “hedging diplomacy” in response to the uncertainty surrounding the Trump administration’s foreign policy. How do you see the strategic autonomy and balancing calculations behind this wave of visits to China? And what does this trend mean for Chinese diplomacy?

Da Wei

It reflects these countries’ desire to diversify their options. For a long time, Europe has relied heavily on the United States, but under current circumstances, it is looking to widen its diplomatic room for manoeuvre. China’s development opportunities also offer cooperation dividends to these countries.

However, it is also a fact that differences remain between China and Europe, whether with countries such as Germany and France individually or with the European Union as a whole. China cannot realistically bypass the EU framework and deal only with individual member states.

I believe China-Europe relations ought to improve. But at present, they are held back by two major obstacles: first, the issue of Ukraine; and second, structural contradictions in the economic and trade sphere. Neither of these two problems can be easily resolved in the short term.

Therefore, visits to China by European leaders reflect a shared willingness on both sides to improve relations, but high-level exchanges are not in themselves the end point; rather, they are an important opportunity to advance the resolution of problems. The effectiveness of these visits depends on whether the two sides can manage their differences and advance cooperation pragmatically. This still requires continued observation and effort.

Although both sides certainly have a genuine desire to improve relations, the significance of high-level visits lies in the opportunities they create to address underlying problems, rather than in the visits themselves directly improving ties. Whether dialogue can ease and manage contradictions will determine the actual trajectory of China-Europe relations.

Gaps in Global Governance Should Be Addressed Together With Other Countries

The Paper

Some argue that the United States’ recent wave of withdrawals from international organisations has created an opening for China to fill a gap in global governance. Do you agree with the idea of a “vacuum”? And should China move proactively to fill it?

Da Wei

China neither seeks nor intends to replace the United States in filling any so-called “vacuum”, nor should it be expected to play such a role. China is not a hegemonic power, and it does not aspire to become a superpower in the traditional sense. It has consistently defined itself as one of the world’s major countries, advocated multipolarity, and stressed that international affairs should be handled through consultation and participation by all countries.

Nor does China have the strength to fill gaps in global governance on its own. The world is multipolar, and issues should be addressed collectively through consultation. When it comes to gaps or deficits in global governance, China’s position is that existing mechanisms, including the United Nations, should be made to function more effectively and be reformed to better meet the needs of the times, rather than being replaced by any attempt to fill a supposed space left by the United States.

Finally, as for the line of argument in Western public discourse that China filling such a vacuum would mean the emergence of a new hegemony, I think that is too simplistic. It does not fit the reality of Chinese policy, and it projects a traditional Western view of power politics too directly onto China, which is not a sound approach. China’s development path is to integrate into the multilateral system and help improve it, not to replace one hegemon with another.

The Paper

In your view, what specific expectations does the world have of Chinese diplomacy in 2026, especially in terms of managing relations with the United States and its allies and participating in specific multilateral agendas such as reform of the United Nations and the World Trade Organisation?

Da Wei

I think these expectations can mainly be summarised as follows: first, there is an expectation that China will maintain stable relations with the major powers, especially the United States. Stability in China-U.S. relations matters not only to the two countries themselves; it also provides an important source of certainty for the wider world.

Second, amid today’s global turmoil, many countries do expect China to play a larger role. That is a reasonable expectation. I believe China will take on greater responsibility in global governance and make more substantive contributions. That means not only deeper engagement on specific issues, but also a clearer defence in international affairs of the principles China has consistently advocated.

The world today is facing growing disorder. The international order and its underlying principles are under strain. Some countries resort too readily to the use of force against others, even endangering the safety of other countries’ leaders. Behaviour of this kind seriously undermines international rules and order. In such circumstances, more countries need to step forward and firmly uphold the basic norms of international relations and the international rule of law. China should play a larger role in this respect and take a clear position.

Overall, the world’s principal expectation of Chinese diplomacy is that, amid global uncertainty, China will provide greater certainty for the world.

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Post APEC, Chinese scholars weigh limited easing in China–U.S. rivalry & Trump’s new G2 pitch

Hot on the heels of the latest phone call between President Xi Jinping and U.S. President Donald Trump, it is worth recalling that, in the period between their meeting in Busan and this renewed contact, Chinese analysts were already dissecting the trajectory of the relationship…

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Yao Yang on three shifts he saw in the U.S. and in China-U.S. relations

Yao Yang, dean of the Dishuihu Lake Advanced Finance Institute (DAFI), Shanghai University of Finance and Economics, is among the earliest well-known Chinese scholars to embrace short video as a way of reaching general audiences. He has since built a sizeable following on his account “Yao Yang Speaks…

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a month ago · 18 likes · 1 comment · JINGYUAN JIANG and Yuxuan JIA

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For much of the post-war era, the architecture of global governance rested on the simple assumption that the United States would support the systems it largely designed and uphold the rules it helped to create.

The first Trump administration was no isolated incident. Now, from the vantage point of 2026, amid the US-Israel attack on Iran and the subsequent closing of the Strait of Hormuz, it is quite clear that there is little sign of an appetite in Washington for the US to once again safeguard the order it helped create.

Yet the retreat of one great power does not mean the collapse of globalisation or multilateralism. Instead, the torch has passed to middle powers who are coming together in flexible formations to sustain the institutions that underpin globalisation and multilateralism.

Canadian Prime Minister Mark Carney expressed this critical juncture at the World Economic Forum in Davos in January, where he laid to rest hopes of a return to normal. He argued, quite rightly, that countries must increasingly build flexible forms of cooperation rather than rely solely on rigid ideological blocs.

As we enter a “Romance of the Three Kingdoms period” in global politics, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) stands as an example of middle-power agency. When the US abandoned the original Trans-Pacific Partnership, the framework verged on collapse. Yet it did not.

Instead, a coalition of middle powers, including Japan, Canada, Australia and other economies, rallied to save it in a revealing experiment in middle-power leadership. The agreement’s constituent economies account for roughly 15 per cent of global gross domestic product and represent some of the most dynamic trading nations in the Asia-Pacific, and it now includes the United Kingdom.

The CPTPP is just a single facet of an emerging architecture as middle powers ranging from Group of Seven members to regional actors – such as Turkey and India – respond to a world where the US no longer anchors the security and economic architecture of the international system. That does not mean the US has ceased to matter, but it does mean even its formerly close middle-power allies are beginning to exercise greater autonomy.

But today, the agreement is more important than ever. In a period marked by rising tariffs, industrial policy disputes and unilateral economic measures, it represents a shared commitment to open markets and predictable trade rules with a significance that has expanded beyond the Pacific Rim. Sweden has proposed that the European Union join the CPTPP.

At a time when tariffs, sanctions and industrial policy measures are increasingly deployed outside multilateral frameworks, and the US-Israel attack on Iran casts doubts on the future of multilateralism, the CPTPP serves as an indictment of unilateralism, defending open trade with free and fair rules against protectionism.

The emergence of this united front can be reinforced by answering one of the most consequential questions for the CPTPP’s future: whether other middle powers can find their place in the agreement. Both China and the EU could cooperate or even accede to the agreement, working hand in hand to develop a free, fair and open future for both world trade and global governance.

China is interested in both cooperation and possible membership. In recent years, Simon Birmingham, who served as Australian trade minister, has publicly encouraged China to pursue CPTPP membership. Integrating major economies into high-standard trade frameworks strengthens both the agreements themselves and the broader international economic order.

Furthermore, China is developing its own trade policy trajectory in ways that are complementary. Participation in the Regional Comprehensive Economic Partnership, the world’s largest trade agreement by population, has been a prelude focused on increasing market access and harmonising trade rules. But Beijing is ready to step beyond that to the next generation of more encompassing trade agreements. Already, China has seen an extensive raft of reforms, which represent a commitment to the high-standard trade rules of the CPTPP.

The demand for global trade is still strong. As the lifeblood of the world’s prosperity, trade’s share of global economic activity remains consistent. What is changing are the institutional pathways through which trade flows. The partners on the dance floor may be shifting, but the dance itself continues. Together, a sort of World Trade Organization 2.0 could be built as a logical extension of the Multi-Party Interim Appeal Arbitration Arrangement.

