Chong-En Bai: The Future of International Governance


Chong-En Bai, professor of economics at Tsinghua University, talks to Rob about how the U.S. can improve global governance, and what lays ahead for China’s relationships with the U.S., Europe, and India.

Transcript

Rob Johnson:

I’m here this evening with Chong-En Bai who’s a professor of the School of Economics and Management at the Tsinghua University in Beijing. He’s a professor of economics. He is someone who has given me tremendous insights over the years about what is happening in China, about its relationship between its federal government and its municipal local activities, about credit allocation and about a broad sense of development across his country.

He is a leading scholar. He’s a very dear friend of my friend, Erik Berglöf. And I’m very excited to have him as my guest tonight. Chong-En Bai, I’m very grateful to you for joining me tonight, and I’m very excited. I look forward to this conversation. Thank you for being here.

Chong-En Bai:

Thank you for having me.

Rob Johnson:

It’s my honor and my pleasure. So we are at a place now where the world is grappling with a pandemic. COVID-19, it’s the virus. But it appears to me that many, many things that were the habit structures and the mind structures of society are being toppled, being turned over like a chair that’s being turned upside down. It doesn’t mean that we know how to stand. It doesn’t mean we have a new platform. But it means that in this time we have to re-learn what it is that matters, what it is that is meaningful, and we need to design our society around that new awareness. I’m very curious what you have seen that illuminates new possibilities, that shows you what has been wrong, that shows you or reveals to you the direction we must take.

And I’m speaking also in the context of the US-China relationship, of course. It’s been very strained, and how you see from the standpoint … I believe you were educated at Cal Berkeley, and you are Chinese. How you see different philosophical terms and everything. What is the challenge that’s before us now? Where do we have to rise to the occasion to make this a better world for our children?

Chong-En Bai:

Thank you very much, Rob.

Rob Johnson:

What does this pandemic mean to you?

Chong-En Bai:

Okay. Thank you very much, Rob, for you very warm introduction and for the questions. I think the pandemic is a terrible, terrible experience for people all over the world. A lot of people died. A lot more families have been suffering from the impact. Some direct public health issues, some indirect economic issues. I think what the pandemic tells us is that we need to do a lot more not only to deal with the current challenges, but to deal with possible future risks.

At the moment, we are still fighting the direct impact of the pandemic. It started earlier in China. Now it’s somewhat under control, so economic activities are resuming. It’s not quite normal yet, but it’s gradually approaching normal economic activities. However, the pandemic is still raging in other parts of the world. We Chinese people are trying to do whatever we can to help the world to deal with this challenge. We are not that experienced in doing this, and sometimes what we have done wasn’t perfect, but I hope people can see the sincerity that’s behind the effort made by the Chinese people to help the other parts of the world to deal with the blow of the pandemic.

China got help when we were in the depth of the pandemic from the rest of the world, and we received helped when we experienced other crisis in the past, so I think people here sincerely think we should help the rest of the world as well. This is one aspect. Then, on the economic side, even though the Chinese economic activities are gradually resuming to the normal level, however, external demand for Chinese products and services is very weak at the moment, so our economy is very much suffering. For this reason as well, we very much hope that the pandemic can come under control very soon.

I think it’s very important at this moment for the international community to work together to deal with the current challenge and future challenges. I think what this pandemic tells us is that when something happens to one country, it can quickly transmit to other countries, so any challenge that is faced by one country is going to become a common challenge to the world. Earlier, China faced the challenge. The other parts of the world was helping. Now it’s somewhat reversed. It’s very important for us to get together and to work towards a common goal to control the crisis. This is about the direct impact of the pandemic.

I’m also concerned about some indirect impacts of the pandemic. One indirect impact is that people may have second thoughts about globalization. This is quite understandable because during the past several months people see that a crisis can be transmitted quickly from one country to the rest of the world. Some people think that if we just stopped globalization that will not happen, but I’m very concerned that people overreact to this.

I think a more pragmatic way to deal with this is that we need to clearly see the benefits of globalization. I think in the past few decades every country benefited from globalization. Although the benefits may not be evenly distributed within countries or within a particular country, but still, globalization is beneficial overall. If we can better distribute the gains, everybody can benefit. And there are risks created by globalization, but the response, I hope, is not to stope globalization. Rather, a better response is to improve international governance of globalization. We face a lot of challenges there, but if everybody comes to their reasons, if we can just sit together and try to find a solution to these problems, I think we can find better solutions that protect the benefits of globalization at the same time control the negative side effects of globalization.

