Debate Topic: "Will China Lose Many Years?"
I didn't expect to speak first, but what I say might be a bit challenging.
This topic is called "Will we lose many years"?
But I want to ask, who in this world has truly lost many years?
Professor Fan just mentioned how many years Japan has lost. Did Japan really lose years?
Objectively speaking, the countries that have truly lost many years are the Philippines in the 1970s, followed by South Africa, and later Venezuela... They are the ones who have really lost many years. If we can count, we can also include Iran after 1979. These countries once reached a glorious point in their development but have since become failed states, unable to recover.
What has Japan lost? Up to now, Japan's economy is a high-quality economy.
For example, who says Japan has low-quality, extensive development?
Isn't its industrial structure and technological research and development capability world-class?
Isn't the quality of life for the Japanese people world-class?
Isn't Japan's social security system and infrastructure world-class to this day?
If we can "lose in this way," then I think our transition "from extensive to intensive and then to high-quality development" is also quite good!
Regarding Japan, I want to challenge the host, Professor Fan. He just said that the best comparison between China and Japan is from the Meiji Restoration to before World War II.
But actually, in the 70s and 80s, the yen went from 360 yen to 1 dollar, gradually appreciating to 204 yen, then over 100 yen. That was an era of outward-oriented economy, with the currency appreciating several times in a decade or two.
At that time, it could also be considered a "sword at the throat." For example, during the oil crisis in the 70s, oil prices rose from 2 dollars to 10 dollars, and after the Iranian Revolution in 1979, oil reached 30 dollars a barrel. Wasn't this a fatal blow for Japan, which relied on imports for over 90% of its energy raw materials?
But it was also during this process that Japan produced a large number of well-known enterprises and brands that we are familiar with today. Count the Japanese brands you know, including automobiles, home appliances, and the Shinkansen, which was built during this time. Japan's real estate went from 0 to 1, and from 1 to N during this phase; this is the era we can compare Japan to today.
I hope our media does not spread some untrue information and looks at which countries have lost 20 or 30 years and which have not truly lost.
The Boao Real Estate Forum has been held for over 20 years, and the first topic we discuss every year is what policies we can expect next; this is a hope for policy. The second is to complain about policies, saying that this policy is not good and needs to be changed quickly. The third is how we deal with policies?
If you are always hoping for your mother to help you, or how to avoid her interference, it shows that you haven't weaned yet!
Fan Gang: The debate has begun, and the challenge is on the table. Next, please let Lu Ting speak.
Lu Ting: China's current difficulties are greater than those faced by Japan's real estate in the 1990s.
Chief China Economist at Nomura Securities
I completely agree with what Professor Chen Huai just said about Japan.
Looking back, could the Japanese government have done better after the real estate bubble burst in 1991? What can we learn from it to minimize the years lost in the real estate industry during the sharp contraction of recent years?
First, they should have made a firm decision to clear the real estate and their banking sector.
Japan's real estate peak was in 1990 and 1991, and its bottom was in the first decade of this century. If we do not consider the impact of the global financial crisis on Japan's real estate, it was around 2005 or 2006 when Japan's banking and financial sectors had the highest bad debts, approximately in 2003 or 2004, when the bad debt ratio was about 8%.
The Japanese government may have a similarity with the Chinese government in that it is somewhat paternalistic; when problems arise, it tries to prevent the middle issues from erupting sharply. I think this is an advantage, which is why China's real estate has declined so rapidly in recent years but did not explode like the Lehman crisis in the U.S. in 2008. This is an advantage of our system.
Did Japan experience a severe financial crisis in the 90s? Actually, no. There were no major bank failures, especially among the large securities companies, so Japan did not experience such a financial crisis. Of course, this also led to a relatively long clearing process. I think this is a lesson from Japan.
Another lesson is that during those ten years, Japan rapidly expanded globally during the wave of globalization, but in some high-tech industries, it was indeed not as adept at seizing the pulse of the times as it was in the 70s and 80s, failing to penetrate the high-end internet and chip industries. Some industries flowed to mainland China and Taiwan, and there are lessons to be learned from this process.
Looking back at the comparison between China and Japan in the 90s, we are still a middle-income country, while Japan in 1990 and 1991 was one of the countries with the highest per capita GDP in the world.