Here, Japan could play a critical role. As the largest economy currently inside the CPTPP, Tokyo occupies a position of gentle influence. If Japan were to support and guide China’s pathway towards CPTPP membership, it could not only reinforce the agreement’s economic weight but also open a channel to bolster trust and cooperation. This is crucial, especially given the current low ebb of China-Japan relations.

Ultimately, the CPTPP’s significance lies in what it means for globalisation’s future. The world is entering a multipolar era in which economic and political leadership is distributed rather than concentrated. In such a system, multilateralism depends on coalitions willing to uphold open markets and shared rules.

The US may even decide to rejoin this framework someday. Should it look to do so, the door should remain open. But the experience of the CPTPP reflects an important reality: the future of global trade will not wait for any single country. Nations that remain committed to economic integration are moving forward together. In doing so, they are shaping the foundations of a more plural – but still open – global system. (Enditem)

CCG Update - Center for China and Globalization

Transcript: Iran war is harming the U.S.′ image while China’s influence grows daily, says CCG President

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a month ago · 10 likes · Yuxuan JIA

Below are transcripts of two recent videos. The first, posted on 6 March, followed his visit to the University of California, Irvine (UCI) and the University of California, San Diego(UCSD). A transcript of his lecture at UCI’s Long U.S.–China Institute has also been published on Pekingnology. The second was posted on 19 March, after Yao took part in a conference on China-U.S. relations in Honolulu, Hawaii. (Zichen Wang also joined the Hawaii conference.)

The translation of the first transcript is based on the version published on DAFI’s official WeChat blog on 17 March. The second is based on a manuscript provided by Yao himself and has been lightly edited from the spoken version of the video.

—Yuxuan Jia

姚洋：美国正在发生的三个变化

Yao Yang: Three Changes Now Under Way in the United States

I recently visited the University of California, Irvine (UCI) and the University of California, San Diego (UCSD). During my interactions there, a few thoughts stayed with me, and I’d like to share them with you. I came away with three main observations.

1. Fewer Chinese students are starting to affect funding at U.S. universities

First, public universities in the United States are generally facing financial pressures, and one important reason is the sharp decline in the number of Chinese students.

In the past, many American universities offered a large number of master’s programs, which were, to a significant extent, “tailored” for Chinese students. Chinese students have strong financial resources, and master’s programmes generally require less investment from universities than undergraduate education. As a result, these programmes were often treated as “cash cows” that provided a vital source of revenue.

When I visited the University of Chicago in January, I learned that some programmes had been cancelled because they were unable to recruit enough Chinese master’s students, and simply did not have sufficient funding to continue. Many universities share the same concern: as fewer Chinese students come to the U.S. for postgraduate study, their financial situations are being significantly impacted.

Why are fewer Chinese students choosing to study in the United States? One key reason is the shift in immigration policy since the Trump era.

On the one hand, visa policies have become stricter. In particular, numerous enforcement activities by U.S. Immigration and Customs Enforcement have contributed to a more tense social atmosphere and caused many to worry about their safety and stability after arriving in the United States. On the other hand, and more importantly, work visa policies for international students after graduation have changed. It has become harder for international students to stay and work in the U.S. after graduation. Many families invest substantial funds to send their children to study in the U.S., often hoping they will be able to work there for a period after graduation, at least to offset tuition costs. However, such opportunities are becoming increasingly scarce.

At the same time, the job market back in China has also changed. In the past, students who returned from overseas often benefited from a certain prestige in the labour market and could more easily access better opportunities. That advantage has weakened significantly, and in many sectors it has largely disappeared. Taken together, these factors have significantly reduced Chinese students’ enthusiasm for studying in the United States.

2. There is a generational shift in how Americans view China

My second observation concerns changing attitudes towards China in the United States.

During this trip, I took part in two public events, one in Irvine and one in San Diego. The audience included not only Chinese students, but also many local residents and faculty members. At the San Diego event alone, more than 100 people attended in person, and over 300 joined online. The vast majority were local Americans. This shows that American society continues to pay close attention to China.

What stood out to me even more was the clear generational difference among American China scholars. Older scholars who began studying China decades ago tend to have strong emotional ties to the country, and they genuinely hope the U.S. and China can maintain a cooperative relationship. In San Diego, for example, I met the well-known China expert Susan Shirk. She first went to China around the time of Nixon’s visit, when she was still a student doing research. Since then, she has devoted nearly her entire career to studying China-U.S. relations and holds deep affection for China.

At the same time, however, I also met many younger American China specialists, and their approach is noticeably different. They have less emotional attachment and are more likely to analyse China through the lens of U.S. national interests. Their perspective is more rational and more sober.

The reality is that future U.S. policy toward China will be shaped to a large extent by this generation of researchers and policymakers. Therefore, if the Chinese side continues to rely too heavily on emotional appeals, that approach may no longer work as well as it once did. Managing China-U.S. relations in the future will probably require a more rational and hard-headed approach.

3. The capital logic behind AI anxiety

My third observation is about artificial intelligence (AI).

In the United States, I met quite a few former students who are already using AI very deeply to assist their research. They asked me: How is AI developing in China?

From what I observed, AI is not yet embedded in everyday American life to the same extent as it is in China. Take payments as one example. In many parts of the U.S., people still rely mainly on bank cards; even cash remains common. In China, by contrast, internet-based payment systems and digital applications are highly integrated into daily life, and AI is becoming more and more widespread. In some ways, it is starting to feel almost everywhere. And yet, interestingly, public anxiety about AI seems stronger in the United States.

One important reason, I think, is that AI companies in Silicon Valley depend on a constant flow of investment from the capital markets. Because of that, they have every incentive to emphasise AI’s enormous potential and to push narratives such as the imminent arrival of AGI. These stories give the public the impression that AI will soon transform the world completely.

But when technological change reshapes society, it usually does so over a long period of time—ten years, twenty years, or even longer. If one looks at world history, especially since the nineteenth century, it is clear that society usually adapts gradually to new technologies, rather than being instantly remade by them.

There was an economic theory that suggests new technologies emerge in response to demand and price signals. But in reality, many groundbreaking technological advances are unpredictable. They are often driven by curiosity and a spirit of adventure. Before Apple introduced the smartphone, for example, there was no clearly articulated mass demand for one. It was only after the technology appeared that people realised how profoundly it could reshape everyday life.

AI may well follow a similar path. Some AI companies in Silicon Valley are amplifying public anxiety in order to attract more capital, and that may not be a healthy practice. In the end, society will most likely adapt gradually to the changes AI brings.

Those are some of my observations and reflections from my recent visit to the United States.

姚洋：脱钩表象之下，中美关系的三个新变化

Yao Yang: Three New Shifts in China-U.S. Relations Beneath the Surface of “Decoupling”

This meeting left me with three reflections that I would like to share.

I. Structural complementarity beneath the surface of “decoupling”

First, in the economic and trade sphere, subtle yet somewhat encouraging changes are taking place within the United States. For some time now, the prevailing view in the U.S. has emphasised the need to minimise economic ties with China—the so-called “decoupling” or “de-risking”. The argument is that if the U.S. and Chinese economies become too deeply intertwined, the United States could find itself at a disadvantage in terms of economic security. To a certain extent, this assessment reflects a recognition in the U.S. of the strength of the Chinese economy.

The data do show a decline in the share of China-U.S. bilateral trade. China’s share of U.S. imports has fallen from around 20 per cent to less than 10 per cent, while the U.S. share of China’s exports has dropped from nearly 20 per cent to below 8 per cent. But this surface-level “decoupling” masks a more important reality. On a value-added basis, China’s actual share of U.S. imports may not have fallen, as many Chinese firms have “gone global” by establishing factories in third countries and then exporting to the United States. In other words, economic ties between China and the United States have not truly weakened; rather, the channels through which they are expressed have shifted.

