Zhang Zhizhen, Former President of the Asian Development Bank and former Director of the International Department of the Central Bank of the Communist Party of China, Ding Yifan, Deputy Director of the World Development Institute of the Development Research Center of the State Council of China, and Yao Yang, President of the National Development Research Institute of Peking University, also participated in this event.
The translation was done by Jennifer. Subtitles were added by Jennifer too. )
Why Has the Opening up of China's Financial Sector Been Accelerating?
What is the key? The key lies in our theme today, the issue of the opening up of the financial sector. Our financial markets are not yet fully open, especially, besides the problem of how foreign institutes can enter, there are problems with how they can operate. And there is another problem, which is, our capital account sector is not really fully opened. So it still imposes certain limitations on Shanghai's ability to compete on a global level, as I mentioned in my program "Politics and Economics Enlightenment ". In my opinion, there are only one and a half companies in the global village that sell insurance, and that is the United States. The currency of the U.S. is the global reserve currency, so it takes the risk for others, and then the euro is half of an insurance entity. The vast majority of the more than 200 economies of all sizes in the global village are paying a price to transfer risk, right? It is all about risk transfer at a price. It is like an insured customer. There are only one and a half companies in the global village that can sell insurance, can start an insurance company.
The nature of our China is quite special. It is the largest real economy in the global village, right? The largest insured customer who is buying insurance for all sorts of affairs. How much do we pay for the premium? $3 trillion, with a peak of $4.2 trillion.
The problem is, if one day something really happens to us, when we do have a real economic and financial crisis, and we use our foreign exchange reserves of $3 trillion or $4 trillion to go to the United States, it's like an insurance policy, if you go to the United States and ask it to pay us, they'll go bankrupt, right? This insurance company will say, "Sorry, I won't do this business anymore." Right?
Therefore, in terms of this logic, I have always opposed the original way of coupling between China and the U.S. I will talk about this later. I have always advocated the internationalization of the Chinese Renminbi, and I have always advocated that we should also open this insurance company. In order to open this insurance company, which is our topic of today's discussion, the financial market has to be opened, and the capital account has to be opened to a suitable degree.
So why is it that recently, as we all know, since 2019, especially after we entered 2020, the opening up of China's financial sector has been accelerating? Why is it accelerating? First of all, when China joined the WTO in 2001, we committed that we would open up as soon as conditions were right. However, after 20 years, as Mr. Yao just said, how many foreign financial institutions have come in? How many have entered? In your daily life, do you buy stocks through foreign investment banks? Are you depositing in a foreign bank? At most, there are a few (foreign) insurance companies. So for this matter, we have to think from others' angle in the first half of the night, then from our angle in the second half of the night. You've promised to open, and you have to deliver that. Otherwise, why should people's doors be open to you? The openness is mutual.
Political and Tactical Considerations: Wall Street Can’t Fix Trump
So before we coupled with each other in that way that I just talked about. But now people want to decouple from us, so my understanding, and of course, it's my personal interpretation, why are we starting to accelerate at this point of time? First of all, that's what we promised 20 years ago, and secondly, the current push by the Chinese government to open up the financial sector, in terms of timing, and I must emphasize again, that this is my personal speculation, may have something to do with political and tactical considerations. Why? Because we know that the Trump administration is in a trade war with us, so why can't we fix the Trump administration? Why did China and the U.S. use to be able to settle all kinds of issues between 1992 and 2016? No matter what kind of crises we encountered, be it the Yinhe incident, the bombing of the embassy, or the crashing of the plane, things were all solved in no time, like (a couple) do with their quarrels starting at the bedhead but ending at the bed end. We fixed everything in two months. What is the reason? I'm going to throw out something maybe a little bit explosive here. It's just because we have people at the top. We have our old friends who are at the top of America's core inner circle of power & influence.
A True Story: How A Wall Street “Old Friend” of the CCP Fixed the Owner of "Politics and Prose" Bookstore in Washington DC. for Xi Jinping
As we don't have much time, so I won't go into details here. I'll only tell a little story. Mayor Zhang just told some stories. It worked very well, right? So I'll also tell a story.
Oops, it's a shame that this story ...... We are doing a live broadcast on the whole internet today, and it is said that a million people are watching it, so I have to control how much I can tell. I can't betray others.
Let's put it this way, in 2015, before the last visit of General Secretary Xi to the United States, we know, that all our systems in the United States needed to work at warming things up, right?
So one of our party's systems, the way that system could help to warm things up in the U.S., was public opinion. (So it was arranged that ) the first edition of the English version of Xi Jinping's new book "Xi Jinping: The Governance of China" would be released in the U.S. Before he visited the U.S., we would hold a book release event to help him build up the momentum.
Who should do it? Just like today, they found out (they said to me), Di Dongsheng, you have a way with foreigners and are better at fooling them, right? Because they had seen how I fooled foreigners, and they thought it was very good, so they said, "You act as the host and guest speaker", so it's very similar to our event today, where I'm both the host and a guest speaker.
