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​ZHANG Shuguang: China’s Population Policy and Problems
Time:2018-06-30 23:34:33   Clicks:

This is a keynote speech by Professor ZHANG Shuguang at China’s Economic Growth and Cycles(2018) Summit in Xiangshan Mountain, Beijing, June 30th. Translated by Mr. MA Junjie, project researcher at Unirule Institute of Economics. 

Thank you! I would like to take this opportunity and talk about a few pressing issues. 

Firstly, I would like to start with the population issue that is a fundamental one in the social and economic development. However, there have been some misunderstandings. Every man has one mouth, a pair of hands, and one brain. They are closely connected. If we utilise them wisely, miracles can be made. However, we have failed to look at them as a system, but rather, consider them as separate organs. We first saw that there is one mouth that consumes food, therefore, population has to be controlled. When doing so, economic measures could have been taken. However, the government had to use coercive administrative measures, setting up a specially-designated department that led to a special interest group. As this population policy is coercive, a lot of absurdity was a result, as we all know. In addition, it was said that this policy would be adjusted around the year 2000. Thanks to the interest group, the cancelation of the one-child policy was postponed till 2015. However, due to the change of the environment, after the abolishment of the one-child policy, people were not having more babies. Young people even don’t want to have children. Hence, the effect of the policy was infinitesimal.

I took a taxi yesterday when I came to attend this conference. The taxi drive told me that he had 13 siblings in the extended family, and 12 of them did not intend to have children. Only the youngest one wanted to have children. This is also consistent with the world trend. However, in China, people are getting old before they get rich, whereas, in developed countries, the population is ageing with low, even negative, fertility rate. On there other hand, in some very poor countries, population has been growing very fast. Let us take a step back and think, in 30, 50, or 100 years time, the demographic structure would determine the future for humanity. Some scholars have voiced their warnings, but they hardly get any willing ears among the decision makers around the world. 

We only recognise that all these mouths are consuming food, but we fail to notice that they are also capable of articulating opinions. It is a key function of human mouth. People would die of hunger if they are not allowed to eat, and people would die in silence if they are not allowed to express their opinions. Besides, articulation is also a function of the brain. There is a strong correlation between the development and deterioration of one’s brain and one’s capability of expression. Therefore, everyone should be allowed to express their opinions freely. Without the freedom of expression, I doubt the welfare of individuals would be good. 

Every man has a pair of hands. They can work, they can make things happen. When these hands are put into labour, the way they are arranged can be very different, just think about the output of these hands’ labour in the era of People’s Commune and the institutional reform of Household Contract. The reason why China has achieved such historic development after the reform and opening-up is the emancipation of people’s hands, allowing them to have choices of their own. That’s the start of what we see China’s economy today. 

There are physical labour and intelligent labour. The combination of both can work miracles. However, there’s still strong prejudices in China against physical labour. Human brains can think, reason, and sympathise, which differs them from those of other species. The difference between human brains is also a critical trait. Since brains can think, let them think freely, which would generate good and bad thoughts. However, if they are not allowed to think freely, bad thoughts may still be generated, while good thoughts would be suppressed. Human history has proved this. 

Secondly, I would like to address the key to China’s economic restructuring, that is human capital. China’s economy developed fast for the last 4 decades. The GDP of 2017 was RMB 82.7 trillion, ranking second in the world, and the GDP per capita was RMB 59,000, ranking middle. We should address these achievements, but we should also see the problems. Now we have overstated the achievements but underestimated the problems. Some scholar claimed that China has surpassed the US in 6 areas. It was blind optimism. Such statements ignored the problems and failed to address the potential solution to such problems. What is the root cause of 30 years’ of rapid development? The answer is massive resource consumption. China has consumed about 40% or 50% of the main resources in the whole world, while our GDP only amounts to slight over 10% of the world’s total. Such a development model has caused massive environmental disasters. We can see that in the latest actions taken by the Ministry of Environment. 

In addition, we also relied heavily on massive investment and credit expansion. Last year, the ratio of M2 against GDP accounted to 202.7, resulting in high leverage but decreasing investment efficiency, which harbours huge financial risks. We also relied heavily on export, resulting in domestic and foreign economic imbalance. A lot of trade disputes took place, the one with the US is a new example. Therefore, we have been relying on a roughly low-technology, low value-added development model. We are faced with a new task of restructuring and upgrading. 