At a deeper level, genuine decoupling between China and the U.S. remains difficult because it is clear that the two economies are structurally complementary. The U.S. economy is centred on services, especially finance, and places greater emphasis on innovation from 0 to 1. China’s economy is centred on manufacturing and is stronger in scaling and application, moving from 1 to N. In that sense, the two systems display a kind of mirror-image symmetry. This is also evident in trade balances: the U.S. has long run a large trade deficit, while China has maintained a corresponding surplus. The two are broadly symmetrical. This suggests that the global division of labour has not fundamentally changed over the past two decades.

Against this backdrop, a growing view within the United States is that full decoupling from China is not realistic. At the same time, however, the U.S. is unwilling to continue importing large volumes of Chinese goods directly. This has given rise to a new tendency: greater openness to Chinese firms investing and setting up production in the United States. The focus on security concerns alone is beginning to soften, and the advantages Chinese firms hold in medium-technology sectors are gradually gaining recognition in the U.S.

This openness, of course, will not be across the board. In sectors such as electric vehicles and solar power, openness is still likely to remain limited because of industrial interests and policy preferences. But in most other sectors, the United States may gradually open space for investment by Chinese companies.

II. Internal adjustment in U.S. strategic thinking

My second point is about shifts in U.S. strategic thinking, especially on security and foreign policy. At the conference, some U.S. scholars described changes within the Republican Party. For many years, neoconservatism was the dominant strand, built on the idea that U.S. interests should be defended and American values advanced through an assertive, offensive strategy. That is now changing.

One camp, often called the “restrainers”, argues that the United States has limited capacity and cannot pursue its interests everywhere at once, and should scale back and focus more on domestic priorities. Another camp, called the “prioritisers”, sits between neoconservatism and restraint: it favours some strategic retrenchment, but still wants to maintain an offensive posture in key areas, including on China. This suggests that U.S. foreign strategy is moving away from broad-based expansion towards a more selective and focused approach.

III. Policy change and the “misalignment” of the think tank system

My third point is about a phenomenon worth watching. At this conference, the American participants largely avoided discussing whether Trump might visit China. Their stated reason was that Trump’s policies are too fluid to support stable expectations or serious discussion. But there is, I think, a deeper reason: U.S. think tanks, academia, and policy research circles are, to some extent, struggling to keep up with the pace of policy change.

Back in 2018, when Trump launched the tariff war against China, many U.S. scholars opposed it on the grounds that it would accelerate decoupling. Over the past seven or eight years, however, the broader mood in U.S. think tanks, policy circles, and academia gradually shifted towards a stronger emphasis on economic and national security, meaning it has sort of caught up with the policy logic of that period. Now Trump is moving again, showing interest in easing tensions with China to some extent and addressing long-term trade issues. Those same communities are once again lagging behind.

My sense is that if China-U.S. relations were to ease temporarily, some movement in the economic and trade sphere could follow. For example, existing tariff arrangements might be turned into a longer-term mechanism; some understanding might emerge on export controls; the U.S. might further open space for Chinese investment; and China might widen access for U.S. firms in services. However, precisely because the policy direction remains in flux, U.S. academic and policy circles have found it difficult to form stable expectations. That is an important reason why they avoided this discussion at this conference.

These are my three observations from the meeting.

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Pekingnology

Yao Yang: the post-2018 evolution in China's political economy

On February 23, 2026, the Long U.S.–China Institute at the University of California, Irvine hosted Professor Yao Yang, Dean of the Dishuihu Advanced Finance Institute at Shanghai University of Finance and Economics, for the Long U.S.-China Institute Distinguished Lecture 2026 on China’s political economy and the future trajectory of U.S.–China relations…

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2 months ago · 31 likes · 3 comments · Zichen Wang

Pekingnology

Wu Xinbo Says We Are Witnessing Yet Another Turning Point in China–U.S. Relations

The following interview was published in the second issue of 2026 of 世界知识 World Affairs, released on January 16, 2026. It became available on World Affairs’ official WeChat blog on January 15, 2026. World Affairs is published by World Affairs Press under China’s Ministry of Foreign Affairs…

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3 months ago · 31 likes · 6 comments · Yuxuan JIA and Zichen Wang

The Geopolitechs substack has a full write-up, including this point by Li Chenggang, China’s Vice Minister of Commerce and Chief Trade Negotiator

On the issue of promoting bilateral trade and investment, the two sides discussed the idea of establishing a working group to study possible cooperation mechanisms aimed at facilitating bilateral trade and investment.

Geopolitechs

U.S.–China Trade Talks in Paris: What Was on the Table

Today, the China–U.S. economic and trade teams concluded their talks in Paris. The meetings were held at the OECD headquarters in Paris. The first day of discussions lasted until around 6:00 p.m. local time, while the second day concluded at noon…

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a month ago · 4 likes · Geopolitechs

In the meantime, I have an op-ed in Foreign Policy that also just came out

‘Made in America’ Should Accept Chinese Investment

Private Chinese capital is being locked out of mutually beneficial opportunities.

Since returning to the White House, Donald Trump has made inbound manufacturing investment a central part of his economic message. In his telling, the relevant question is not where capital comes from but whether factories are built in the United States and jobs go to U.S. workers. Yet one country remains a glaring exception to that logic: China. As U.S. and Chinese trade officials prepare for talks in Paris ahead of a possible meeting between Trump and Chinese President Xi Jinping, that exception deserves scrutiny.

Trump’s openness to Chinese investment is not entirely new, despite his previous singling out of China as an economic opponent. On the campaign trail in September 2024, he said he wanted to lure factories from abroad, including from China, with low taxes and light regulation. In remarks at the Detroit Economic Club on Jan. 13, he was blunter still: “Let China come in.”

Resistance in Washington is strong and has been entrenched for years across Congress and much of the U.S. policy system. That resistance rests on both ideological and security grounds: In much of Washington, even Chinese capital is now easily characterized as Communist Party-led, state-linked investment that could threaten U.S. national interests. In some scenarios, the questions raised are legitimate, whereas in others they are excessive, sometimes even paranoid. But the real question is whether that resistance should be treated as absolute and inflexible.

The Trump administration’s own standards suggest the possibility of a different approach. The 2026 Trade Policy Agenda says Washington should “attract constructive foreign investment” while ensuring that foreign investment does not “imperil national security.” Taken seriously, that should not mean closing the door to all Chinese investment. It should mean preserving a narrow lane for arrangements that demonstrably do not imperil national security: structures with strict governance safeguards, legal ringfencing, robust auditing, and a clear link to domestic production and employment.

The Wall Street Journal recently reported that Washington wants China to expand purchases of U.S. energy. That is an extraordinary ask at a moment of geopolitical strain and energy insecurity. But it also reveals an obvious asymmetry: The United States is comfortable with economic ties that deepen Chinese reliance on U.S. supply—yet far less willing to tolerate even tightly constrained forms of Chinese participation in the U.S. economy. A more coherent approach would apply the same principle to investment: hard lines around what is genuinely sensitive and limited space for what is not.

In some nonsensitive sectors, projects undertaken by Chinese firms with established U.S. partners may prove easier to defend politically than stand-alone Chinese ventures. Chinese companies may be more open to such arrangements than many in Washington assume because durable access to the U.S. market increasingly depends on partners that can navigate regulatory, political, and public pressures.

Those pressures are particularly intense for Chinese projects, as the Ford-CATL battery project shows. In that case, Ford’s planned Michigan battery plant was structured so that Ford would own and operate the facility while CATL would provide battery technology under a licensing arrangement rather than take an equity stake. The ring fence was designed precisely to preserve U.S. ownership, U.S. production, and U.S. jobs while allowing a U.S. company to use Chinese industrial know-how. Even so, it has remained under sustained attack from Capitol Hill. That is not a new turn in Washington thinking but the continuation of a longer pattern in which even limited, structured forms of industrial cooperation with China struggle to remain politically defensible.