So the venue for this event was already decided by the leader. He said it was next week, next Thursday, 3:30 p.m., Go to the most important "Politics and Prose" bookstore in the United States, on 2650 Connecticut Avenue in Washington? It seems like the number. That is a professional bookstore. So we needed to go over there for the book launch, and we needed to hurry up to communicate with the store.
We all know that the East and West work in different ways. You asked me to secure that venue on such short notice, it was tough.
It turned out that the bookstore owner was very spoiled, he said sorry, we can not host you. Then I asked, I said, you tell me, which author booked this session? What did I mean by that? There's nothing that dollars can't handle, right? If I can't do it with one stack of dollars, I'll do it with two. Of course, that's my way of handling things.
But alas, the bookstore owner was very spoiled and said, "I'm sorry, I'm not going to tell you which author has booked this time slot, we have our principles."
So he was very spoiled. He really put on airs with me.
So I asked around and found out that he was a Democrat before, and was once a journalist in Asia. He was very unhappy with our party, so he purposely chose not to cooperate.
Then I thought that we had lost the chance, at least we needed to change the time and place, right? So I turned this issue over to the leaders, let the leadership solve it. I was only a guest to help, right?
On Thursday morning, the vice department head of that department, who was also the real keynote speaker of that day, called me and said, "Little Di, let's go ahead with our original plan, at the same time and place, as we planned."
After lunch I rushed to the bookstore, only to find that the leadership was there earlier than I. He said, the reason why today we were able to follow our original plan, to execute it smoothly, is because of this outstanding person. Then he introduced an old lady to me. She has a big nose, and I could tell that she is Jewish by the first glimpse. She handed me a business card, saying, my name is so-and-so, I won't betray her name here. She said, my name is so-and-so, nice to meet you.
Attention! She speaks very fluent Mandarin in the Beijing dialect.
I was very surprised. I said, "Oh my, you speak Chinese even better than I do, I can never get rid of my Jiangsu accent."
Upon hearing that I flattered her, she was very pleased. She said, Let me tell you, not only do I speak Chinese, but I also have Chinese citizenship.
Do you understand this? Do you have foreign citizenship? If you have foreign citizenship, you can't have Chinese citizenship, right? This old lady wouldn't give up her dual U.S.-Israeli citizenship for Chinese citizenship, right?
So I immediately understood that she was an old friend of us Chinese people.
She then said another sentence that impressed me very much.
She said, I not only have Chinese citizenship but also have Beijing Hukou( registered permanent residence). I have a Siheyuan (quadrangle dwellings) on Chang'an Street in the Dongcheng district. When you come back to Beijing, come and have tea with me. If you need anything here this year, don't forget to call me. What did that mean? She could fix anything here.
Then I saw the owner of the bookstore, who was very proud of himself before, with an unhappy face, asking his employees to arrange tables and chairs. He was very reluctant, as he was forced to do this.
I said, "How did you fix him? We tried to communicate with him, but failed. He was very spoiled." The old lady smiled wryly and said, "I reasoned with him."
Do you know where that sentence comes from?
It's a classic line in the famous American Mafia movie "The Godfather". That guy cut off the head of a horse and stuffed it into someone's blanket.
Of course, the old lady was not in the Mafia, but who was she? Why did she live in China for 30 years? Why can she speak fluent Beijing dialect? As we just said, Wall Street. She is from a famous, leading global financial institution on Wall Street. She is the president of the Asia region of a top-level financial institution. Of course, it would be politically incorrect for me to go on.
Do you understand what I mean? If you do, put your hands together!
Biden’s Election and CCP’s Goodwill: “There Are A Lot of Deals in All These”
Okay, so in fact, that is to say, to put it bluntly, for the past 30 years, 40 years, we have been utilizing the core power of the United States.
As I said before, since the 1970s, Wall Street had a very strong influence on the domestic and foreign affairs of the United States. So we had a channel to rely on. But the problem is that after 2008, the status of Wall Street has declined, and more importantly, after 2016, Wall Street can’t fix Trump. It's very awkward. Why? Trump had a previous soft default issue with Wall Street, so there was a conflict between them, but I won't go into details, I may not have enough time.
So during the US-China trade war, they (Wall Street) tried to help, and I know that my friends on the US side told me that they tried to help, but they couldn't do much.
But now we're seeing Biden was elected, the traditional elite, the political elite, the establishment, they're very close to Wall Street, so you see that, right?
Trump has been saying that Biden's son has some sort of global foundation. Have you noticed that?
Who helped him (Biden's son) build the foundations? Got it? There are a lot of deals inside all these.
Then, so, at such a time, we use an appropriate way to express some goodwill. This is my personal understanding based on my limited professional background. If we understand this matter from the perspective of the international political economy, I think there is a tactical and political value in it.
On the other hand, of course, the opening of the financial markets between China and the United States itself, now we are opening up the financial sectors, many people think that opening up the financial markets means major concessions. The purpose of your opening up the financial markets is to hold tight on the big thigh of America, right? You hold on to the United States, crying out loud: don't run away, don't dump me, is that the case? In order not to be decoupled?