Another side effect is in the area of international politics. One potential side effect is that the pandemic creates more distrust among nations, among peoples. To make it worse, some politicians try to utilize the higher level of distrust among peoples for their personal political gains and then they distrust even further. That’s very unfortunate. However, I hope people can still see that despite of the differences among nations, among peoples, there’s a lot more that can be achieved if we all work together.

I talked about the better governance of international economic activities. We can also create a better system, a better set of rules that govern other possible differences, possible collaborations as well. I hope we are not fooled by some politicians that exploit a very bad situation to enhance their political objectives. We face our differences and we work together to find a common solution. Let me stop here temporarily. I will be very glad to answer your other questions.

Rob Johnson:

Yeah. Well, I think you’re really painting the right picture, and the place what you might call the end-game that many people were concerned about before the arrival of the pandemic and during the deterioration of some of the US-China relations is climate change. Let’s add India to the mix, but how do India and America, America being an advanced country that has very, very bad, what you might call, carbon consumption habits but is at the leadership of the world system.

China, India and the United States, how do we establish the cooperation? You spoke of globalization and there are many benefits, but there’s also many suspicions being aroused that, what I’ll call global governance, puts everything under the control of the government, but the governance at the global level doesn’t understand the feelings of the people down in the streets. On the other level, local governance can feel your problem but it has no power to address the things that are causing you discomfort. The nation state, what I’ll call from the Treaty of Westphalia in the 1600s, is in tatters. Technology has particularly helped, what you might call, diminish or eradicate the boundaries but for human labor.

I look at the situation now and I say the pandemic has shown us that we’re not seeing certain things that were of great importance, what some people call resilience rather than efficiency, but I also see that global governance at the level in this context of climate between the US and China and India is essential to the survival of mankind on Earth. How do we reach that, we might call, meet the demands of that mission and that goal?

Chong-En Bai:

Okay. Rob, I think you brought up a very important issue that’s particularly relevant and also that can benefit a lot more from better collaboration among countries. That is climate change. The climate change is a common threat to humankind. I think it’s very fortunate that now we have better technology to deal with climate change. I think the digital technology can play a very important role in dealing with climate change.

One potential solution to the climate change is to use more renewable energy. However, some of the renewable energy, for example, solar power, wind power, they are not in stable supply, so we need to use technological means to smooth the supply of energy. That requires a coordinated production of different sources of energy, some renewable, others more traditional. This kind of coordination will be very difficult if we didn’t have the internet technology available.

Then, also, the development of electric cars. They use batteries to power them. With better management, we can have these batteries charged during the period when renewable energy has peak supply. Then energy is stored in the batteries of the cars. And if all these things, the supplier, the generator of power and the consumers of power, are connected via the internet, if we have a better management system using more sophisticated algorithm to deal with the issue, we can reduce carbon emission to a very big extent. However, this needs a lot of collaboration.

And when one country develops certain technology, if it can be used by other countries through a reasonable arrangement, then it helps to cut emissions. We already had some international agreement, but unfortunately, the US quit from the Paris Agreement, but if we can restore that or if we can even improve on that, have a better agreement among nations, that creates more incentive for each country and for all the people to better use the technology that I described. I think we can deal with the climate change issue much more effectively than we are doing now. This is an area where we can work together.

You talked about the US-China relationship. Actually, this is very personal to me. I lived for 14 years in the US, three years in California, 11 years in Boston. My son was born in the US. So the US is my second home. It’s very unfortunate to see the current relationship between China and US to be in such a bad shape. What I observe is that a lot of the distrust or even animosity is created by lack of mutual understanding, lack of more complete knowledge of each other. I read Chinese media, and I don’t think the Chinese media offers a full picture of what’s going on in the US. I also try to read the US media. It’s very unfortunate that the US media doesn’t paint a full picture of China either. This cannot be helpful.

If we look at some of the surveys of public opinions, and sometimes the surveys also ask people’s perceptions about certain things, then we find that the perceptions of people can be very different from reality. One example is the Pew survey. People can go to look at it. You’ll find what’s found in the survey about people’s perception about US, people’s perception about China. Those perceptions sometimes can be very different from the reality. I think that’s one source of the problem. It’s the duty of the media, of people like you and me to do more to enhance the mutual understanding.