Tencent’s gaming investments illustrate the point from another angle. Video games are not strategic U.S. infrastructure, but Tencent also sets limits on itself. It holds only a minority stake in Epic Games, while control remains with the developer’s well-known American founder. Epic has said it does not share user data with Tencent. U.S.-based Riot Games, which is fully owned by Tencent, has also said it operates independently and maintains its own data protections.

In 2024, after scrutiny from the U.S. Justice Department, Tencent gave up its unilateral right to appoint directors or observers to Epic’s board. A content-focused business model, minority ownership, independent local operations, and governance concessions—if such investments cannot be treated in good faith, then the problem is no longer risk mitigation but the presumption that almost any Chinese presence is unacceptable.

That pattern carries real costs. In sectors such as automobiles, batteries, industrial equipment, and parts of the broader advanced manufacturing supply chain, excluding Chinese know-how does not make industrial realities disappear. It raises costs, slows scale-up, and makes projects less attractive—if not uninvestable—to investors. Washington is entitled to draw hard lines around critical infrastructure, sensitive personal data, software control, and military spillovers. But those lines are only credible if they are precise. Once risk is defined so broadly that almost any Chinese industrial involvement is presumed unacceptable, industrial policy starts to work against itself.

The United States worries about more than ownership. In a growing number of sectors, its concerns turn on data access, remote software updates, operational dependence, and what it sees as opaque links between private Chinese companies and the state. But those concerns should lead to sharper screening, not blanket exclusion.

The right test is not whether a Chinese entity appears somewhere in the value chain but whether an arrangement gives Chinese actors control, privileged access to sensitive data, or leverage over a genuinely critical node. If the answer is no, Washington should at least ask whether the economic gains justify carefully bounded cooperation.

In sectors including industrial equipment and consumer technology, market access can imply access to data, software, networks, and other forms of continuing operational leverage. China’s Global Initiative on Data Security, part of Xi’s much-touted Global Security Initiative, does not automatically resolve U.S. distrust but offers a starting point: a pledge that governments should not force companies to store overseas data at home or obtain data in other jurisdictions without permission.

If Washington wants a more durable framework for limited investment, it should encourage Beijing to translate such language into domestic rules that are legible, enforceable, and reviewable to outsiders and to realize their value through robust implementation.

The United States cannot celebrate foreign investment, promise a manufacturing revival, and still treat almost any Chinese role as beyond the pale. If the Trump administration is serious about reindustrialization, it needs a narrower definition of risk—and a clearer distinction between what is sensitive and what is merely Chinese. (Enditem)

CCG Update - Center for China and Globalization

Zichen in FT: Let Chinese mainland tourists return to Taiwan

Zichen Wang, Deputy Secretary-General of the Center for China and Globalization (CCG), published the following op-ed in the Financial Times on Thursday, February 26, 2026…

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2 months ago · 15 likes · 1 comment · CCG Update

CCG Update - Center for China and Globalization

Zichen in Foreign Policy: China Won’t Play Security Patron for Iran

Zichen Wang, deputy secretary-general of the Center for China and Globalization (CCG), published the following analysis in Foreign Policy on Friday, March 6, 2026…

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2 months ago · 16 likes · 4 comments · CCG Update

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Geopolitechs

U.S.–China Trade Talks in Paris: What Was on the Table

Today, the China–U.S. economic and trade teams concluded their talks in Paris. The meetings were held at the OECD headquarters in Paris. The first day of discussions lasted until around 6:00 p.m. local time, while the second day concluded at noon…

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a month ago · 4 likes · Geopolitechs

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In his remarks, Yao argued that China’s reform and opening era effectively ended around 2018, ushering in what he described as a “new era.” He examined the leadership’s attempts to correct perceived excesses of the reform period while reorienting national resources toward manufacturing strength and technological self-reliance—an economic strategy that he linked to China’s broader strategic objectives, including reunification with Taiwan.

Yao also explored how these domestic priorities intersect with strategic competition between China and the United States, particularly in technology and industrial capacity, and outlined several possible scenarios for the future of the bilateral relationship.

The response panel featured John L. Graham, Founding Director of the Long U.S.–China Institute and Professor Emeritus at the Paul Merage School of Business, and Etel Solingen, Distinguished Professor of Political Science and Thomas T. and Elizabeth C. Tierney Chair in Peace and Conflict Studies at UC Irvine.

The following transcript is provided by the Long U.S.–China Institute and has been lightly edited for clarity. Yao Yang has also authorised the publication.

Yao Yang at University of California Irvine

Long U.S.–China Institute Distinguished Lecture (Transcript)

I would like to thank the Long U.S.–China Institute for inviting me here to interact with faculty and students at UC Irvine. This is my first time visiting Irvine. Of course, I have been to California many times. It is wonderful to visit UC Irvine. This is a young university, but it is becoming one of the great universities in the United States and in the world.

Let me start with China’s domestic issues. For outsiders, and even for many insiders, it is difficult to understand what is happening in China: what the decision-making process is and why the government adopts certain economic policies. Many foreigners ask me this question: what have Westerners missed about China? I always say that what they have missed is the role of the government, particularly after 2018.

When we talk about China, we usually start with 1978 and discuss reform and opening up. But in my view, the reform and opening period ended around 2018, after about 40 years. Since then, China has entered a new period, which we can call a “new era.”

What does the government, or the Party, do in this new era? The most important goal is to correct what decision-makers believe were mistakes made during the reform and opening period. No one denies the success of that period. Without reform and opening, China would not have reached its current level of development. As President Xi Jinping himself has said, reform and opening was a critical step for the Communist Party in its recent history. No one wants to negate the achievements of reform and opening.

However, from the Party’s perspective, many problems emerged during that period. Let me mention several.

The first is corruption. Corruption is a problem in most developing countries. In China’s case, it became very serious. I once thought corruption only began during the Ming dynasty, when taxes were extremely low and the government lacked financial resources to pay officials adequately. As a result, officials learned to take money from ordinary people. But actually, corruption can be traced back even further to the Qin dynasty, when the Chinese state was first built.

From an economic perspective, this is understandable. China has a centralized state with the emperor at the top. The emperor cannot manage the entire country alone, so authority must be delegated to officials. This creates a classic delegation problem, where officials may take money from taxes or other sources. One could say that corruption has long been embedded in the system.

Today, the government wants to eradicate corruption within a short period of time. That is why there have been waves of anti-corruption campaigns. In the most recent wave, more high-ranking officials have been arrested than in earlier campaigns.

The second issue, at least in the minds of decision-makers, is excessive financialization of the economy. This is a lesson Chinese leaders believe they learned from the United States. In their view, U.S. industry has hollowed out because the financial sector dominates the economy. Many graduates from top universities prefer to work on Wall Street and make quick money rather than contribute to industry. Chinese leaders believe China should avoid repeating this pattern.

Therefore, the government has tried to reduce financialization. Since the end of 2017, the government has launched a major deleveraging program to address this issue. It has also reduced salaries in the financial sector. Some of my friends saw their salaries cut by 60 percent or even 90 percent in some cases, which shows how high they were previously.

Another issue is the housing sector. Decision-makers believe the real estate sector became too prosperous and attracted too many resources. People were buying apartments for speculation, and companies were doing the same. There is an example of a listed company whose profits in one year were smaller than the money it earned from selling buildings. From the perspective of policymakers, that situation is not healthy, so they want to shrink the real estate sector.

Another issue is what I would call excessive marketization. The market economy has been critical to China’s success, but in some sectors markets expanded too far. One example is the private tutoring industry. Private tutoring is common throughout East Asia, including in South Korea, Japan, and Taiwan. However, in mainland China the situation became particularly serious because the tutoring industry essentially created a parallel system to the K–12 education system. Students attended regular classes and then additional tutoring afterward. The government believed this had gone too far, so it launched a campaign to eliminate much of the private tutoring industry.

Another issue involves the platform economy. Some platform companies became extremely large and powerful. Some of their founders even began to feel powerful enough to challenge the Party. This was unacceptable in a one-party system, which is why the government launched campaigns against certain platform companies. The issue was not simply economic but also political.