Our current per capita GDP is only 12,000 dollars, leaving us with significant room for development; our urbanization rate is far below Japan's 80%, at only 66%, and many of these people do not have household registration, so there is still space.
Currently, our foundation is still relatively weak, but as long as we handle it properly, there is still a lot of room for development.
However, compared to Japan in the 90s, what are our weaknesses?
First, if there is a bubble in our real estate, this contraction is not just in major cities; in fact, it is more pronounced in small and medium-sized cities. This is quite different from Japan. At the same time, our problems are more in residential areas, not in commercial real estate, although commercial real estate is also starting to face some issues.
Japan's most significant issue at that time was the commercial real estate problem in several major cities, while we still have a large number of issues regarding housing delivery. To my knowledge, Japan did not have a severe housing delivery problem in the 90s. Over the past two or three decades, the real estate industry has been closely tied to the fiscal system, and the contraction of the real estate industry has also brought a shock to the entire fiscal system. When dealing with these issues, we need greater determination and creativity to address them.
The second issue, which is different from Japan, is that Japan also faced trade wars back then. The geopolitical issues Japan faced in the 90s were not severe; instead, it was a time of rapid globalization, so Japan had no significant problems establishing factories in the U.S., Europe, and many other places.
Today, when Chinese companies go overseas, they end up building factories in Southeast Asia and Mexico, and it is very difficult to establish factories in the U.S. Our companies going overseas are not as easy as Japanese companies did. In the current era, we hope to make up for domestic demand shortages through the overseas expansion of Chinese enterprises and our foreign trade, but the environment we face is far more complex than Japan's.
From these perspectives, I am not saying I can judge how many years we will lose, but I believe the environment we are facing now is perhaps more difficult than Japan's in the 90s.
Chen Qizong: Every country is different; there are principles to learn from, but specific practices cannot be directly copied.
Honorary Chairman of Hang Lung Group and Hang Lung Properties
I believe both speakers are correct, but each person is only discussing one side of the issue. If we combine both, it would be quite perfect.
Of course, I would like to add my perspective. The paths taken by each country cannot be completely the same because the environments of the countries are different. China has a population of 1.4 billion and has developed rapidly from a very impoverished state. Frankly, it is somewhat similar to Japan from the Meiji Restoration to before World War I. Different perspectives will lead to different conclusions, but China must still follow its own path.
Overall, I believe that the development China has achieved over the past 40 years, including the development of the real estate industry, is remarkable, but there are also many difficulties that we need to solve ourselves. We can learn some principles from others, but we should not directly copy their specific practices.
Lastly, I want to mention that I agree that AI and high technology have a significant impact, especially on both developed and developing countries.
Now the U.S. is using these means to attack you, sparing no effort; it is a comprehensive attack, so I am not as confident as to say that if we do our own thing well and develop AI and other aspects well, there will be no problem.
I believe there are still problems because the world has never seen a comprehensive world war. Although it has not reached the level of guns and cannons, everything else has been used to the fullest, including technology, economy, trade, and monetary measures.
Therefore, I hope the public does not think that everything is peaceful now. They are more concerned about when we hit rock bottom and how many years we will lose. I believe these are all debatable issues, but they are not the most severe problems facing the country.
The most severe problems are still the international situation, the unprecedented changes in a century, coupled with internal conditions; the combination of the two makes it very complex.
Fan Gang: We are currently facing more difficulties than Japan in the 90s!
Vice President of the China Economic Reform Research Association and President of the Shenzhen Comprehensive Development Research Institute
I will make a brief comment and then invite everyone to ask questions.
Just now, Chen Huai criticized the media for echoing others. This is not just the media echoing; it is Japanese economists and entrepreneurs saying how many years they have lost. Their concept of losing years is the same as what we are saying today about losing years, for example, they say—I've earned less money for many years, my GDP has been zero growth or negative growth, and interest rates have been negative. It has indeed not been easy over the years, so their entrepreneurs feel they have lost a lot of money.
When our entrepreneurs ask how many years have been lost, they also want to know when they will start making money because they are currently bleeding.
What I just mentioned is that compared to Japan, we may have some positive factors in overcoming our difficulties because our level of development is still relatively low.