Another problem is that politicians are not playing a very positive role there. They see opportunities to benefit from more animosity between the two countries, and they utilize this to pursue their personal political gains. This makes things a lot more difficult. But I think there are no fundamental conflicts between China and the US. We both have large markets. We can benefit a lot from better trade arrangements, better investment arrangements. Especially as China becomes more prosperous, our demand for US products and services becomes stronger, and so there’s actually more room for mutual gains. It’s just very sad to see what’s happening right now.

To deal with this, one possibility is for the two countries. Maybe we cannot rely on the politicians, but civil society and people who are concerned about the future of the world should come together to find some things that the two countries can do together so that people can see the benefit of collaboration between China and US. One such thing will be climate change. If China and US can work together to help the world to better deal with climate change, to better reduce the threat of climate change, then we do something good for the world. It also builds trust between us. Hopefully, that builds the foundation for future peaceful coexistence for future collaboration. Rob?

Rob Johnson:

Yes. I think you’re exploring the terrain in an extraordinary and very textured way. Let’s talk a little bit as economists now in the smaller sense. How will the Chinese society and economy in the context of a global pandemic, in the context of the rising unemployment and weakness and slow down all around the world, how will the Chinese economy make it from here to the end of this pandemic, and what kind of stresses do you envision within the Chinese economy/society?

Chong-En Bai:

Okay. There are shorter term measures that we should take and longer term measures that we should take to improve the economic situation. In the short-run we are still working to get the consumption environment back to normal. When people are afraid to go out, then it’s impossible to get the economy back to normal. I think we are developing and we need to develop better mechanisms to make people feel safe to go out to consume, to produce, at the same time be alert to the risk of the reemergence of the COVID-19 in China. This is a difficult balance, but we are learning to find a better solution. I think what we learned here hopefully will become useful for other countries when they start to reopen their economy. This is one thing we are doing now.

Secondly, a lot of enterprises have been suffering from the pandemic. If there is no government support, a lot of them may fail. At this moment, I think one very important thing to do is for the government to identify which enterprises are facing acute problems and then find ways to help them to survive. These enterprises have bright future prospects but just face temporary difficulties. I think the Chinese government has been trying very hard to do this, but again, there are possible improvements in our effort to do that.

Thirdly, because external demand is so weak, so we need to find ways to create some domestic demand to fill the shortfall of external demand, and we need to do it in a way that it doesn’t affect our future trade. When international environment comes back to normal, exporting firms will still export. We hope what we do now does not affect their future exports. Same thing goes to imports. I hope what we do now does not affect future imports that much. We need to find a way to create demand now that doesn’t have very much negative impact for the future. I think here one thing the Chinese government is doing is to encourage more investment for digital technology infrastructure. I think this is a very sensible thing to do because during the pandemic the use of digital technology has been quickened.

For example, we are having this conversation remotely thanks to digital technology. During the pandemic, a lot of firms are using online conference facilities, are using online offices, we are teaching using online teaching platforms, et cetera. The demand for the digital infrastructure has increased a lot, so the Chinese government is encouraging the development of such infrastructure. This is something we are doing now.

For the long-run, I think we should make more effort to increase household consumption as a share of GDP. China’s household consumption share in GDP is about 40%, which is lower than most other countries, especially the US. In the US this share is higher than 70%. I’m not saying the US model is the perfect model. However, 40% household consumption ratio I think is too low, so we need to do more in terms of income distribution, in terms of our public finance, in terms of our pension system and health insurance system, first of all, to increase people’s disposal income, secondly, to reduce the risk they might face by these social insurance programs so that they can feel safe to consume. This I think in the long-run we need to do more along that line.

Actually, the household consumption as a share of GDP has been gradually rising in the last six, seven years, so we just need to keep doing more on that direction. If we can achieve that, the Chinese consumer market will be a strong engine for international economic growth by creating more demand for products and services. Then we also need to remove some of the obstacles in the market. We still have entry barriers in some sectors. It’s still very hard for private enterprises to get external financing. It’s still difficult for rural people to move to the urban area permanently and enjoy the same level of social services, including their children’s education, so that they can become a stable labor force and more efficient labor force in the society. There are some frictions in the economy that we need to deal with so that the economy functions more efficiently.

In terms of our international relationship, we want to develop mutually beneficial trading and investment arrangements with all countries in the world. We also hope that the global governance of economic affairs can improve so that when there is dispute between countries, these disputes can be settled by international rules rather than by who is mightier than the other party and using might to settle the dispute. Back to you, Rob.