Over the past seven or eight years, the Party has tried to correct these problems.

The broader goal is, in spirit, to return to something like the vision of the 1950s, when the People’s Republic of China had just been established. At that time, there was a single objective: to build a strong China through industrialization, especially heavy industry. Many people were inspired by the vision of building a new, independent, and prosperous China. Many Chinese scholars returned from the United States to help build the country, including Qian Xuesen from Caltech, who later led China’s missile program.

At that time, the Party organized all resources toward a single goal. Today there is again a central objective, which is outlined in the upcoming five-year plan that will soon be announced at the National People’s Congress.

If you look at the priorities, two stand out.

The first is the manufacturing sector. China’s manufacturing sector is already enormous. It accounts for about 35 percent of global manufacturing output. That is almost twice the size of the United States and roughly equal to the combined manufacturing output of the G7 countries.

Despite this, Chinese leaders are not satisfied. They want to expand the manufacturing sector further. Some American economists argue that China invests too much in manufacturing and creates excess capacity. But Chinese policymakers believe they have been successful and therefore want to continue on the same path.

In the next five to ten years, China’s share of global manufacturing output is likely to increase further. Meanwhile, there is little evidence that the United States is reindustrializing. The manufacturing share of U.S. GDP continues to decline.

The second priority is heavy investment in high-technology industries. For the first time, government documents emphasize “zero-to-one innovation,” meaning fundamental technological breakthroughs rather than incremental improvements. Chinese leaders now believe the country has reached the technological frontier in some areas.

Another concept appearing in official documents is technological self-reliance. China aims to develop technologies that do not depend on other countries. By 2035, the goal is to build a complete and self-sufficient technological ecosystem.

This leads directly to U.S.–China relations. These relations are the most important bilateral relationship in the world and are critical for both countries.

From China’s perspective, it must win technological competition with the United States. A key near-term issue is Taiwan. Chinese leaders view reunification with Taiwan as a historical inevitability and as part of China’s national rejuvenation.

China has set two centennial goals. The first was to build a moderately prosperous society, which was achieved around 2021 when poverty was eradicated. The second is to build a strong, modern socialist country. Reunification with Taiwan is considered part of that national rejuvenation.

Chinese leaders view this as a priority. They believe the United States must eventually accept reunification. To achieve this, China believes it must build a strong military. If peaceful reunification becomes impossible, China may use force.

Building a strong military requires a strong manufacturing base and advanced technology. This is the underlying logic linking domestic policy to U.S.–China relations.

Despite these tensions, I remain hopeful. The two presidents are expected to meet at least twice this year. In April, President Trump will meet with President Xi in China, and later President Xi will return the visit.

These meetings could produce several outcomes.

At minimum, the two countries could stabilize their relationship and agree not to expand export controls. Export controls can harm both countries.

A middle scenario would involve the United States opening the door to Chinese investment, allowing Chinese companies to invest in sectors such as electric vehicles and batteries.

The best scenario would be for the two countries to reach an agreement on Taiwan that allows for a peaceful solution. If that happens, it could bring stability and peace not only to the two countries but to the world for several decades.

Let me stop here and invite your comments on my remarks. Thank you.

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Decoding China’s 2026 Policy Priorities: The Government Work Report, the 15th Five-Year Plan, and China’s Strategic Response to a Changing World

The Center for China and Globalization (CCG) is pleased to host an English-language policy seminar and luncheon dialogue on the key implications of China’s 2026 “Two Sessions,” to be held on Tuesday, March 17, 2026, from 11:30 a.m. to 2:00 p.m. in Beijing.

As one of China’s leading non-governmental think tanks, CCG has established itself as a prominent platform for policy research, expert dialogue, and international exchanges. It has become a go-to source for both Chinese and international media seeking informed analysis on China’s policy direction, global economic trends, and international affairs.

This seminar takes place at a time when the global economy and international environment are both undergoing significant change. Geopolitical tensions remain high, oil prices have come under renewed pressure, global growth is facing headwinds, and supply chains and investment flows continue to adjust. At the same time, questions surrounding China-U.S. relations, industrial policy, and economic security have become more prominent. Against this backdrop, this year’s Two Sessions are being closely watched not only for China’s domestic policy priorities, but also for the signals they may send about China’s economic direction and its approach to the outside world.

Designed for executives of multinational corporations in China, representatives of international organizations, and members of the diplomatic community, this event will provide a timely and policy-oriented interpretation of the major signals emerging from the just-concluded Two Sessions, with particular focus on the Government Work Report and the 15th Five-Year Plan amid tumultuous changing landscape, including a war in the middle east, and expected U.S. presidential visit to China.

The discussion will provide an in-depth interpretation of China’s latest policy priorities, including macroeconomic targets, reform direction, industrial upgrading, technological innovation, high-standard opening-up, and the broader strategic agenda shaping the country’s development trajectory in the years ahead. It will also explore what these policy developments may mean for the operating environment of multinational companies and international stakeholders engaging with China.

The seminar will be led by a distinguished panel of speakers:

Tang Min, Former Counsellor of the State Council, China’s government cabinet.

Huo Jianguo, Former President of the Chinese Academy of International Trade and Economic Cooperation (CAITEC), Ministry of Commerce [TBC]

Henry Huiyao Wang, Founder and President of CCG; Former Counselor of the State Council, China’s government cabinet

Moderated by Zichen Wang, deputy secretary-general of CCG and Editor of Pekingnology

Recent public commentary by the speakers reflects the calibre of the discussion. On March 5, Henry Huiyao Wang took part in CGTN’s live coverage of the opening of the National People’s Congress and appeared again that evening to comment on the Government Work Report. Tang Min has participated in major policy discussions carried by Chinese state media, including commentary around the Two Sessions. Huo Jianguo is widely recognised as one of China’s best-known trade policy experts and a longstanding commentator on China’s external economic environment.

More than a routine post-Two Sessions recap, this seminar aims to offer participants a substantive and forward-looking assessment of how China’s leadership is reading the world, setting priorities, and calibrating policy in response to a fast-changing strategic environment. It will also provide an opportunity to engage directly with leading Chinese policy experts on the implications of these developments for business, diplomacy, and international cooperation.

Language: English

Date: Tuesday, March 17, 2026

Time: 11:30 a.m. – 2:00 p.m.

Format: Lunch Briefing

We look forward to welcoming you to CCG for a substantive and timely discussion.

Attendance: Paid registration required.

To contact: [please do NOT respond to this email]

event@ccg.org.cn

+86 18201590559 (Call, Message, or WeChat)

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CCG Update - Center for China and Globalization

CCG VIP Luncheon Q&A with Ronnie Chan & David Daokui Li

The Center for China and Globalization (CCG), supported by the Beijing International Club, held a second CCG VIP Luncheon last Friday, June 7…

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2 years ago · 1 like · Yuxuan JIA, Zichen Wang, Jiaoyang Du, Ziming Zhou, and Ziluan Zeng

The backlash has been striking not because the demand is radical, but because it is so modest, so human, and so plainly overdue. One delegate after another argued that Rmb163 a month is not a pension in any meaningful sense. It is a token. Some called for Rmb500 a month for older rural residents. Others argued for Rmb500-600 by 2035. A few went further and urged the state to raise farmers’ pensions to Rmb1,000 by 2030. In the usually airless atmosphere of the Two Sessions, that amounts to a rare public revolt against the logic of the official text.

The numbers explain why. Around 180m people receive the basic pension for urban and rural residents, and farmers account for more than 70% of them. The minimum has indeed risen over time, from Rmb55 when the rural pension system was launched in 2009 to Rmb163 now. But that is progress from a base so low as to border on insult. In 2025 the average monthly pension for urban and rural residents was only Rmb287, including both the basic pension and the individual contibution. The equivalent figure for urban employees was Rmb3,498. China has spent years narrowing all sorts of gaps. This one still looks feudal.

