PKU's Qiao Liu asks Class of 2024 to reject "narrative traps"

Elitist business school Dean deplores pessimism and "Peak China."

We have run three commencement speeches at top Chinese universities this year, and this is the fourth, coming from Qiao Liu, Dean of the Guanghua School of Management, Peking University, at the elitist business school.

Qiao Liu currently serves as Professor of Finance and Dean of the Guanghua School of Management, Peking University. Before he joined Guanghua, Qiao Liu taught in the Faculty of Business and Economics, University of Hong Kong, and was tenured at HKU. Qiao Liu also worked at McKinsey & Company’s Asia-Pacific Corporate Finance and Strategy Practice from December 2001 to July 2003, where he advised various MNCs and leading Asian companies on issues related to corporate finance and strategies.

Qiao Liu holds a Ph.D. in Financial Economics from UCLA (2000), an M.A. in International Finance from the Graduate School of People's Bank of China (1994), and a B.S. in Economics and Mathematics from the Renmin University of China (1991)

All the emphasis below is Liu’s.

拒绝“叙事陷阱”

Rejecting the “Narrative Trap”

Dear Students, Respected Family Members, Colleagues, and Friends,

Good afternoon! Today, we gather at Centennial Hall to witness the graduation of the Class of 2024 with over 1,500 students from various programs at Peking University's Guanghua School of Management, as they complete their academic journey on the inspiring and revered grounds of Yanyuan, and begin new chapters in their lives. On behalf of all faculty and staff at Guanghua School of Management, I extend my warmest congratulations and best wishes to each of you! I also hope you will give a round of applause to your families, friends, classmates, and teachers who have supported and encouraged you over the years, inviting them to share in the joy and excitement of this graduation.

Graduation signifies a departure. From tomorrow, you will once again "lean forward to the next crazy venture beneath the skies" (Jack Kerouac, On the Road). As we part, we do not say goodbye. As Bob Dylan sang, "Goodbye is too good a word, so I will just say farewell." Indeed, under the vast sky, within the boundless world, when shall we meet again? Here, I sincerely wish you all the best. On the road ahead, no matter what decisions you make, what paths you choose, and whether the future brings rain or shine, one thing my colleagues and I firmly believe is that the world awaits your arrival, anticipating your journey through mountains, seas, deserts, and dunes of time to ignite sparks of truth, passion, and beauty. We wish you a safe journey!

In addition to my blessings, I would like to share a piece of advice that all of us can strive for together. In an era overflowing with various "narrative traps," I want to remind you all especially to avoid falling into these traps on your future journey. Behavioral economist and Nobel laureate Robert Shiller mentioned in Narrative Economics that 故事，是承载意义最有力量的载体……有些故事可以像病毒一样传播，这些故事就是‘叙事’，叙事通过影响人类行为，进而影响经济生活的方方面面 stories are the most powerful vehicles for conveying meaning... Some stories, 'narratives' indeed, spread like viruses, and influence human behavior, then various aspects of economic life. [Note: we are unable to locate Shiller’s original words.]

In Shiller's framework, narratives equal facts plus emotional reactions, so understanding the real world through narratives is not solely based on objective facts but also complex psychological responses generated from these narratives. If a narrative distorts objective facts or stems from narrow or even malicious motives and starts spreading like a desease (what Shiller calls "thought viruses"), then becoming the dominant public belief in a particular period, it can negatively impact people's psychology and behavior, causing real harm to the economy and society. This constitutes what I refer to as "narrative traps." The history of mankind is repleted with such "narrative traps." The 17th-century Dutch tulip mania, the 1990s Japanese real estate bubble, and the early 21st-century dot-com bubble all originated from anti-intellectual movements and ensuing irrational frenzies that were brought by narrative traps" of all forms.

We live in an era of "Narrative Generalization." The rise of social media and geopolitical changes have subverted our world, filling all kinds of narratives abound in our surroundings. In this shattered and disjointed world, amidst the clamor and mirage, deep thinking has faded in the hustle and bustle against the confluence of fragmented time and fractured attention spans. Lies and polarized views spread like viruses, outpacing the truth. Most of us, adopting a consumer mindset, relinquish our right to independent thinking, consciously or unconsciously falling into these "narrative traps." These traps prevent people from forming a consensus on important empirical facts, turning rational debates into emotional outbursts or deliberate confrontations, exacerbating anti-intellectualism, fear, anger, and even hate.

Regrettably, even highly accomplished managers, professionals, and decision-makers with strong thinking and action-oriented capabilities can unconsciously fall into a series of spurious propositions, either self-proven or proven by external evidence, concerning China’s economy and policies, global markets, technological changes, etc. However, nothing is more dangerous than correctly answering the wrong questions. Endless emotional debates and monotonous repetition over spurious propositions based on "narrative traps" distort people's understanding of issues and fundamental facts, hijacking solutions to real problems and delaying essential policies and reforms. In the end, they severely hinder efforts to address essential but challenging matters.

