Todays China | Nicholas Hope

 

About Nicholas Hope

Nicholas Hope is the Director of the Stanford Center for International Development (SCID). He also directs SCID’s China research program. His current research is private enterprise development in China and progress of reforms in China, especially in the financial sector. His interests are in East Asian economies, especially China and Indonesia, and his teaching interests are in development of Asian economies, role and effectiveness of international financial institutions, and thesis supervision of students working in those areas.

 

Interview Transcript:

Alan
Welcome back. I’m here today with Nicholas Hope he is the director for the Stanford Center for Economic Development, also known as sci fi D. Welcome to today’s show.

Nicholas
Thanks a lot. I was a pleasure to be here.

Alan
So you came to Stanford University and you ran this organization for a period of years. Working with let’s step back a few, a few years and what brought you to Stanford and your background prior to coming.

Nicholas
I started as an academic, I spent a lot of time in universities and finished a PhD in Economics in the mid 70s. And I was teaching Australia at the time, and I joined a World Bank. And I spent 24 years in the World Bank, initially, as an economist doing mainly work on international finance, and then lending money. Part of the latter period, I was Country Director for China, and I spent about $10 billion to China and three and a half years. And I wouldn’t say I fell in love with a place exactly. But I was intrigued by the complexity of what they were trying to do. And the projects that we did there, I thought were extraordinary. I mean, they were very impressive projects. And so when the bank reorganized and decided to move me around, I felt I still had more to learn about China and perhaps even more to give to China. And Stanford offered me the possibility of coming and joining this new center initially as deputy director and running a China research program. So I came and tried it out for a year and a half. And then Stanford offered me the job and I retired from the bank in 2000. And I’ve been at Stanford ever since.

Alan
So 12 years it I guess, gone 14 years at Stanford. That’s correct. What is the mission for the Stanford Center for Economic Development?

Nicholas
Well, our original director was professor and Krieger who went on to be the first deputy managing director of the International Monetary Fund as part of her illustrious career. And her concern when she set up the center was to renew the high level scholarship in the United States on the major developing countries, I think her feeling was that for various reasons, interest in these emerging markets had flagged in academic circles in the US. And she proposed to establish a center that would refocus economic policy research on China and India, the two most populous countries, and then initially one of the big economies in Latin America. And eventually she she said, Okay, let’s do like America, but with a focus on Argentina, Brazil, Chile, Mexico, but our two biggest focuses have been on what sorts of policy changes would help performance in China and India?

Alan
What are some of the similarities between the Chinese economy and the US?

Nicholas
It’s a, it’s an interesting question. You know, it’s easy to it’s easy to see the the, the things that are different from the things that are really similar that to me that start with the differences, the similarities, because that, to me, the biggest similarity is size. When the US is the world’s biggest economy, the Chinese is the second biggest economy, although that to me, that would have been inconceivable statement 20 years ago, there would have been no way I would have said, well, China’s going to be as big as it is now. And China is now the biggest trading economy. If we simply look at merchandise trade has surpassed the United States as the second biggest that too would have been inconceivable statement. So the similarity is that in each of these countries, what they do has material impact on the rest of the world. I think sometimes American policymakers forget that fact that what’s done here causes tremendous repercussions throughout the global economy and actually complicates matters for many other policymakers and other countries. I think the Chinese have started their reform process and Deng Xiaoping, very clearly said, let’s keep our head down and get rich. Let’s not disturb people, let’s not make waves. But that’s not possible anymore. Because China is so big, that if it does things domestically that impact the international economy, then there are reverberations and consequences. And I think increasingly, the leadership has to take that into account when they go ahead and do do certain things in the domestic economy. Differences. China is still very much dependent on manufacturing. mean the US has got a huge manufacturing sector but as a share of employment in the US economy, manufacturing has come down markedly at and services have moved ahead. Indeed, Chinese are seeing service sectors developed quite quite rapidly in less sophisticated ones than what typically sees the United States. But they still have a very large manufacturing base. And one would argue that the, you know, the initial cause of their growing prosperity was this transition to low wage blue collar manufacturing, largely done for foreign markets. So it was this sort of exploit led surge in manufacturing that started the Chinese growth phase.

Alan
And visiting here today with Nicholas Hope he is the director of the Stanford Center for Economic Development. And, Nick, we need to take a quick break. And we’ll be back at this. back after these messages. We’ll talk more about China.

Alan
Welcome back, I’m here today with Nicholas Hope. He is the director of the Stanford Center for Economic Development. And, Nick, we’ve been talking about China. How friendly is China to entrepreneurship?

