Source: Global Times Published: 2016-3-13
Theoretical innovation is a result of the emergence of new phenomena that cannot be explained by the existing theories. However, in their attempts to explain China`s economic growth by Western theories, economists have made inaccurate judgments over China`s economy in recent years. How will Chinese economic theories influence the world in the future? Are Chinese experiences more suitable for developing nations? The Global Times (GT) talked with Yuwei Hu (Hu), a research fellow at Chongyang Institute for Financial Studies, Renmin University of China, on these issues.
GT: Some economists use Western economic theories to explain Chinese economic phenomena, which seems to be unsuitable for China`s growth. What is your take?
Hu: Indeed, Western economics has failed to explain China`s rapid economic growth over the past decades. In overseas media, it was widely argued and even predicted that socialism with Chinese characteristics and the associated gradual reform approach as adopted by the Chinese government was doomed to fail, since it did not follow the key principles of Western economics, for instance, privatization and the free market. Despite such apparently biased criticism however, China`s economy did not collapse.
On the contrary, China`s GDP grew at 9.7 percent annually over 1979-2015, one of the fastest in the world, and was widely appraised as a growth miracle. China`s continuous economic growth in spite of international noise clearly indicates that Western economics is not suitable for explaining China`s growth.
GT: Economic recovery in Western countries has been relatively slow since the 2008 financial crisis. How will this affect the Western economics?
Hu: The 2008 global financial crisis was a turning point for Western economics in terms of its reputation and role in addressing economic issues. Prior to the crisis, Western macroeconomics was highly regarded and respected around the globe. However, due to its failure to predict the above-mentioned crisis beforehand and consequently to provide sufficient policy proposals so as to help in-trouble countries to rapidly recover, it has been increasingly questioned and challenged. Against this background, for example, the well-known Nobel laureate economist and professor at City University of New York Paul Krugman pointed out that the achievements of macroeconomic studies over the past 30 years can at best be said to have been of no use, and at worst, were even harmful.
GT: Are there any changes regarding the world`s recognition of China`s economic research?
Hu: Economic research in China has made significant achievements over the past, while more and more Chinese economic research work has been acknowledged and accepted by Western scholars.
For example, at the beginning of the 20th Century, leading Chinese finance professor Huang Da first initiated the concept of "Macro Finance," which refers to a more comprehensive method to study finance.
It was not well received, but since the 2008 crisis, both domestic and international scholars have been paying increasing attention to this old but still innovative finance theory.
Partly due to global economic power gradually shifting from Western countries to Eastern countries and emerging markets, it may not take long before granting more economics Nobel Prize winners to the latter region will become a "new normal."
GT: Pessimistic voices over China`s economy are frequently heard in the West recently. Is it a result of theory disparities, ideological differences or for concrete interests?
Hu: Since 2014, pessimism on China`s economy has been increasingly gaining popularity in overseas media. The latest example is Moody`s decision to lower the outlook of China`s credit rating from "stable" to "negative." The reasons for the renewed pessimism about the Chinese economy are multiple.
First, various macroeconomic data point out the downturn pressure of China`s economy. For example, China`s GDP declined to 6.9 percent in 2015, the first time it has been below 7 percent since 1990.
Second, looking forward the Chinese government is taking efforts and concrete actions to conduct so-called supply-side structural reform, in which case over-capacity would be cut, thus putting more pressure on the local economy and the national economy at large.
Third, the issue of conflict of interests should not be overlooked. The stock market crash in China last year and the major insider trading incidents reveals the high possibility of creating and manipulating news by the private sector toward their commercial interests.
GT: Economic laws suggest that theoretical research has always been focused on the most developed regions, for instance, the UK and then the US. How do you view the significance of Chinese economic research to the world in the future?
Hu: Achieving high-quality, and particularly top-level research on economic theory is a combination of various factors, notably the level of a country`s economic development, the local research environment and its pool of talent. By looking at the shift of global research gravity from the UK to the US, it to a large extent reflects the relative change in the above-mentioned factors.
Given that China is on its way to overtake the US as the largest economy in the foreseeable future, its large pool of talented students and improving local research environment, it is convincing that economic studies in China will witness a rapid growth over the next 10 years or so.
GT: Compared with theories from developed nations, are Chinese experiences in economic restructuring more suitable to developing countries?
Hu: Yes, as the largest developing country, China has successfully transformed from a largely poor country to a relatively modern society.
For example, China lifted more than 660 million people out of poverty during 1980 and 2011, which was appraised as a "remarkable success in the history of humankind" by the international community. The UN and other international organizations frequently refer to Chinese experience in elevating economic growth when trying to fight against poverty and other development issues in the presently less developed countries.
As stated by another economics Nobel laureate Joseph E. Stiglitz, "not only are the benefits of Western neoclassical economics small for economies undergoing transition, but even in the case of explaining developing market economies, are fundamentally of limited use."
Given the similarity of circumstances between China and many developing countries as well as good track-record of China`s growth in the past, China`s experience is more relevant and useful for developing countries, particularly those transitioning countries.