Editor`s note: On May 17th, organized by the Eurasia Center of America and the Embassy of South Africa, a conference themed “Doing Business with the BRICS”was held in Washington, DC. Chen Xiaochen, director of the International Studies Department of Chongyang Institute for Financial Studies at Renmin University of China (RDCY), was invited to attend the meeting and gave a keynote speech. The following is the full text of his speech.
Thank you, Chair. But let me first clarify one thing Mr. Chair said: I cannot represent China. Chinese high representatives are not here today probably because they are having important talks, more serious and hard talks, with their American counterparts not far from this room. Since I don’t have any job there, that’s why I am here to talk. (Laughter)
Yes, the “weather” between China and the United States is not good. Like the weather today in D.C., we are facing headwinds even rains. The question behind such “weather” and also the key question today is how to look at the role of BRICS especially China in the world. Of course, we are talking about the rise of BRICS and the emerging of China. But I would like to highlight that the real fact is the collective rise of emerging economies. BRICS countries are of course large ones, but they are just 5 out of them, and China is only one of them. In 1986 when WTO Uruguay Round started, developed countries’ economy shared more than 80% of total world GDP. 30 years later in 2017 when BRICS summited in Xiamen, their GDP only accounted for 47%. This is the collective rise of emerging economies.
Of course, BRICS countries are more striking. First, BRICS is still “golden”. Someone says BRICS is no longer “golden” anymore. But I think BRICS is still doing well. From 2006 to 2017, BRICS’s share in world GDP rose from 12% to 23%, trade from 11% to 16%, overseas investment from 7% to 12%. BRICS contributes more than 50% of world economic growth, last year it is more than 70%. Therefore, BRICS is still golden. It is the general picture.
On the other hand, BRICS is not that ambitious. We are not challengers; we do reforms. Domestically, all countries face problems, so we are all doing structural reforms, more or less. China wants to have less growth but better quality; India wants to make more by “Make in India”; Russia, Brazil and South Africa all want to rebalance their economies. Globally, BRICS upholds the current system, and improves what is not perfect. It is all about reforms, which is our role.
As a scholar in BRICS think-tank community, my key point today is that BRICS can be a “bridge” for the U.S. and American business to link the South and the North. According to a theoretical model developed by Prof. Liu Wei, President of Renmin University of China, in recent years global value chains (GVC) is transforming into a “double circulation”. One circulation is between developed countries and emerging economies, which can be understood as the “financial capital circulation”. The other circulation is established between emerging economies and other developing countries as “industrial capital circulation”. BRICS works between the two circulations. Therefore, BRICS serves as a bridge to link the North and the South. China proposed BRICS-plus last year in BRICS Xiamen Summit. To me, BRICS-plus means more inclusiveness and more openness, which means BRICS is the platform to have both South-South cooperation and South-North cooperation.
In this regard, BRICS-plus does not only provide the world – including the U.S. – with supplies, markets and investment areas and projects, but more importantly, the connections. By connecting production and resources, BRICS supports high-techs and service industries in the States. Without BRICS, the American business has no choice but to face unorganized units one by one. With BRICS, you have a whole system. BRICS offers American business with a reliable and organized partner. It is BRICS’ role in theory and in real practices.
Among BRICS-U.S. relations, China-U.S. circulation is most typical and striking. In fact, China and the U.S. have formed the most important circulation in world economy. U.S. gets products and profits, while China gets money then send it back to the States in various financial forms, say treasury bonds. Both countries benefit. Someone says “China is taking advantage of us”. Well, it can be true, but the point is both are taking advantages of each other. Now, the point is who gets more. It is very simple: to compare the yields and returns. One of my previous studies shows the U.S. benefit from investing China was around 17% before 2013. In contrast, treasury yields were around 2% in this period. Of course in reality it is more complicated, but my answer is very clear: both are better-off with this circulation, but the United States gets more.
One example is Apple in high-techs. Apple’s profit is very high. Several years ago, the company took 75% of the total profit while millions of Chinese workers got only 2%. It means more profits were taken back to the U.S. It means the U.S. gets more on the production side.
On the consumption side, the U.S. also benefits a lot. The U.S.-China Trade Commission shows each American household saves 850 dollars annually in average from the trade with China. So, I am very happy to say after the conference every American citizen here should owe me 850 dollars. (Laughter) You can see what “Made in China” brings to America right here in Best-Buy next door. The U.S. export to China, on the other hand, supports 1.8 million new jobs across the States. If we add mutual investment, the number is 2.6 million. So, if someone says China is taking unfair advantage, he is not fair. (Laughter) The truth is we both take advantage of each other.
However, China cannot be World Factory all the time -- it is not sustainable. It is quite natural for China to produce higher-end products and go service-led. China is doing better job, more overseas investment and more high-value-added jobs. We are moving from World Factory to probably a World Engineer whose job is to solve problems through solutions and management. And we do more “software job” than before. Probably that is the reason why the U.S. feel threatened and that’s why China-U.S. relations is facing a headwind. But in my view, the U.S. government is fighting with two windmills, the Don Quixote’s Windmills – one is Made-in-China-2025, the other is the Belt and Road or known as One Belt One Road. To Eurasian businesses here in this room, China’s Belt and Road fit your business well. It is your opportunities.
So, is China a threat to the United States? My answer is China is just doing its own job, only in a better way. Our job is manufacturing, is real economy. The States remains the dominant financial power. In other words, China works with the United States, even for the United States to some extent. Moreover, while China’s GDP share grows, U.S. GDP share in world economy does not shrink in recent 10 years after crisis. In other words, China’s emerging does not lead to a U.S. declining. Even if China’s GDP surpasses the U.S. one day, say 20 years later, it won’t be the end of the world. As I said you still dominate the financial system. And please remember GDP is to measure flows and new additions. If we compare cumulative wealth and knowledge, China is far behind. In 30 years, the U.S. may still have primacy in financial system, in military, in high-techs and education. Even in manufacturing, some technology remains advanced in the States. The gap will not disappear in short-run. It is a clear mind.
However, there are three things that may jeopardize U.S. primacy, and make America not strong anymore. The first is credibility. If policy continues to be unreliable, American soft power is undermined. Second is education and innovation you are proud of. However, if the Administration continues to cut spending like what it is doing, technology primacy will lose its basis in the long run. Thus, China is not the threats; education is. The third is foreign policies toward China. Some policies seem to drive China away and make China have no other choice but spend money and develop its own capability.
Now the wind is not good. And it rains even heavier outside after I start speaking. (Laughter) However, the trend for globalization is there. It cannot be reversed. BRICS is the power, the collective power to uphold globalization, free trade and WTO. So whatever the U.S. is doing, China will continue to open up. It is for the world; it is also of our own interests and for BRICS-plus’ interests. In trade policy, China is turning from export-led to a more balanced, even kind of import-more-emphasized one. China’s domestic demand’s contribution to our economic growth is already 109% in the first quarter. It means our domestic need is so strong that it offsets and overcomes difficulties in foreign markets. In investment, China is making more overseas investment, which will benefit other emerging economies as well.
China will expand opening-up anyway. One of the big moves is the first China International Import EXPO being held this November. BRICS countries have been invited to play a big role, making BRICS more like a golden bridge. A recent development is Indian PM Modi’s positive attitude toward the EXPO in his recent China visit. Of course, we hope the American leaders and high officials will also participate. But anyway, I would love to especially propose to the American businesses here to seize the opportunity. This is also for BRICS businesses. Hope after the rain there will be a rainbow, just like our co-host today, South Africa, the rainbow country.