Here, I want to add a few points about Japan's ability to overcome crises; their capability is slightly stronger than ours, and they faced a better situation due to several factors:
First, compared to Japan, Japan's development after the 60s was a post-war resurgence. It had already developed significantly before the war, and even in the post-war resurgence process, its education level, system, rule of law structure, technological level, and corporate systems are more complete than many places in our country now. Therefore, under the same market environment, recovery is relatively easier, and they have a strong ability to go global. Many companies have gone abroad, and although their GDP has not grown, their GNP has increased, and companies have been making money abroad. Many of our entrepreneurs going abroad are also seeking sustainable growth overseas.
Then there is the very important international environment. At that time, although the U.S. was containing Japan, they were still allies, and many things were still part of the camp. But now, the U.S. is containing us in a comprehensive manner, which is a significant difference.
From last night to today, Mr. Chen Qizong has emphasized the long cycle, stressing that the most powerful country in history is suppressing a developing country with a per capita income level that is still 7 times lower in a comprehensive manner. All aspects will have an impact on economic development and recovery.
Moreover, precisely in the past 6 or 7 years, we have been facing the impact of 3 years of the pandemic on one hand and the impact of 3 years of the real estate bubble burst on the other, coupled with the U.S.'s comprehensive suppression. Everyone needs to have a full understanding of these issues; we are facing much more difficulties than Japan did at that time.
Issues like exchange rates and oil were not very difficult for Japan to digest internally, but we now need to digest these issues, which indeed requires everyone to pay close attention and even fully estimate the difficulties involved, not only for the country but also for our enterprises.
In summary, I think we still need to discuss this issue.
Q&A Interaction Session
Shao Yu: I have a question for Mr. Chen Qizong. Your position is different; you have already achieved success and retired, so you are speaking from the perspective of a wise person, looking at Sino-U.S. competition and China's economic development from a god-like perspective. There are so many young people here, mainly professional managers. How should we choose? Especially now, everyone is overwhelmed and cannot roll up their sleeves or lie down comfortably; the situation is too complex. What should we do?
Chen Qizong: Honestly, I can't be more straightforward.
Do you remember I advised everyone to leave the market and real estate as a choice? Is there anything more powerful to say? It has already reached its limit.
I am very interested in what the organizers mentioned, but I feel that they are looking at new problems with old models. The new real estate environment is probably quite different from the previous one; we need to grasp these things, stay clear-headed, or else you will become the next round of sacrifices.
I want to mention another point regarding the issue of Japanese companies going overseas.
Currently, Chinese real estate companies have not discussed these matters. Previously, those who made money went overseas to buy properties in London and New York, believing this was a good way to preserve value, but I genuinely worry for them. I have been doing this for 40 years, and I have experience buying properties in the UK and the U.S.
What they are doing is a desperate measure because they do not want to put all their eggs in one basket. I tell them that these people may not have a good outcome in the future; do not think what they are doing now is right. Because going overseas is not necessarily good.
If things do not work out domestically, going overseas may not be good either. So what should we do? This is a common problem faced by entrepreneurs worldwide today.
Other industries are going out more; I genuinely worry for them.
I also help them as much as I can whenever they come to me for assistance.
There is a manufacturing entrepreneur who invested 2 to 3 billion dollars in Mexico and wants to invest another 2 to 3 billion. I introduced him to my Mexican friends, including some ministers and ambassadors. When I communicated with him privately, I told him that I am not saying what you are doing now is wrong, but I can tell you that one day, the U.S. will not allow Chinese companies to set up factories in Mexico or other countries close to the U.S. to sell products to the U.S.
You do not understand American culture; blindly investing overseas is very dangerous. So before you invest 2 to 3 billion dollars, I advise you to consider my words.
He said, "Where else can I go?" I replied, "The world has already been 'divided in two'; this is what the Americans want to do; you have no other options."
The entire world structure is changing. If we do not clearly recognize these issues, going out can be very dangerous.
Including real estate developers, I also give everyone a piece of advice: do not be so confident that going out is the right thing to do. There is a Chinese saying that the neighbor's rice looks more fragrant. There is also a saying among foreigners that the neighbor's grass is greener. This means that you know your difficulties, but you do not know the difficulties of others.
I know their difficulties quite well, and I am very cautious. You think you can do it, but history may prove that you may not be able to.
Fan Gang: After listening to Mr. Chen's remarks, I have two feelings.