And the arithmetic is brutal. At the current pace of Rmb20 extra a year, getting from Rmb163 to Rmb1,000 would take about 42 years. That points not to 2030, but to around 2068. Many of the elderly villagers now at the centre of this debate will not live to see it. That is what gives the issue its emotional force. This is not an argument about an abstract entitlement in some distant welfare state. It is about whether people who are already old should be asked to wait half a lifetime for the state to recognise that they are poor.

This year’s government work report says fiscal spending should place greater emphasis on boosting consumption, “investing in people”, and safeguarding livelihoods. The draft 15th Five-Year Plan outline likewise speaks of combining investment in things with investment in people, and tying improvements in living standards more closely to the drive to expand domestic demand. On paper, the rhetoric has shifted. China no longer speaks only of bridges, batteries, chips, and industrial capacity. It speaks, when it comes to investment, of people.

Yet when the rhetoric reaches the budget line, the old instinct returns. The same fiscal package that offers a Rmb20 monthly pension rise also raises the annual fiscal subsidy for residents’ medical insurance by just Rmb24 per person. It is smaller than last year’s increment, when the subsidy was increased by Rmb30. So even as officials proclaim a warmer, more people-centred model of development, one of the country’s most basic protections is receiving a smaller top-up than before. “Investing in people” begins to sound suspiciously like a slogan in search of a budget.

This has been the deeper pattern of Chinese governance for years. The state is perfectly capable of spending vast sums when the spending is concrete, visible, and easier to discipline from above. It can build hospitals, fund anti-poverty campaigns, and mobilise whole bureaucracies to eradicate extreme deprivation. In 2021 the government declared complete victory in the campaign against extreme poverty, saying nearly 100 million rural poor had been lifted above the official threshold. It can also subsidise consumption when that consumption is tethered to production goals: this year’s work report boasted that the expanded trade-in programme for appliances and other goods had helped generate more than Rmb2.6trn in sales. Beijing is not allergic to spending. It is just not confident about spending that gives households too much autonomy over how to use the money.

That is why the debate over rural pensions matters so much. It exposes the narrowness of the Chinese state’s redistributive imagination. For years, “common prosperity” was hyped abroad as if China were preparing some sweeping socialist levelling project. In practice, the state has remained extraordinarily cautious about direct transfers to ordinary people. It will subsidise a refrigerator, an electric car, or a washing machine. It is much less comfortable simply giving a poor old villager enough cash to buy meat, medicine, or a thicker coat, and trusting them to decide the rest. The result is that one of the most loudly advertised slogans rings increasingly hollow. A society cannot convincingly claim “common prosperity” while asking elderly farmers to live on Rmb163 a month.

That is not just a moral failure. It is a macroeconomic one. Chinese policymakers have spent years insisting that domestic demand must become a stronger engine of growth. They are right. But demand does not revive because officials exhort it to. People spend when they have money, and when they expect to keep having money. Rural pensioners are almost the textbook case of where transfers would bite fastest. Their incomes are low, their needs are immediate, and their marginal propensity to consume is high. A richer urban household may stash an extra yuan in savings. A poor elderly villager is far more likely to spend it on food, clothes, heating, transport, or a clinic visit. Even better, a more reliable pension for parents would ease the precautionary saving of their children, many of whom are migrant workers supporting two generations at once.

There is also a reason this debate has acquired such moral heat inside China itself. Farmers did not “pay in” to the system in neat, modern, payroll-deducted ways. They paid in older, rougher, harsher forms: in grain handed over cheaply, in taxes, in labour, in years spent underwriting industrialisation while cities surged ahead. Much of today’s Chinese commentary on the issue uses the language of repayment, and with reason. Raising rural pensions is not widely seen as dispensing a new favour. It is seen as settling an old debt. That helps explain why the issue has stirred so much feeling far beyond the usual social-policy crowd. It is not only about poverty in old age. It is about belated recognition.

The official counterargument is usually fiscal prudence. China is ageing. Pension promises are sticky. Once raised, they are politically hard to trim. All true. But fiscal prudence has a habit of appearing only when the beneficiaries are ordinary people. The state that cannot find enough for a meaningful rural pension rise somehow finds room for mega-projects of astonishing scale. Construction has begun on the huge hydropower project on the lower reaches of the Yarlung Zangbo, which cost Rmb1.2trn.

Relatively cautious voices within the establishment are no longer defending the present pension level; they are arguing only over the pace, the target group, and the financing mechanism. That alone says something important. The centre of gravity has shifted. The question is no longer whether rural pensions are too low. It is whether the state is willing to admit how low is too low.

And that, in the end, is why this year’s pension row matters. It is a small revolt, but a revealing one. It shows that public expectations of fairness are now running ahead of the state’s willingness to spend. It shows that Chinese society’s idea of social justice may be simpler, and more demanding, than the government’s. And it shows that the line between “investing in people” and merely talking about them is very easy to spot. A government that can mobilise trillions for industry, infrastructure, and strategic ambition can surely do better than Rmb163 a month for the people who spent their lives feeding the country.

If Beijing wants one clean test of whether its new people-first language means anything, this is it. Not another slogan. Not another carefully targeted voucher. Not another subsidy tied to a preferred purchase. Just cash, dignity, and a little less meanness. Until that happens, the official call to “invest in people” will keep colliding with a stubborn, embarrassing fact: when the time comes to spend directly on those who need it most, the Chinese state still reaches for its calculator before its conscience. (Enditem)

The East is Read

Meng Xiaosu: China’s state capital has a rural debt to pay

For decades, China’s modernisation has been underwritten by the countryside: cheap grain, cheap labour, and cheap land. Yet the welfare state built alongside that growth remains split down the middle…

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3 months ago · 6 likes · Yifan YAN and Yuxuan JIA

The East is Read

David Daokui Li calls for 1.25 trillion yuan pension increase for Chinese farmers

David Daokui Li is a Professor of Economics and Director of the Academic Center for Chinese Economic Practice and Thinking (ACCEPT) at Tsinghua University. He has been very active on Chinese social media, including opening a video channel on WeChat, China’s top messaging app, releasing a short video of him talking daily. He posts the same videos on his …

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a year ago · 7 likes · Zichen Wang

The East is Read

Three types of hidden debt unaccounted for in China's official stats

The debts accumulated by Local Government Financing Vehicles (LGFVs), often referred to as China's hidden debts due to their association with government liability, are widely known among observers of China's economy. However, in a recent speech and Q&A…

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3 years ago · 17 likes · 1 comment · Yuxuan JIA and Zichen Wang

Bell, Professor and Chair of Political Theory with the Faculty of Law at the University of Hong Kong, is one of the best-known scholars writing in English on Chinese political philosophy. Previously, he served as dean of the School of Political Science and Public Administration at Shandong University (Qingdao) in China from 2017 to 2022, a rare role for a foreign scholar inside a major Chinese university.

His books include The Dean of Shandong (2023), Just Hierarchy (2020, with Wang Pei), The China Model (2015), The Spirit of Cities (2012, with Avner de-Shalit), China’s New Confucianism (2008), Beyond Liberal Democracy (2007), East Meets West (2000), and Communitarianism and Its Critics (1993).

He is founding editor of the Princeton-China series (Princeton University Press) which translates and publishes original and influential academic works from China. His works have been translated into 23 languages. He has been interviewed in English, Chinese, and French. In 2018, he was awarded the Huilin Prize and was honored as a “Cultural Leader” by the World Economic Forum.

Overview

China’s most original, diverse, and fascinating political debates took place more than two millennia ago, but they have profoundly shaped Chinese political thinking and practice ever since and, remarkably, their influence on the country’s leaders is only growing today. Yet these timeless debates—which are very likely to influence the answers to such questions as whether China should use military force to take control of Taiwan—are still far too little understood in the West. In this enlightening and entertaining book, Daniel Bell, a leading expert on Chinese political thought, takes the greatest thinkers from China’s past—Confucius, Mencius, Xunzi, Shang Yang, Han Feizi, Zhuangzi, and Mozi—and puts them in dialogue with each other in modern settings. The result is a creative and engaging introduction to ancient Chinese political thought that reveals its relevance to the future of China and the rest of the world.

