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China Economy Expert Speaks Out On Belt & Road, Donald Trump, And High Tech Startups In Shenzhen

Xu Chenggang, economics professor at Cheung Kong Graduate School of Business, says China’s business model needs to change


Sun Apr 22 2018

Professor Xu Chenggang’s office sits in Suite 3203 of the 47-storey Champion Tower, part of the Three Garden Road complex in the buzzing Central District of Hong Kong.

Based between Beijing and Hong Kong, Professor Xu teaches Executive MBA students at Cheung Kong Graduate School of Business, China’s leading independent business school, headquartered in the country’s capital.

On CKGSB’s full-time MBA, students benefit from an accelerated 14-month program, China-savvy professors who’ve taught at top US business schools like Harvard and Stanford, and access to the Chinese business elite.

More than half of CKGSB’s alumni are at CEO or chairman level. Collectively, they lead one‐fifth of China’s most valuable brands.

Xu has lived through the Cultural Revolution. His father, also a university professor, was purged in the late 1950s, condemned as a rightist. An expert economist, Xu’s taught at top-ranked institutions like the London School of Economics, the University of Hong Kong, and Harvard, where he earned his PhD.

Xu is a board member of the Ronald Coase Institute (RCI) for economics and a research fellow of the Centre for Economic Policy Research. He won the inaugural China Economics Prize in 2016.

Few business school professors are better-placed to talk about China’s economic future.

Where’s the biggest opportunity for China’s economic development today?

Within China, if we look at Shenzhen for example, then you find spectacular growth of private businesses in high-tech. I’ve been at CKGSB for less than two years. But, even in that time, I’ve seen big changes in the number of students becoming entrepreneurs in the high-tech space.

While Shenzhen is the place for business, Beijing is the place for RMB! If we look at total inventions and innovations, Beijing is better than Shenzhen because of its proximity to the best universities. You have lots of talented entrepreneurs and engineers.

China is one of the largest recipients of venture capital in the world—most of which comes from the US—because these businesses are profitable. If they’re given sufficient freedom and protection, then this new tech sector will grow very rapidly.

ckgsb prof

What is the biggest challenge that China’s economy faces?

China’s growth has been mostly driven by exporting, but this is not sustainable. If we look at the past 40 years, we see very fast growth in the first 30 but in the recent 10 years the growth rate has been declining.

What you need is domestic demand, but China’s per capita GDP is low. Low household income is the problem. There is huge space for China to have a higher growth rate. The solution is with the government.

In the past quarter-century, the revenue of the government has grown at a faster pace than the growth rate of GDP—that’s the core reason for low household income. The government must drastically reduce its revenue to allow households and private businesses to have a larger share of the pie. Then, you’ll have sufficient domestic demand.

What about Donald Trump’s trade war with China?

A fully-fledged trade war would cause global troubles. In my view, it’s not likely. A trade war between China and the US is like a nuclear war; it isn’t going to happen because everybody knows how devastating it would be. While both sides’ lists of tariffs and restrictions may look long, the total worth is very small comparatively.

Will the Belt And Road Initiative be a positive for China’s economy?

If you look at it at an abstract level, without looking at the contents, it could be a good opportunity, not only for Chinese business but for global development. But if you look at the contents, it’s a very worrying initiative.

It’s infrastructure development being carried out by state enterprises. We are suffering from over-capacity and, instead of reducing capacity, the government is expanding to overseas.

Plus, we have so-called Soft Budget Constraints. When state sector enterprises become insolvent, in general they don’t go bankrupt. When there’s no real threat of bankruptcy, state enterprises borrow money without fear. The government has already accumulated a huge number of bad loans domestically. Now, they’re expanding globally.

What makes teaching at Cheung Kong Graduate School of Business unique?

CKGSB is managed by professors. At almost every other university in China, professors have no rights; no power to manage their own universities.

Plus, in schools in the West, EMBA students are mostly upper-middle level managers. At CKGSB, our students are presidents and CEOS, bosses and founders. They are the real entrepreneurs who’ve played substantial roles in driving the Chinese economy.

There’s an important additional value that CKGSB brings—more than the curriculum—and that’s the ‘club’; the network. Entering this high-quality club generates big value.