First, we say that the current international issues are all geopolitical factors. In the face of geopolitical issues, economics is powerless and pale. You cannot talk about "mutual benefit" with others; no one will discuss that with you.
Therefore, whether in the business community or academia, do not apply economic principles; they do not fit. We are in such an era, facing these geopolitical issues, and we must pay close attention.
Chen Qizong: I would like to add that in the short term, politics absolutely surpasses economics, but in the long run, economics is dominant. So I completely agree with Fan Gang's viewpoint.
Fan Gang: Second, do not always say that you have retired and will not come anymore; after retirement, you have more time to come. We are scholars; we do not know what problems exist on the front line. You have been on the front line for so many years, so you know. So everyone give a round of applause to welcome Mr. Chen Qizong to continue attending the conference.
I will throw out another question: without discussing how many years we have lost, can we make some brief estimates to resolve this issue of loss? How long do you think this round of adjustment will take?
Lu Ting: This question is too challenging.
The core issue is that we have different views on what problems we are currently facing, the severity of these problems, and what opportunities and favorable conditions we have.
Moreover, during the development process, we may have solved many problems and alleviated many issues, but we may also have created some new problems. For example, in the past ten to twenty years, on one hand, we have solved many problems, and China's economy has developed rapidly. I remember when I was studying for my master's degree in the U.S., China's GDP ranked seventh or eighth in the world, and then it quickly rose to third or fourth, surpassing Japan in 2009 to become second; this is our development.
However, when we reached second place, especially when everyone is calculating when China's economy will surpass the U.S., many new problems have emerged that we did not anticipate at that time, such as the U.S.-China trade war that began in 2019 and many subsequent geopolitical issues. Therefore, to be pragmatic, regarding Professor Fan Gang's question, I do not have the ability to answer clearly.
Chen Huai: We will never find a day of calm; there will be no clear skies and sunny days from then on.
In the future, we may always have to move forward in the wind and rain, and after overcoming one hurdle, there will be another.
As mentioned earlier, Japan itself says it has lost 30 years. I have known since my studies that the Japanese archipelago is sinking. The first novel I read was about the Soviet army landing in Japan. Japan is also a country with a strong sense of crisis. The Japanese government has many lessons; during the 1998 Asian financial crisis and the 2008 global financial crisis, did you hear about the collapse of Japan's financial sector? This is because the Japanese government did well.
However, the Japanese government also made many mistakes. I spent two years studying Japan's industrial policy, and I have visited many respected figures like Professor Fan Gang. One characteristic is that when the Japanese government makes mistakes, the enterprises and industries can correct them.
Have you heard of any industry dying because the Japanese government prescribed the wrong medicine? No.
First, the real estate industry is facing unprecedented difficulties, and do not expect it to recover in two or three days, or that someone has a secret recipe that can revive it. Based on my judgment, whether you are young, middle-aged, or old, it will take at least three years, and possibly longer.
It is likely that we need time to recuperate, regain our vitality, and correct our mistakes.
I firmly believe that anyone who seeks quick success and instant benefits is a quack.
Second, China still needs to build a lot of houses and will need to build houses for a long time. Our urbanization has just begun, having gone through the extensive initial stage. If we want to transform a nation of over a billion people, most of whom live in rural areas, into a nation where most people live in cities, and to develop industries with technological competitiveness like Japan, we need first-class teams to reach the World Cup and advance directly to the semifinals; we need to have such capabilities.
Ultimately, there are two points:
First, we must forge ahead and have a full understanding of the long-term and difficult nature of the challenges. Second, we will definitely have significant development, not just small development.
Fan Gang: I still represent everyone in expressing what everyone wants to hear.
When I spoke earlier, I mentioned that borrowing from others' research, the problems will be exposed in the next three to five years, and then it will take about another three to five years to resolve them. Professor Chen Huai clearly stated that it will take at least three more years.
Next, there are three people raising their hands; these three questions will be asked together.
The three sharp questions are as follows:
On-site Question 1: Through today's sharing, I feel very confused. China's population has already entered negative growth, and there is also a stock of 750 million square meters. With negative population growth and so much inventory, where do developers go from here?
On-site Question 2: I have a question for Mr. Chen. Everyone is very confused now because we have never experienced a downturn in real estate. Hong Kong has experienced it, and you have experienced it. Can you tell everyone how Hong Kong got through it, and how did you get through it?