Rob Johnson:

If you could wish … Like you said, your second home is the United States. As they say, even in dysfunction it takes two to tangle.

Chong-En Bai:

Right.

Rob Johnson:

What would you wish for the American government to do for America that would take the pressure off of the US-China relationship? What have we not done that, we might call, would have the potential to create a healing or a more integrated global economy? What is your critique of how America is behaving?

Chong-En Bai:

I think the most important part is that the US should lead the world to improve global governance. It’s not easy. I think the decision-making process is not very conducive to reach agreements, so we need to work toward more effective decision-making process. If the US can stick to multilateralism, can work together with other countries, then the world will be a much better place. I think China-US relationship will be in better shape. That’s what I hope the US can do more.

Currently, the current US administration I don’t think it is doing the right thing in terms of improving the global governance of economic affairs. For example, at the WTO there is this body of judges that helps settle disputes, and the US has been blocking the appointments of these judges so that now it will soon become dysfunctional because for the panel to work you need at least three judges. However, now without new appointments, you will not have three judges to make anything possible, any dispute resolution possible at the WTO. I don’t think that’s conducive to the function of the international economy. So sticking with multilateralism, leading, not just working. Leading the international effort to improve global governance while leading. Also, pay more attention to other countries’ concerns.

I think a good leader should take care of other members of the community as well. I hope the US can lead the world at the same time give more weight to other countries concerns and improve the global system. That will be the most important thing to do. My complaints now is that the US is not doing that.

Rob Johnson:

Yes. When you look at Asia and you look at the development of Africa, you look at India, what do you see, what you might call, of the way in which China can proceed to help those regions in development and help itself? I’m very interested, particularly in light of the turbulence within America, but how China can exert its leadership in the world system.

Chong-En Bai:

That’s a very good question. China is still an emerging market, a developing country. What we learned in our development process I think can shed light on how other emerging markets can develop. For example, if you transplant a manufacturing facility from an advanced economy, for example, Germany, to an African country, because of the differences in management, because of the differences in the clients and because of the differences in human capital of the employees, a simple transplant may not work as we learned in the last 40 years. You need to adapt the technology to local needs. We have been doing that for 40 years, and we have gained experience in making such adaptation. I think such experience can be very helpful to other emerging markets. This is one area China can contribute.

The other area is that when we started our economic reform in the late ’70s, we were very much lack of infrastructure. When I went to the US in 1985 for the first time, the thing that most marveled me was the highways. You can get on the highway and travel without traffic lights very quickly, efficiently. At that time, there was no single highway in China, but then we built a lot of them. We came from a background when we had very poor infrastructure. Then we made a lot of effort building up infrastructure. Along the way we built the expertise to build infrastructure in an efficient way that fits the environment, that fits the institutional environment, that fits the economic environment of emerging markets. So why don’t the world utilize this expertise?

I think there’s a lot of suspicion from the rest of the world about China’s effort to build infrastructure, to make infrastructure investment in Africa, in South Asia and in other parts of the world. It will be so much better if other countries can work together with China to utilize the expertise, the capabilities China developed in building infrastructure in an efficient way to Africa, to South Asia. I know China does not have rich experience working in international environment.

Even the cross-cultural communication skills is very much in shortage among our enterprises, so we face a lot of difficulties. And sometimes we make mistakes as well because of lack of experience in our understanding of other countries’ fiscal systems, in our lack of understanding of other countries’ economy, in our lack of understanding of other countries’ culture. This is an area experienced countries can help. If China, US, Europe can work together to improve Africa’s infrastructure, that will be great for the world. I haven’t seen that kind of collaboration in full scale. I hope we can do that. China’s development experience in adapting advanced economy to emerging market context and China’s capability to build infrastructure can be very beneficial to other developing countries. All countries need to work together to utilize this opportunity.

Rob Johnson:

In looking at the unfolding, the transformation related to technology, related to the future of work, related to China moving up the value chain, what role do you see for India in this world economy? What do you see that they can do or should do to improve the well-being of their citizens but while still being mindful of the structure of all that is going on around India, around China, around Asia and around the world?

Chong-En Bai:

India is a country with great potential with a lot of human capital. The demographics is favorable to rapid economic growth. I think India can play and should play an important role in the world’s development. What I said about China’s relationship with Africa and what China can do to help Africa also applies to India. I think at the same time China can also benefit a lot from better development of Indian economy. Not only because it creates a huge market. Also, because India can be very important sources of innovation.