To reject "narrative traps," we need to acquire abilities of independent thinking to delve into the underlying logic of different viewpoints or narratives, treating the pursuit of thought and wisdom as our incumbent moral duty, seeking the constant amidst change. A recent widespread and influential narrative about China’s economy is the "China Peaking" theory. Proponents of this theory, based on the "fact" of China’s economic slowdown, paint a pessimistic picture of China’s economy: sustained decline in real estate investment and prices exacerbating the intertwined risks in real estate, financial systems, and local government debt; diminishing demographic and labor dividends; insufficient investment momentum due to "overcapacity"; employment pressures from economic downturns and industrial adjustments, etc. They believe China’s economy is entering a downward trajectory, becoming increasingly passive in the great power game. As some embrace this narrative, different kinds of global political and economic changes have been observed: some join the block to contain China; some criticize from moral high grounds; some switch sides anew; some gloat; some hesitate and alternate...

Has China’s economy really peaked? The ultimate driver of economic growth is the increase in total factor productivity (TFP) brought by the technological revolution and improved resource allocation efficiency. From 1978 to 2022, the correlation coefficient between China’s GDP growth and TFP growth was as high as 81%. Due to the stagnation of technological frontiers and the dominance of the service industry in the economy that are difficult to mechanize and scale, it is challenging for a country to sustain productivity growth post-industrialization. After China completed its industrialization around 2010, the average annual TFP growth slowed from 4% during 1978-2009 to 1.3-1.8% in recent years, explaining the economic slowdown to a large extent. Insufficient TFP growth is a global challenge. After over forty years of rapid economic growth, China is facing this challenge as well. This obviously provides empirical "evidence" for the "China Peaking" theory, breeding pessimism.

However, mighty oaks from little acorns grow. We should also recognize that structural forces supporting a "V pattern" rebound in China’s TFP growth and a return to above 2%, are gradually taking shape. Although the great Chinese industrial revolution is completed, there are rapid advancements in AI and big data technology, urgent energy transitions, and vast opportunities for "re-industrialization" provided by China’s rich industrial system (any industry can undergo new "industrialization" through digital and energy transitions). "Re-industrialization" offers significant potential for the increase of TFP growth rate and sustained economic growth. Decisive structural reforms focused on addressing issues constraining China’s TFP growth (low disposable income, inadequate public service investment, urban-rural divide, etc.) will also become a source of TFP growth. Pessimists who fall into the "China Peaking" narrative trap by viewing manageable transformation challenges as insurmountable structural problems, may lose sight of a complete future.

To reject "narrative traps," we need deeper and broader life anchors, the faith in a better future, and the constant determination and courage to act. Striving relentlessly for a better future, we must believe our victory will be the triumph of ideals, entrepreneurial spirit, and the times. Just recently, an article titled 《如何度过历史的垃圾时间》 "How to Survive Garbage Time in History" went viral on social media. It’s unsurprising that this narrative about our era sparked heated discussion and resonated widely. In fact, rarely in human history has any era been as unsettling as today: global economic challenges of insufficient productivity growth and investment; persistent issues of unequal development, income, and wealth distribution, along with entrenched social stratification and other chronic problems hindering the progress of human civilization; climate change causing frequent extreme weather; ongoing conflicts and wars; a severe trust crisis among people and between nations. Amid the sweeping changes of our era, people are thrown into panic, and their internal fortitude begins to collapse. In the face of setbacks, they fall into self-pity and regret, even willing to be defeated without a fight....

Will our era really become a period of "Garbage Time" in history? We need to be self-aware that we are at the beginning of a new "technological revolution," whose significance equals or exceeds the Industrial Revolution’s leap for human civilization. New industries will rise and new ideas will emerge by driving this process. We need to pay attention to the numerous industries urgently needing investment and many structural issues urgently awaiting solutions, where increased investment in these fields will effectively boost TFP growth; we even need to pay closer attention to see that our era has already created—and will continue to create—a fate-defying generation of individuals capable of transforming confusion and fear about the future into positive, constructive forces. They challenge fate with determination, resilience, and loving both sweetness and bitterness for the same weight; they remain loyal to their passions, never giving up despite slim chances of success, "creating a religion that has a fallible god" (Jorge Luis Borges). Because of them, flowers bloom eternal, skies remain pristine, and this era is destined to be recounted in tales yet to unfold.

"Any chapter of history that etches its name into time is like a poetic-narrative biography; its worth lies in these individuals' qualities and the power they display" (Lytton Strachey). Class of 2024, the unstoppable tide of our times rushes forth. Besides experiencing, growing, and enduring the trials of fate, we have no other choices. I fervently wish for you all to be profound in thought, steadfast in will, hopeful at heart, and compassionate towards the world. With these virtues, you will ultimately become them!

Finally, I leave you with a few lines from my favorite German poet Rainer Maria Rilke as a farewell and shared encouragement:

"How fate, in poetry, fades away never to return,

How it becomes a blurry image within verses?

All that has occurred precedes our judgment,

Eluding pursuit, challenging recognition.

Do not fear if the departed brush past you,

Meet their gaze with calm resolve.

Countless sorrows set you apart,

We witness what has come to pass,

Those epochs' grand words, not spoken for us.

What victory is there to claim? Endure, and that is all."

Congratulations again! Happy graduation!

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