Nicholas
That’s a really good question. Alan, I think they talk a good game. And so you’d say in principle, extremely friendly. In practice, perhaps a little less, so they depend very heavily in perhaps too much so and it’s become a sort of somewhat concerning trend since the international financial crisis on the state enterprise system. You know, they see the state in a sort of price system as the sort of underpinning of the of growth. And they’ve forgotten a little bit, I think, the 80s and 90s, when it was the emergence of dynamic, at least quazy private enterprise, it was driving the, the growth miracle that we’ve observed in China. But they do talk a lot about innovation, entrepreneurship. In fact, every second word now seems to be innovation when you’re in China, and we actually are doing a project currently with the policy research office at the State Council, a couple of Stanford academics, where I’m from Berkeley and me and then a group in China as well. And it’s comparing the way in which the US approaches entrepreneurship with what one sees in China.

Alan
We still maintain about half the Venture Company of venture capital money in the world right here in Silicon Valley. And how is Silicon Valley interacted with all their innovation, entrepreneurship to China? What’s the tie in? And how did the VCs view? It’s?

Nicholas
It’s it’s a very interesting question. I mean, now I think there’s, it’s much more positive than when I first came to Stanford at the time. I think a lot of VCs worried first about the very dodgy nature of the Chinese legal system. If you’re in and something goes wrong, is there any real prospect that the courts will support your your claim or or essentially secure your property rights? For you? The answer was clearly no. So for many of the the investors, the overriding concern was exit. We put money into a promising firm, how do we get out, we were often approached to say to the government let these companies go to IPOs immediately. So we can clear our money, get it out, make the profit that we’ve earned and not have to go through any complicated process. I actually felt that the government was right to be cautious. The Shanghai market I think, in the early stages was very much of a casino. It was a crap game in which the the underlying information that was provided about listed companies was was not necessarily very credible. Now, I think things have changed. I think there are many ways now to get out, principally acquisition. But both the private equity groups now and the venture capital seem much more comfortable with the environment as its evolved.

Alan
What are some of the international issues that need to be addressed with China?

Nicholas
Their myriad security is one environment and global warming would be another two biggest To generators of greenhouse gases of China and the United States, anti terrorism wouldn’t be a third. China’s got its own domestic problems with terrorism and they think it’s somewhat at a loss to know how to manage the situation. It’s it’s difficult. I’m an economist. So my biggest concern for the US and China is, is as we move ahead, how can we maintain healthy competition, but at the same time, ensure that policy coordination is done at the international level, to the extent that the sorts of policies that both countries.

Alan
Welcome back. I’m here today with Nicholas Hope. He’s a director for the Stanford Center for Economic Development. And we’ve been talking about China. Nicholas back in 1975, China implemented a one child policy. And as we roll that forward to today, how does China’s How is China’s population affected by that putting that policy in place? And what problems do you foresee in the near term of how they’re going to do what they need to work on?

Nicholas
The the issue? This is one of our former PhD students who works for Goldman Sachs in Hong Kong wrote a paper that said will China be old before it’s rich. And what is increasingly happening, particularly given where they’re very low retirement age 55 for women, 60 for men, it means that the Chinese are living a long time after they retire. So paying pensions has become a very costly business. And with fewer Chinese entering the workforce, which is peaked a little bit over 750 million, it’s now declining, as fewer children enter the workforce. It’s better quality, many more educated people, much more University tertiary level education. But what one sees is increasingly the burden of elderly people on fewer workers. And of course, the elderly people also look to see an improving lifestyle. They don’t expect to be miserably poor, in old age, and particularly not really old people who sacrificed a lot during the early phases of reform. So, you know, there are ways to deal with pension issues. But we know they’re politically difficult because we see the problems the US has with the Social Security system and China’s problems mirror. The US problems almost exactly.

Alan
How big contains that kind of knee get? Are we just starting or is this?

Nicholas
We’re not, we’re not just starting. I mean, the growth is slowing. And there’s some obviously some real issues currently with how to maintain the sort of growth that the President has sort of staked his reputation on the seven and a half percent a year. But the economy is now so big, that it’s got to slow you can’t grow, nothing grows 10% forever. And economy, 9 billion, sorry, 9 trillion US dollars, you know, allow for seven and a half real perhaps two and a half percent inflation, that’s a 10% growth. It’s nearly a trillion dollars a year that they’re adding to the economy that that can’t continue forever. But if I looked at the per capita income $6,000.08, or thereabout so what the average per capita income is in the US, there’s enormous scope for continued growth in the Chinese economy and, and much greater average wealth for the Chinese citizen. How far that can go with the existing technologies would be the would be the question we would ask. I mean, if you’re going to generate all your electricity from burning coal, or if you are going to have a very resource intensive construction sector, uses lots of steel and cement and copper, etc, then the question would be, at what point do you run into into fairly severe constraints on growth that simply stem from the types of technologies that you’re implementing? I’m quite optimistic that that we can find solutions to that sort of constraint that technological advance answers will make it possible for China, perhaps not to grow as fast as it did in the 90s and 2000s, but continue to grow considerably faster than the developed countries for another generation. At which point, China would be moderate, moderately prosperous by its own definition, perhaps income per capita is close to 20 or $25,000.

Alan
What are some of the social issues that issues that China needs to deal with?