When you talk about moving up the global value chain, innovation is so important, but one country cannot do all the innovation. When you put innovations from different countries together, they become more valuable. Because India and China are all developing countries, so innovation from India sometimes can be more applicable to China. Similarly, innovations in China can be more applicable in India. If we can collaborate more and encourage the exchange of ideas, the exchange of goods and services, I see great potential for economic relations between China and India. I see much better prospects for collaboration than the potential of conflicts in economics between China and India.

Rob Johnson:

Well, I guess, I’m at a place where we’ve explored a great deal. Are there other questions? Are there other challenges that you would like to share with our audience at this point?

Chong-En Bai:

Rob, let me add one more thing-

Rob Johnson:

Please.

Chong-En Bai:

… about China-India relationship. I think there is another reason why our two countries can build a better economic relations. The Chinese population is aging while the Indian population is very young, so it’s a natural complement that an aging society works with a young society to complement each other. This is another thing I would like to add. You ask me whether there are other things I would like to add. Yes. I mentioned the importance of all countries to work together to achieve common goals. I also mentioned that there are naturally a lot of differences. We don’t like differences sometimes, but I hope we can all learn to accommodate differences.

About the US, I mentioned that I hope the US can play a better role in improving global governance. I also hope that the US thinks more about long-term. What do the US see the world will be like in 30 years? Is the US going to be comfortable with what the world will be like in 30 years? Can the US do something to change the trajectory of the development? How can it help to change it in a better way if it doesn’t like some of the aspects? Is it possible for the US to stop that trend? I very much hope that people can take a longer term view and then see what the world will be like and how do we move from here to there without a lot of conflicts. That’s something I would like to urge the US to think more about.

Then about Europe, I also hope people in Europe will think more about this issue as well. Europe should play a bigger role in the world stage. I hope China and Europe can work together as well as other countries to do that. Then you mentioned India. I’m very hopeful that … There are some border disputes, but those are more emotional than pragmatic. If we can just overcome the emotions and just think more rationally about how we can work together to improve the future of both countries, then I’m very hopeful about China-India relationship as well. I just hope we can all look more into the longer term, look more at possible benefits from better collaboration and make this world better and more peaceful.

Rob Johnson:

Let’s see. I would say that’s a lovely vision in these difficult times. The fact that you have such a constructive spirit is, I would say, an example. I have 11,000 young scholars in the Young Scholars Initiative at INET, and I want each and every one of them to listen to what you shared with me tonight.

Chong-En Bai:

Thank you, Rob.

Rob Johnson:

Because you are an extremely insightful professional. You’ve mastered the skills. You’ve mastered the use of the tools, but you have a gift. And then our mutual friend, Erik Berglöf, alerted me to this many years ago. You have a gift for asking the right questions, and I think anybody among the young scholars who aspires to be an economist, to be a leader and to be influential in the future can draw inspiration from listening to you.

Chong-En Bai:

Thank you very much, Rob.

Rob Johnson:

I hope that before too many months pass we can come back together on this podcast and continue to explore how things are unfolding, but tonight I just want to thank you for an excellent, excellent sharing of your concerns and your vision. You’re an extraordinary man, and that was evident tonight.

Chong-En Bai:

Thank you. I hope we can have other opportunities to talk, and I’ll be very happy to.

Rob Johnson:

As soon as I can get on an airplane, I’ll come to Beijing to see you. That’s for sure. And if you’re ever in New York-

Chong-En Bai:

Okay, thanks. I look forward to that.

Rob Johnson:

… you have a home…

Chong-En Bai:

I also have plans to visit New York. I hope I can visit you when I am in New York.

Rob Johnson:

Always. Let’s sign off for tonight, but with the promise that the listeners of this podcast can count on the fact that you and I will convene again and again and again in the future and explore the issues that, what you might say, are near and dear to your heart, but thank you for what you gave us tonight.

Chong-En Bai:

Thank you. Bye-bye.

About the Host

ROB JOHNSON serves as President of the Institute for New Economic Thinking.

Johnson is an international investor and consultant to investment funds on issues of portfolio strategy. He recently served on the United Nations Commission of Experts on International Monetary Reform under the Chairmanship of Joseph Stiglitz.

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About the Guest

Chong-En Bai holds the Mansfield Freeman Chair in Economics at Tsinghua University. He studied at the University of Science and Technology of China, Harvard University and University of California, San Diego.