8月7日，中国国际广播电台《People in the Know》播出上海交通大学上海高级金融学院(SAIF）副院长、金融学教授朱宁的专访报道，在中国经济增长方式转型和再平衡的背景下，朱宁教授认为，其对亚太地区乃至全球的影响是深远的，主要表现在中国对原材料的需求、劳动力成本的上升以及资本流动三个方面。

 

 

Host: In a globalized world where all economies are inter-linked in one way or another, it is quite certain that any changes taking place in the Chinese economy, the world's second largest, will be felt far and wide.

 

The grand rebalancing in the Chinese economy has precipitated a few changes, which are sending rippling effects throughout the Asia Pacific region and beyond. Slower growth of the Chinese economy has lowered China's appetite for raw materials, prompting drop in commodity prices. Rising labor costs are shifting part of China's manufacturing activities to lower wage countries. China's foreign direct investment ticks up as its foreign exchange reserves continue to snowball.

 

Today we bring to you our final installment of a three-part series assessing the Chinese economy.

 

So in what way is China's economic rebalancing affecting its external environment? How can the rest of the world cope with these changes?

 

The China’s economy has been the main engine for the global economy, since the start of financial crisis, now we are seeing the China economy is slowing down due to complicated reasons, especially as it tries to restructure and rebalances itself, do you think that this latest development is having some kind of effects on the other regions and global economic landscape as well.  

 

Professor Zhu: Yes I do think slowing down of China economy will have a far-reaching replaying effect on many other regions of the world ,I think there are probably three different ways of how China economy slowing down can affect the rest of world economy, the first on the demand side，China has been a very major demander for natural resources such as minerals and coppers and rubber for the past decade，which have been driving the big boom in the commodity market，now China economy is slowing down，I think the demand for such commodities will also gradually slow down over time，and on the separate front I think on the supply side，China has been the world largest manufacturing center which has been able to provide low cost products to the rest of world，now China is experiencing a rising in labor cost, I think we’ll see gradually rising cost in many products that the rest of world have been enjoying in the past several decades at a very low cost, one area I think has been ignored by many is the capital flow，China has been a big attraction of International capital in the past 2 or 3 decades directly reflected by the foreign direct investment （the FDIs ），but given the rising world in China in the past several years，China is becoming more and more an exporter rather than an importer of capital，I think China instead of attracting more International capital is paying more and more attention to invest overseas，that is also going to have a big impact on world economy.   

 

Host: Are you talking about China losing its labor cost advantage ，we understand that cheap labor has always been a competitive advantage for the China’s economy ，this partially turns China into a manufacturing hub， as the labor cost rises, do your think this has also brought about changes in the global finance landscape，are the manufacturing activities which were carried out in China being shifted to lower wage countries like some countries in Southeast Asia ?  

 

Professor Zhu: Yes absolutely, I think there is a clear substitution in fact taken place，I think that is in fact already started a few years ago since the financial crisis in 2007 and 2008， I think we have already seen some plans and International corporations are moving their centers to other part with lower cost or to other parts of China which has lower cost，such as inland areas，so I think there probably two impacts from this transition，one is we have definitely seen some of other developing economies starting to enjoy the benefit of becoming exporter themselves，which started to manufacture some of goods which used to manufactured in China，so I think there is a clear substitution effect，at the same time I think there is a clear advantage in China which is the mass of its population，so even if there is substitution，I do not think it is a complete substitution，so China still maintain its advantage in certain areas，also China being pressured to compete with those countries are going to invest more heavily onto those high-value added hi-tech areas of manufacturing ，which is the high manufacturing， this could be a competition to China，but this also create or force China to venture into those high value added manufacturing，which used to be enjoyed only by developing economies，so I think through this transformation，China can probably manage to become more advanced economy instead of just being a symbol cheap manufacturing hub of the world.

 

Host: You also talk about another important change in capital flow, china used to demand for a huge some of capital, but now China has some 4 trillions dollars sitting in its foreign exchange reserve, and it is very sizable and well fund, do you think that this has also brought changes in China’s domestic investment environment for the foreign companies operating in China.