Before China’s unification in 221 BCE, the brilliant political thinkers who founded Confucianism, Daoism, Legalism, and Mohism roamed from state to state, argued with each other, and tried to persuade rulers to follow their ideas. Bell draws on their debates—about such perennial issues as war, corruption, government involvement in family life, and whether the state should subsidize culture—to create vivid imaginative dialogues about important contemporary social and political controversies.

China’s political thinking is rooted in its past. Understanding what ancient Chinese political thought can teach us about today’s critical debates is essential to understanding the future of China and the world.

Praise

“For anyone, like me, who’s ever stared at a shelf of Chinese classics and thought ‘where do I even start?’—start here. Bell makes China’s ancient debates feel alive, witty, and politically urgent.”—Alexandre Lefebvre, author of Liberalism as a Way of Life

“Drinks are poured, jokes are exchanged, and the banquet is set. In this book, Daniel Bell invites us to eavesdrop on fascinating, candid, and witty discussions between imagined contemporary descendants of great Chinese philosophers. Their dialogue provides a dynamic understanding of key philosophical ideas in classical China that are as relevant to our lives as ever. This is serio ludere, or serious play, at its finest.”—Anna Sun, author of Confucianism as a World Religion

“Daniel Bell makes this deep dive into ancient Chinese political thought an easy and entertaining business. While the original Chinese texts themselves offer little by way of structure and context, by organizing them into a lively dialogue, Bell provides them with lucidity and coherence. Indeed, he furnishes these early thinkers with a stage on which to debate both their own theories and the contemporary issues that he would have them answer.”—Roger T. Ames, author of Living Chinese Philosophy

“Daniel Bell is one of the most innovative political theorists of the twenty-first century, transcending the boundaries of Western theoretical traditions and bridging cultural and intellectual traditions. In this ambitious and thought-provoking book, Bell creatively fills gaps in the understanding of Chinese political philosophy and underscores its enduring relevance. The dialogues bring complex philosophical debates to life and are brimming with wisdom and profound insight.”—Baogang He, coauthor of China’s Galaxy Empire

“Ancient political thought, exemplified by the classical Chinese perspectives in Bell’s luminary dialogues, matters because it grapples with questions about human society—loyalty, power, culture, and justice—that remain urgent for rethinking the political today.”—Shadi Bartsch, author of Plato Goes to China: The Greek Classics and Chinese Nationalism

“With a unique dialogue form that reflects how the Chinese tradition itself developed, this book opens creative avenues for engaging with some of the most urgent social and political issues in contemporary China.”—Paul J. D’Ambrosio, coauthor of Genuine Pretending: On the Philosophy of the Zhuangzi

Why Ancient Chinese Political Thought Matters: Four Dialogues on China’s Past, Present, and Future

Introduction

FOUR GREAT DEBATES OF CHINESE POLITICAL THOUGHT

CHINA’S POLITICAL thinking is rooted in its past. To understand Chinese politics, it is essential to understand the main themes of Chinese philosophy and history that serve as reference points for Chinese intellectuals and public officials in everyday conversation and political discourse. The political debates in the Spring and Autumn and Warring States periods (ca. 770-221 BCE) were, arguably, the most original, profound and influential political debates in China’s history. China had not yet been unified by the Qin dynasty in 221 BCE, and political theorists and the ancient equivalent of policy advisers roamed from state to state, seeking to influence rulers. Notwithstanding constant warfare, thinkers were surprisingly free to argue about political controversies. The founding members of schools that came to be known as Confucianism, Legalism, Daoism, and Mohism engaged in heated arguments about politics and good government. These debates recurred in different forms over the next two millennia and we can expect further iterations in the future.

I do not mean to imply that good understanding of these debates is sufficient to comprehend contemporary Chinese politics. Of course, there were diverse and fascinating political debates in subsequent Chinese history, and more recent imported theories such as socialism and democracy also shape Chinese political thinking and policymaking. But those seeking deeper knowledge of Chinese politics need to have a solid understanding of political theories from the pre-Qin period because they still serve as important reference points for Chinese intellectuals and political officials today: as background assumptions and ideals for much political thinking and policy-making in the twentieth century when China was shaped by the tradition of antitraditionalism and more explicitly the past several decades along with the revival of China’s political traditions in academia and official political discourse.’

These ancient political debates are not well-known outside of China, and my book aims to remedy this gap of understanding. My aim is not to take sides in these debates but to be charitable and fair-minded to all sides and to familiarize readers with the most influential political thoughts and theories from ancient China using the words of the thinkers themselves.? For this purpose, I have written this book in dialogue form, and I draw mainly on the original thoughts and ideas of great political theorists from the pre-Qin period (in English translation). The dialogue form also has the advantage of showing the diversity of political thought in ancient China in an accessible and entertaining manner for the modern reader.

My book also aims to show that these ancient debates remain relevant today and for the foreseeable future. For this purpose, I have taken key strands of ancient political debates with lasting value—harmony versus freedom, law versus ritual, musical culture versus material welfare, and realism versus idealism in international relations—and apply them to policy questions of contemporary relevance. The debates are set in different parts of China in the near future, and the protagonists are (fictitious) descendants of the great political thinkers, which is not entirely implausible in a Chinese context because the descendants of Confucius and Mencius have family trees that extend to descendants in modern society who often take pride in the ideas of their ancestors. They argue about perennial political challenges such as whether moral obligations between family members need to be legally enforced, how to reduce corruption in government, whether the state should promote culture, and under what conditions the state should engage in warfare. The debates shed light not just on Chinese thinking but on political thinking more broadly: after all, what makes great thinkers great is that they proposed ideas that are relevant in different times and places and that can help us think about how to deal with modern-day political challenges.

The ancient Chinese works used for these dialogues were, of course, written in classical Chinese, and I rely on a mixture of my own translations and those by experts.’ I have checked most of the translations against the original sources and selected those that seemed both relatively accurate and fluent in modern English, with occasional modifications. * For the general reader, I have provided brief introductions to the thoughts of the political thinkers before launching into the dialogues. For the experts, the notes provide references to secondary sources and point to alternative interpretations of some passages discussed in the main text.

Each chapter can be read more or less independently, depending on the reader’s interests. The dialogues between descendants of the great thinkers are set in contemporary settings: the descendants are committed to the thoughts of their ancestors, but they illustrate arguments with examples from recent history. Hence, the dialogues should be viewed as writings inspired by the great thinkers rather than unmediated interpretations of the original texts. But I remain relatively faithful to the key ideas in the sections on particular thinkers, so if the reader wants to learn the thoughts of individual thinkers, it is best to focus on the sections in chapters that discuss their thoughts using mainly their original words (in translation): for example, section 1 in chapter 1 discusses the views of Confucius in detail, and section 2 discusses the views of Zhuangzi in detail (the sections where the thinkers act as critics and the concluding sections in each chapter owe more to my own thinking). But I’d suggest that individual chapters be read from start to finish because they make sense only as a whole, and I provide somewhat surprising speeches at the end of each chapter.’ Readers who want to have an overall sense of the thoughts of China’s most influential political theorists from the pre-Qin era that set the terms for much of the political thinking in subsequent Chinese history should read the whole book.

The book leads off with a dialogue between Kong and Zhuang, descendants of Confucius (Kongzi) and the great Daoist thinker Zhuangzi. Both the Confucian and the Daoist traditions have been hugely influential in Chinese history, but they tend to pull in different directions: the Confucians argue for the importance of nourishing harmonious and humane social relations and educating talented and virtuous public officials, whereas Daoists emphasize an easygoing lifestyle with minimal social attachments. Confucians value constant self-improvement, hard work, and social and political responsibility, whereas the Daoist emphasis on carefree wandering has inspired countless artists, social recluses, and those who seek freedom from social stresses. Kong and Zhuang meet in a bar on a remote island in Hong Kong and argue about whether obligations between adult family members should be legally enforced. Kong allows for the possibility that the law can set constraints on freedom in order to promote harmonious ties between family members in such cases as the promotion of filial piety and the right to divorce. Zhuang appears to be more skeptical, but he might have a sudden change of mind.