Open Up Our Financial Market So We Can Have the Dominance
Can you understand it that way? I understand it the other way around. I happen to think- this could be another explosive theory-and I happen to think that opening the financial markets is precisely a sort of decoupling of the United States. We're opening up the financial markets, and that's exactly what decoupling is in a sense. So I ask you again, why are we given such a hard time in many places? As you know, I just saw the news today, at noon, people sent me this news, our Chief Executive of Hong Kong, Mrs. Carrie Lam, if she goes out every day to buy groceries, bags, and clothes, do you know what? She carries a large amount of cash. Why? She doesn't have a bank account anymore, she can't use a credit card, she can't use any financial payment tools, she can only buy things with cash.
Why? She was sanctioned by the United States. So why are we being sanctioned by the United States? Why are we being sanctioned by the U.S. on finance, on payments, on cross-border payments, on chips, on software, etc.? What is the reason, and why are we being sanctioned by the United States in terms of basic science and technology? There are of course many reasons behind this, and I would like to make a point here that this reason lies precisely in the way of how the US and China previously coupled.
We know that in the '80s the Northeast (of China) was booming. Why? The Northeast is the root of the entire Chinese economy. Isn't it true that our universities do their own basic scientific research? And why? Because at that time we were an independent... You can understand it as a tree, with its own roots, its own trunk, its own stem, its own leaves, its own flowers. Smaller, of course, compared to the U.S.-dominated world capitalist system, the world market system, its division of labor system, you are much smaller, much weaker.
But you are a complete and independent industrial system. China joined the U.S.-dominated world economy, especially on a large scale in 1992, and after 1992 we attracted investment on a large scale, so the Southeast coast developed rapidly and the Northeast declined, why? In fact, it's because that tree was cut from the middle of the stem, the upper half was grafted directly onto another system's roots and stem. Get it? That energy was big, that market was big, so it boomed quickly, it blossomed quickly, and we're all enjoying the fruits of that decision today, and we're all better off.
But the question is, all choices, all strategies have their price, right? What is the cost? Our original roots and branches withered away. Originally, we had two to three hundred companies that made chips, lithography, and this whole industrial chain. Now they all withered away because you can just import other people's successful, smaller, more high-tech things, our software does not need to be developed, using other people's software is better than yours. Understand? So, in the past, after we were integrated into the U.S.-led globalization, we were the winner.
But note that this comes at a price, and the predicament we face today is precisely the manifestation of the inevitable price of such a way of integration. The previous integration was we accept FDI, that is, foreign direct investment, you come to my place to open factories, we welcome you with open arms. As for the trade, we both fully open. But we don’t open the financial sector. As to the capital account, which is, the portfolio investment, just like Mr. Ding said, we don’t open this.
So the previous integration is actually, you can call it a parasite, or you can call it a plant that was grafted onto another system. It comes at a cost. So the digital giants, did you see that the shares that are going up these years are all from digital giants?
Have you noticed it? In the post-financial crisis era, in the past 12 years, who are the companies whose stock prices and asset prices have risen the most? They are Alibaba, the "three Ma"(Jack Ma, MaHuateng, Ma mingzhe). The "three-Ma" led the way, followed by some other digital companies, they made a lot of money from the Chinese market. They have a lot of bargaining power, a lot of bargaining positions, a lot of pricing power, a lot of capital appreciation. Have you guys made any money? Did you guys make any money when you speculated in the Chinese stock market? You didn't, right? So where is the main profit? Where does the capital appreciation that results from that part of the economic reform take place? Nasdaq. That's the previous way we were originally coupled with the United States. So the U.S. said they want to decouple with China now, I think this is not a bad thing. The industrialization we wanted before has been achieved. They now want to decouple, I think that's exactly what we want.
Of course, the U.S. wants to decouple. Some of us, those who don't quite understand the inner logic of the relationship, got really frightened.
But I think that after we open up our financial sector, in the future, the money Chinese people save will be turned into capital and investment directly at the financial and capital market in Shanghai, in Shenzhen. Our savings will be directly transformed into investment, instead of converting into foreign exchange reserves, and then being put as American government bonds, European government bonds, Japanese government bonds. They will be directly in China's local financial market.
And then the global financial players come over and turn it into investment in this market. Do you understand? So from this logic, when our financial opening-up succeeds, we will be speculating on Shanghai stocks and Shenzhen stocks in the future, the chance to win money will be a little bit bigger, although still limited. So in fact, during this process, please pay attention, don't think that the financial sector is something virtual and empty. Virtual things are very important. Finance, education, and high-tech research and development, they are actually the root of the tree, the root we want to plant in our own home, inside our own yard. We need to have our roots grow again.
You may say, won't this opening up allow foreigners to come in and earn our money? No, this is different. In the past, our enterprises went public at other people's markets, and followed other people's rules. It was mainly other people's investors profiting from our businesses. But now we are planting in our own yard, and the rules, when to water, when to sunbathe, are set by us, so who has the dominance is different.