On-site Question 3: Just now, everyone compared China and Japan. In fact, apart from the real estate issue at that time, Japan and the U.S. also competed in many industries, including the semiconductor-related industries. Japan and the U.S. have fought for many years over chips and semiconductors. China is now facing some problems; on one hand, it wants to catch up with the U.S., and on the other hand, there are many economies behind it chasing after it. In this situation, our advantages in labor costs and other aspects may gradually decline. Will we face a problem where these economies behind us put pressure on us?
Chen Huai: I will give the simplest answer to the first question.
The current issue is that the 750 million square meters of inventory you mentioned has serious mismatches in terms of grade structure, spatial structure, and functional structure with our social needs. This does not indicate any problems; as I said earlier, many of us still need improvement, and buying a house is never a one-time deal.
Regarding the third question about chip competition, our current focus should not be on how to defeat the U.S.; our attention should be on how to ensure that 1.4 billion people live well. The aspiration for a better life for the Chinese people proposed at the 19th National Congress can lead us to surpass them in technological progress one day.
One of Japan's failures was in chips; in the 90s, it wanted to become a computer power. The competition between Japan and the U.S. was about automobile trade for 30 years, but there was no 30-year competition over chips.
What should we do? Survive.
The market's risk tolerance is always layered. If you lack confidence, find a level that suits you, and you can survive.
Chen Qizong: To summarize: China will not collapse, and the U.S. will not collapse; everyone has their own development. The only question is, "What is the relationship between the two?"
I am not too worried about this future. I believe the U.S. will eventually withdraw from competition and return to isolationism; that is their founding principle. But do not think this is a case of the East rising and the West falling; that is not the case.
The East is rising, but the West is not falling.
If you look at American universities and research institutions, they are absolutely world-class; no one can come close to them.
The road China has to travel is still long and difficult, but no one can defeat China. The only country that can defeat China is China itself.
And the only country that can defeat the U.S. is the U.S. itself.
I agree with Chen Huai that doing our own thing well and improving the lives of the people is the most important thing, but we must be aware of the external environment.
The real estate market in Hong Kong and that in mainland China are completely different worlds; their experiences cannot be borrowed. The principles are the same, but the cyclical differences are significant. We can refer to others' experiences to help ourselves, but how they got through it and how the mainland gets through it are entirely different matters.
The last question is about the issue of catching up.
In my view, China does not aim to catch up with anyone; Chinese people just need to do their own work well. However, the U.S. is watching you, and it will attack you. I do not know whether China will attack others in 100 years; I believe it probably will not in the next 10, 20, or 50 years.
But if you look at American Western cowboy movies, you will understand the character of Americans. Their cultural background and history are different from ours. They are very aggressive and have strong abilities to protect themselves; they will attack others. China only cares about doing its own work well.
There are some things I want to share with Chen Huai that might make you feel a bit better. I recently discovered several remarkable high-tech companies overseas that were founded by Chinese people, not bought by Chinese people.
They are overseas, and the people there do not even know that these companies are backed by Chinese people; they do not want to mention it. So, Chinese people going abroad still have their skills. The number of new engineers graduating in China each year is more than the total of the G7 countries combined. You can say that our top talents in China are not as good as the world's best, but in terms of quantity, it absolutely allows China to have significant development in technology.
As for how the latecomers will catch up, we have no guarantees. There are no guarantees; if you stop progressing one day, others will definitely catch up with you. That is how the world works; that is how human history has progressed. Therefore, we can only lower our heads and do what we should do without causing trouble.
And do not be too arrogant, thinking you are remarkable.
The world is vast, and let me tell a little story. I heard that someone from MIT is here today. Anyone who can get into MIT is remarkable. In the past, only those who ranked first in their regions could enter the school. After entering, they found that everyone was the top student from each state, so by the time of the first midterm exam, some people became depressed. So, it is best not to overestimate yourself; that way, you will not be disappointed.
And there is no need to underestimate yourself. There is a Chinese saying, "neither humble nor arrogant." This saying has not been done well enough in China for hundreds of years. Now that we are in a period of significant development, we really need to reflect on this issue. Being able to maintain a balanced view of self-assessment and assessment of others is the only way to maintain long-term competitiveness.