The second dialogue considers how to minimize corruption in government, one of the perennial challenges in Chinese history. A descendant of the influential political thinker Han Feizi, who systematized China’s Legalist tradition, argues that people cannot be motivated by moral concerns and that corruption can be curtailed only by means of harsh legal punishments that make public officials fearful of doing deeds that harm the state.

The punishments need to apply to all without any discretion or mercy. A descendant of the Confucian thinker Xunzi, who was Han Feizi’s teacher, agrees that people have a tendency to badness but argues that people can improve morally. If the aim is long-term reduction of corruption in government, only social rituals that make participants feel part of a community can succeed. Mr. Xun is not against legal punishments but argues they should be a last resort. The dialogue is heated and emotional, with the student seeming to call for the physical elimination of his teacher, but it ends with a banquet.

The third dialogue imagines a deliberative poll where ordinary citizens selected at random must decide whether the local community should fund a musical arts center. It takes place in a rural part of Shandong province rich in culture but poor in material resources. Mr. Mo, a descendant of Mozi, the founder of the Mohist school, argues that the community should spend scarce resources on supplying the material needs of the common people rather than funding musical arts. A descendant of the author of the Yueji (Record of Music) named Ms. Yue argues for funding the musical arts on the grounds that music is necessary for human flourishing. Music provides joy and forms the foundation for communal bonds that allow for policies that help the poor to be implemented without much resistance. The citizens deliberate at the end, but will their decision be respected by the powers that be?

The last dialogue is an acrimonious argument about the appropriate use of military power. I imagine a discussion between descendants of Mencius (Mengzi) and Shang Yang, a founder of the realpolitik Legalist school who is far more Machiavellian than Machiavelli himself. They argue over whether mainland China should invade Taiwan after it declares formal independence. Shang declares that an invasion should be carried out even if it involves cruel means, whereas Meng believes that war needs to be morally justified in terms of both cause and means, with the implication that Chinese rulers should be cautious about invading. The debate is carried out in the presence of the ruler, similar to ancient Chinese debates about war, and the chapter ends with a meeting of the Standing Committee of the Politburo where decision-makers discuss the possibility of invasion in view of the contrasting perspectives provided by the two thinkers.

The book ends with an Atogaki (afterword) explaining what’s wrong with this book. I freely acknowledge that my method will not be to everyone’s taste. Intellectual historians will fault me for plucking thinkers from their original context. Experts in Chinese philosophy may contest my interpretation of certain passages from classic texts. Normative theorists will object to the fact that I seek inspiration only from pre-Qin Chinese political thought. Some ideas of political theorists from ancient China that were meant to be deadly serious are discussed in a way that’s sometimes lighthearted, which may turn off those who think humor shows a lack of respect for the greats. Oh well, it’s hard to please everybody. But some students and scholars of China studies and comparative political theory as well as those who do not normally engage with Chinese politics and philosophy may enjoy this book. And if I’m lucky, a young intellectual rummaging in one of the world’s few remaining libraries with physical books in fifty years’ time will stumble upon this book and end up learning something about political debates from ancient China that may still be relevant for thinking about the challenges of the late twenty-first century.

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Pekingnology

The Dean of Shandong: Confessions of a Minor Bureaucrat at a Chinese University

Pekingnology is privileged to publish an excerpt from Daniel A. Bell’s latest book…

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3 years ago · 8 likes · 2 comments · Zichen Wang

The East is Read

China gives no sign it will delay Trump's visit

In late February, the White House said President Donald Trump would visit China from March 31 to April 2. China has neither confirmed nor denied the trip publicly, and it typically confirms a foreign leader’s visit only a few days before it takes place…

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2 months ago · 6 likes · 1 comment · Zichen Wang

Just now, on the morning of Sunday, March 8, Chinese Foreign Minister Wang Yi answered a question from CNN on the subject in a televised press conference as part of the ongoing annual session of the National People’s Congress, China’s legislature.

I believe Wang Yi made it clear that China welcomes and anticipates Trump’s upcoming visit.

Steven Jiang of CNN:

Since Donald Trump’s return to the White House, U.S.-China relations have been tumultuous. So his planned visit to Beijing later this month has been highly anticipated. Given this, how will the ongoing U.S.-Israeli strikes on Iran affect this trip? And also, ahead of this trip, he seems to be pursuing a detence with China. Notably, he did not mention China directly even once in his latest State of the Union address, so there are concerns in Washington that he might make concessions to China on issues such as Taiwan during the visit because of his focus on reaching trade and commercial deals. How do you respond to this view? And what does China want out of this visit? And what are your expectations of bilateral ties after this visit?

Wang Yi:

U.S.-China relations affect all parties and have a global impact. If the two countries do not engage with each other, the result will only be misunderstanding and miscalculation; if they move toward conflict and confrontation, the whole world will suffer even more. China and the United States are both major powers. Neither can change the other, but we can change the way we interact. That means upholding an attitude of mutual respect, safeguarding the bottom line of peaceful coexistence, and striving for the prospect of win-win cooperation. This serves the interests of the peoples of both countries and meets the expectations of the international community.

What is reassuring is that the two heads of state have led by personal example and maintained sound interactions at the highest level, providing an important strategic guarantee for the improvement and development of U.S.-China relations, and helping the relationship, despite its ups and downs, achieve overall stability.

This year is indeed a pivotal one for U.S.-China relations, and the agenda for high-level exchanges is already on the table. What is needed now is for both sides to make thorough preparations, foster a conducive atmosphere, manage existing differences, and remove unnecessary distractions. China’s position has always been positive and open. The key is for the U.S. side to move in the same direction. I believe that as long as both sides treat each other with sincerity and engage each other in good faith, we will be able to keep lengthening the list of cooperation and shortening the list of problems.

Under the strategic guidance of the two heads of state, we will be able to achieve outcomes that satisfy the peoples of both countries, reach understandings welcomed by the international community, and make 2026 a landmark year in the move toward a healthy, stable, and sustainable U.S.-China relationship. Thank you.

One helpful background is this extraordinary report from Mark Magnier of the South China Morning Post in New York, quoting U.S. - not Chinese - sources and analysts, basically blasting the Trump administration for doing a poor job in preparing the upcoming trip.

Less than six weeks ahead of a likely summit between US President Donald Trump and Chinese leader Xi Jinping, preparations are inadequate, bilateral contacts anaemic and outcomes diminished, according to analysts and former government officials familiar with planning.

The shortfall reflected in part Trump’s reluctance to delegate, disdain for process and focus on quick wins, banking instead on personal magnetism and his “gut” as summit organising principles, they said.

The planning deficit also speaks to differences in US and Chinese political culture, with Beijing inclined towards heavily staged events free of missteps, especially involving its president, and Washington more tolerant of spontaneity, particularly under Trump.

“You have a handful of people who have never done this before, putting together what may be the most consequential trip in the president’s administration on a wing and a prayer,” said a former US official close to planning details. “The Chinese are beyond worried. They’re apoplectic.”

“They see this as an opportunity, and the US doesn’t.”

A call between Trump and Xi earlier this month eased fears that the summit might not happen, but that has still left months of work compressed into weeks.

……

Driving much of this is a president who ploughs through protocol, goes off script and enters summits unencumbered by briefing notes or teleprompters, confident that his personal magnetism will craft breakthrough deals.

“This is the worst I’ve ever seen,” said the former official, a veteran of several summits.

“We’d be having, by this time, probably two meetings a week led by the NSC, with every agency showing up saying, ‘What’s our strategy for deliverables?’ But it’s not even happening.”

The East is Read

China gives no sign it will delay Trump's visit

In late February, the White House said President Donald Trump would visit China from March 31 to April 2. China has neither confirmed nor denied the trip publicly, and it typically confirms a foreign leader’s visit only a few days before it takes place…

Read more

2 months ago · 6 likes · 1 comment · Zichen Wang