 

Professor Zhu: I want to point out 2 areas, which were worth to attention, the first is I mean China’s economy slowing down is making the International capital having a second thought about if China is still going to sustain its economic growth, it has enjoy in the past decade, if the question is no, maybe it is about time for some investor to cash out their investment gain, so this is why we are seeing some withdraw of capital or slowing down in the FDI inflow into China. And as I mentioned I think with the upgrade of China economy and industry, there is more direct competition between China and more developed economies in not only products but also services, so I think it is becoming a little bit sensitive when they come down to trade wars，used to be steels or fertilizers，which are symbol manufacturing goods，but now I think it has upgrade into more complicated products or services such as automobiles such as service such as software. I think that on one hand reflect the very common friction in the International trade market，on the other hand I think it did reflect the upgrade or improvement of Chin’s economic structure which I think is encouraging sign to China economic transformation.

 

Host: China’s fast growth in past three decades has created a huge appetite for raw materials, the country has been an important source of demand for mineral for instance such as copper, iron, oil and also for energy as well ,this has sustained high price for these commodities Internationally.   

Now do you think that a more tepid China demand domestically would mean lower price for many raw materials in the International market? 

 

Professor Zhu: I personally think it is very likely that commodity market becomes more stable than the past decades, I think not forget that commodity market have experienced some really bare market before it had enjoyed the past decade as one of the best bullish market, I think there will be weak demand coming out from China, almost sure, on one hand the economic growth speed is slowing down, on the other hand I think China is putting a lot of emphasis these days on protecting the environment, which will require the companies to make more out of same units’ input, it will require lesser demand for the commodities, also let us not forget a part from fundamental side of the market, this is also speculation side of commodity market as well, so the general demand I think will become weaker, but with the market will become much lower, I think also depending upon whether the speculators also believing that without China the market is going to fall or the market will collapse, the expectation is also quite important .

 

Host: Yes, it might be more sensible to look at the different supply countries case by case if we take a look at Australia, Australia is after-sighted as a good example in which a mineral rich  country ride out of financial crisis on the back of strong Chinese economy，but now we are seeing Australia is fading the impact if slow down in the Chinese economy，currently the fading of Australia mining boom has sent unemployment to a decade high of 6 %，it is aso predicted Australia could loss about 0.8 % of growth if Chinese investment continues to slow, so if China continue with its rebalancing strategies which will lower its demand for mineral and energy, how will it affect the trade between China and some of its major commodity suppliers like Australia. 

 

Professor Zhu: Well, I do think that it will have some negative impact on the trade relationship between China and those commodity rich countries, let us not forget Australia and Canada probably the most important two suppliers to China in term of natural resources, I think we have seen the currencies of both countries suffer to some extent, which is largely related to the slowing down of China’s economy, so I think on the trade side we’ll probably see some weakening in the relationship or in the increase in the volume of trade, however I think the slower down of economic growth in China and also probably the slower down of commodity price and appreciation, it is also creating some new opportunities for those countries which is on the capital flow side, I think China has been engaging in a few very important emerging acquisition deals into Australia and Canada, which are largely natural resource related, so I think with the stablizing of the price in commodity market, we might see that for longer term considerations some China’s corporations might be interested in greater investment into those countries, which are sort of boost or support of local economy from the capital side, if not from the trade side.

 

Host: A little bit more on overseas merge and acquisition or China’s foreign investment, China has emerged as a major supplier of foreign direct investment around the world, previously a large share of China’s FDI has gone to developing countries with rich natural resource, now as China adjust its economic development plan, we’ll see a change in China’s FDI perspective, perhaps moving up the value chain a little bit, as you mentioned to acquire some developed regions and markets.  

 

Professor Zhu: Yes, I think that probably the trend in the next few years, over the couple of years, we have already been witnessing a decrease in the growth of FDI into China. I think largely that is reflecting 2 trends, one is that maybe foreign investors are no longer as bullish as they used to be with the China economic growth speed, but in addition, it is also related to the fact that China is very different from it was 10 years ago, China is no longer largely constrained by capital bottleneck, it actually require a lot more in the management and in the technology side, so now that when China is trying to attract capital, it try to attract capital along with management skills and Technology abilities, I think in that sense those investment into higher manufacturing will become the dominated force in FDI in the coming years, even though that means a decrease in the demand of capital, it may bring greater impact to China economic transformation and industrial upgrade.

China's Economic Rebalancing: A Global Perspective