Zhu Ning: I think it means quite a bit. For China, I think it has been a lot of collaborations in trade between Europe and China. And now it comes to a critical point when China can invest more or more freely into Europe which is one of its biggest trade partners. This would not only give China the big potential in the market but also would allow Chinese companies to have a close tie with European counterparts. And this will be a very important part for China to further internationalize its economy and its companies.

 

Host: And Professor, this is the tenth year since the tension of China and EU comprehensive strategic partnership. In that decade, we can see both progress and we can also see complex. In your view, what would you say is the main obstacle, but also what is the biggest potential between or with these two sides?

 

Zhu Ning: I think there is tremendous potential between Europe and China because there are a lot of complementarities between the European economy and Chinese economy. And given the huge potential, there is not forget about the potential challenges. I think, from the EU side, even after the European debt crisis is stabilizing, there are still a lot of uncertainties with the solving of fiscal sustainability on the European side. And also, I think given the structure slows economic growth and the higher level of unemployment, I think trade protectionism is always something halfway around between the European and China trade relationship. For the China side, I think, especially given the Chinese economy is gradually growing into a high income level, I think China is trying to transit or transform its economic growth model. In that regard, I think a closer tie in research and development is really necessary. And then I think the protection of intellectual property, especially when it comes into international collaborations, will be very important.

 

Host: Well, China’s related reform is covering many key sectors after the CPC third plenum. Professor Zhu Ning, from Shanghai Advanced Institute of Finance joints us again to talk about fiscal reforms. Professor, the Finance Ministry said the China’s fiscal reforms would focus on three areas, namely, budget, taxation and responsibility of central and local governments. Now, the decision approved by the third plenum suggests shifting some spending responsibilities from local government to central government. What is your view on such move?

 

Zhu Ning: I think such move is very essential and it is not only reasonable but also necessary. I first to start it with, I think the local governments have been spending a large proportion of the local expenditures which is beyond their fiscal revenues and this creates the incentives for them to use the local government financing vehicles or other vehicles to finance their expenditures. And this is creating a lot of uncertainties in the financial system, especially related to the local government financing vehicles. So, I think, this is one way to eliminate or to disperse the risk that has been accumulated in the Chinese financial system, at the very same time, just to better align the local and the central governments’ interests and responsibilities.

 

Host: Ok, China has made efforts to improve its taxation system in the past few years including replacing business tax with the value-added tax. And now, people, we are going to talk about property taxes. What do you think or say or do you think or say more direct taxes in the future and how do you think it would impact the economy and the daily life of people in China?

 

Zhu Ning: I think I’m very confident that we would see more direct taxation. The reason is direct taxation is widely believed to be more efficient and to be fair. And also I mean, if you think about it, if you implement more direct taxation, one bigger benefit is you can have more direct re-distribution of income and wealth. So, this will be able to reduce the income gap between the wealthy and the poor. And to the benefits of direct taxation, we also have the benefits of, with the direct taxation, we have the government more accountable; the entire income re-distribution process will be more transparent. So, people can have better control or monitoring over this process. And with the cut industrial tax system and with improvement in efficiency, I think we will see a greater or improved consumer welfare and we will see decreased prices and the costs.

 

Host: Alright, we have arrived there. Thanks for joining us, Professor Zhu Ning, from Shanghai Advanced Institute of Finance of Shanghai Jiaotong University.