How? How to improve the quality of our development? The fundamental answer is human capital, and innovation. The development of new technology and new industries rely on human capital, the development and image of cities rely on human capital, and the future and prospect of this country rely on human capital. Therefore, we see the competition for human capital is so fiercely being undertaken among countries, cities, companies, and regarding certain technologies. This is the second issue I would like to address. 

Thirdly, I would like to point out that human capital also lies behind the China-US trade dispute today. The dispute has evolved into a trade war, it seems. How to consider this? Many people are still focusing on the trade side of the issue. They talk about the trade imbalance between China and the US. The US runs a trade deficit of USD 375 billion against China and President Trump promised to cut at least USD 100 billion. Does this make sense at all? I think to some extent, yes. However, from an aggregate point of view, China should not take all the blame. The current global value chain has enabled China to excel in the assembling and manufacturing of goods, but the added value does not stay in China. This calculation issue resulted in the huge numbers we see. There are no winners in a trade war. A trade war harms the welfare of the consumers home and abroad alike. However, based on the capacity difference, different parties of the trade war may find themselves in very different conditions. The US started this trade war that hit the global economic system hard, resulting in a retreat of globalisation. Is it true? Yes, it is. But President Trump believes the current situation is unbearable and unfair. He is resolute to change it. China took the challenge and prepared retaliation by raising tariffs on soybeans, beef, and other commodities. However, I think we should take note of the problems behind this trade war. Ever since the beginning of globalisation, capital flows around the world with different industries relocating. On the one hand, big multinationals from the US have made fortunes; on the other hand, US’s domestic capital flows out, resulting in gaps in its society: labour and capital don’t match domestically. It is like a family member takes flight. That’s why the US is faced with a challenge. The biggest winner of globalisation is China. Although we joined globalisation late, the market size of China is incomparable by the four small Asian dragons. Therefore, as foreign companies are restricted from this huge market, US tech companies have shifted to support President Trump in taking harsher measures against China. 

Let us not forget the achievements of the Road and Belt Initiative. We proposed the world community concept, but the super size of China influences neighbouring countries. They think we might pose some obstacles for their industrialisation. In the past, countries like the US expected China to take on a liberalised market path after the reform and opening-up. However, China is now heading another way. Their sentiments changed. After President Trump took office, he made it clear that his main focus would be the big power struggle. He also said in his State of the Union address that China posed one of the biggest threat to US’s economic interest and values. Therefore, we are witnessing a shift of strategy. The US first took the ZTE case, why? It shows this dispute between China and the US is never really just about trade, but it was about the development of technology. We should take a deeper look at this problem. 

Fourthly, I would like to talk about domestically competition for talents in China. Years back, many cities issued their own talent attraction policies, including big cities like Xi’an, Hefei, Nanjing, Hangzhou, and small cities like Dongguan, Foshan, and Weifang. Around March 20th this year, even Beijing announced its own policy to attract more talented people to settle in. March 26th, Shanghai announced to attract high-end talents. Later, Tianjin followed suit. Competition for high end talents has upgraded. Policy measures are very appealing, from sorting out household registration, to arranging livelihood issues for the family and kids. Shanghai announced to attract 13 kinds of talents, including people who are experts in big data. Beijing promises to give foreign experts ten years’ of free access. 

Many people see the competition as a fierce and temporary one. I think, in general, it is a good thing. Why? We used to not respect talents. Now there is a shift. Why competition for talents and how to do it? I think there are still many problems in the current policy measures taken by different local governments. It has something to do with the standard that defines a high-end talent, and the settlement packages, such as household registration and subsidies. 

Another matter I would like to draw your attend to is that cities are eco-systems. Their talents have multi-faceted structures. There are high-end human capital, and there are middle and low level labourers. On the one hand, we see governments are attracting high-end talents; on the other hand, we also see some local governments are evicting low end labour. Without free movement of people, I think such policies won’t produce satisfactory outcomes.  

One last thing I would like to address is the basis of population policies in Beijing and Shanghai. There is a balancing mechanism in the human movement. I think if human outflow from Northeast China would benefit the rejuvenation of its economy, then it’s worth encouraging human outflow. But the population inflow definitely benefits the development of Beijing and Shanghai, why would the governments control the growth of population? These policies do not make sense. They are residues of a planned economy mentality. If we recognise that there is a bigger population in the Tokyo and New York metropolitan areas, and there is no population control policies, we might have to ask why there is one for Beijing and Shanghai. Only with these policies abolished, will the competition for human capital be directed onto the right track. 

Thanks for listening!

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