Nicholas
To me the two the two biggest social issues? I mean, there’s a question of economic reform and how they’re going to push it forward and they’ve got blueprints that impressive and but the proof of the pudding. I mean, you’ve got to see how they implement some of these proposed changes. The the problem that perhaps wasn’t foreseen, although Dunc XIAO PING said that as a price for growth, we will get greater inequality in the Chinese economy. But I don’t think he had in mind the inequality that now exists. The the gap between the extraordinarily wealthy and then the still quite poor, better off but poor, is vast. And that’s a tremendous potential threat to social stability, when people decide out in Gansu or wet Shanshui or or Hunan that people in Shanghai or Beijing or, or shinjin have got it much better than they do. At what point do they demand that the distribution of the benefits from growth be more even. And then to me the the emergence of an urban middle class makes a compelling argument for the Chinese government finding ways to allow their people to have a voice in their own governance. And I’m not saying that means western style democracy, but you do need a more pluralistic system in which if the government is performing poorly, if I’m a let me take Shanghai, if I’m a resident of Shanghai, and I’m comfortable, I’m a lawyer, a doctor, a businessman. Got my kids in a school that I think’s performing badly, public transport doesn’t work? Well, the electricity supply is less reliable than they want. They don’t don’t trust the water. sewerage systems don’t work too well. There’s lots of pollution. Who do I complain to? In this country, you sack the mayor in China, the mayor and the party secretary who is his boss, they’re appointed from BG. And they are they’re more accountable to the leadership in Beijing than they are to their own constituents.

Alan
Nicolas, we need to take a quick break. And I love these issues, the social issues and government I want to I want to hold you over for the last segment today. And in that segment, I want to get into this question of can the Chinese government be lobbied evil we’re really here today with Nicholas hope he’s a director for the Stanford Center for Economic Development. And we’ll be right back after these messages.

Alan
Welcome back and visiting here today with Nicholas Hope we’ve been talking about China. And Nicholas serves currently serves as the director for the Stanford Center for Economic Development. And we were talking about some of the social infrastructure challenges that China has. And I want to bring this back to Silicon Valley’s interaction with China. A lot of venture capitalists, they’ve been going there they’ve been putting money in and they show concerns about is it possible to lobby the Chinese government are trying to help the government be a little bit more friendly towards the way that the US is doing business? And I like to throw that out as a rhetorical question, too. Is it possible to lobby there in China still?

Nicholas
Yes, I think it is. And I think certainly at the level of the central government, there’s quite a receptive audience there for it. I mean, the government of China has been from the get go to some degree unlike Japan and Korea before it but China has been very receptive to foreign investment. It’s always wanted foreign investment. Much of the early foreign investment was overseas Chinese coming back to their ancestral villages and setting up a small manufacturing outfit and shipping all the stuff they produced abroad. But in May Jing, I think the government has been keen, to say the least to bring in direct investment. And actually, in recent years at the municipal or even provincial level, the the hunger for foreign investments been even more avid I mean, they’ve just wanted foreign investment with the idea this is going to create jobs, promote growth, and generally helped me in my career. Because the more of these good things I can do, the more likely that leadership will recognize my merits, and I’ll move up the up the ladder. The problem, of course, for the foreign investor is, is the unreliability of the legal system. So the chances that your property rights will be respected in the event that you and your partners have a falling out. I think in the past, that’s been comparatively low. The other issue, of course, is theft of intellectual property. It’s a national sport in China. And I don’t think that’s changed very much. But the big boys, the Hewlett Packard’s, the Cisco’s and others, Intel’s that they’ve been able, I think, to marshal enough legal heft, that in the event of something too egregious, they’ve been able to step in. And I think the Chinese government is certainly made it clear that some behaviors of, of its its entrepreneurs or partners of the big companies, is not so good. My interaction with with government officials, particularly over the period in which they entered the WTO, was that many of them thought this was a great opportunity, not just to bring the Chinese central legislation up to international standards, but to begin to crack the whip over the provinces on some of these issues. I think that in a period when the Chinese government was, was very sensitive to the idea that they were stealing National Intellectual Property, at the level of the provinces was make hay while the sun was shining. I mean, copy anything, you can get your hands on any DVD, any video. I mean, anything was fair game. And of course, when the Senate did move in and close down the operation, it was all fine in terms of the local government, saying, you know, a wink is as good as a nod and you may have been closed down here. But what’s wrong with moving up the street?

Alan
I love all this content, where we’re talking about sign a bid to find out more information there go to skid scid.stanford.edu

Nicholas
Yes. And that will give you information about our programs and our recent activities and events.

Alan
We’ve been visiting here today with Nicholas hope he is the director for the Stanford Institute of Economic Development. Nicholas, thanks for being on today’s show. My pleasure. Hi, and thanks a lot. Thanks for being here on American Dreams. Join us next week right here on this station.

 

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This transcript was generated by software and may not accurately reflect exactly what was said.

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