Latest trends in China’s macroeconomy

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This post was last edited by 3983596_FPPZ on 2018-11-19 at 14:12. Source: This text is based on Wei Jie’s speech at Lakeside University on the latest trends in China’s macroeconomy, given on the morning of November 11, 2018. I would like to discuss the future outlook with everyone here; as some of you may know, since March this year, six serious phenomena have emerged in Chinese society. I. Six serious phenomena. The first phenomenon is that a large number of small and medium-sized enterprises report that it is extremely difficult to operate their businesses, with great pressure involved. There are both cost pressures and funding pressures. Starting in June and July, some businesses began to close down, so it was the real economy that was first affected; most companies reported that operating under such conditions was extremely difficult, and closures began to occur in those months. The second phenomenon is that corporate defaults are becoming increasingly severe. Unable to repay the debt when it’s due – the situation of default is extremely serious. It started as a state-owned enterprise, then turned into a private enterprise, and finally became a listed company. There are numerous cases of default by listed companies, which seems to make the breakdown of debt chains an increasingly serious issue. The third phenomenon is that non-bank financial institutions, especially those new business models that have emerged in recent years, have one after another encountered problems; a large number of non-bank financial institutions have faced issues over these past few years. It was very severe in July. The fourth phenomenon is the irrational decline in the stock market. We originally thought that the national economy might cause the stock market to drop by 300 points to around 2,800, but we didn’t expect the sharp decline in the U.S. stock market to result in an additional 300 point drop, taking the market level down to around 2,500; the stock market then experienced irrational declines. The fifth phenomenon is that investors are quite panicked. Because no safe assets can be found, people don’t know which assets are the safest; safe assets simply cannot be identified. Investors are extremely panicked because they can’t find out which assets are the safest; they don’t know. Because safety assets act like a counterweight to social motivation; without them, everything becomes unbalanced and the pressure is extremely high. The sixth phenomenon is that people feel very confused, with pessimistic expectations. I don’t know which way China is heading; I’m very confused, and this confusion became even worse after October. As a result, these six socioeconomic phenomena have emerged since March, and overall the outlook for the future is not very promising. Now there is a question: why are these six phenomena occurring at the moment, and why do people feel that the future prospects are not very good? This requires some analysis. The analysis results show: II. Why do these 6 phenomena occur? There are no problems with China’s fundamentals; the overall socio-economic fundamentals are in order. The Chinese still have a strong desire to get rich; their motivation remains, and their impulse is still strong. Especially at the grassroots level, this motivation is even stronger. It is that the driving force behind China’s economic growth still exists; people’s pursuit of interests and their desire for a better life remain very strong. Secondly, there are no major problems in the market; China remains one of the largest single markets in the world, with a population of nearly 1.4 billion. The proportion of the middle class is continuing to increase, and there has been no decline in consumer spending. There is no evidence to support the idea of a decline in consumption; it’s claimed that consumption has declined merely because more pickled vegetables and instant noodles are being sold, but there is no proof for this. China remains a market of enormous size. Third, China remains the country with the most comprehensive range of industrial sectors as listed by the United Nations. According to the industrial categories published by the United Nations, China has the most comprehensive set. There has been no phenomenon of some manufacturing industries leaving China due to rising labor costs; such a thing has not happened. The most typical example of Dongguan is one of the important manufacturing hubs in China; we find that these industries have not disappeared. By making adjustments on their own, they have managed to cope with the pressures brought about by an increase in labor costs, so the range of industrial sectors remains intact – nothing has changed in this regard. Fourth, China’s transportation infrastructure remains one of the most convenient in the world, and it will continue to improve. This is highly beneficial for products in terms of overcoming transportation challenges; the transportation infrastructure is still among the most convenient around. Fifthly, the highest decision-makers have no intention of changing the trajectory of reform and development. Despite various opinions circulating in society, such as talk about a trend toward the withdrawal of the private sector, the highest decision-makers have absolutely no intention of altering China’s path of reform and opening up. Analyzing it in this way, there are no fundamental problems. Since there are no problems with the fundamentals, why do these six phenomena occur? Later, analysis of the results showed that it was mainly 5 factors coming together. Each of these 5 things has something negative about it. If it occurs alone, the impact isn’t too great, but when 5 such incidents happen at the same time, their effects combine, leading to cumulative negative consequences. When the negative effects of each of these 5 things are combined, the situation becomes more problematic; thus, a cumulative negative effect occurs, leading to the emergence of these 6 phenomena. III. What are the 5 things? 1. First of all, as regards what we are doing, it is about preventing financial risks. Many policies have been introduced to prevent financial risks, such as deleveraging, regulating the real estate sector, and addressing financial irregularities; all of these measures have a dual effect. While aiming to prevent financial risks, it always brings about negative consequences. This puts significant pressure on a company’s cash flow, and can even lead to its breakdown. In particular, companies that were highly indebted and experienced rapid growth in the past can hardly survive anymore. And they have various connections with regular companies, which prevents even those companies with normal levels of debt from being able to operate. You know that China has long operated with high levels of debt; direct financing accounts for a very small proportion, and the country has basically relied on debt to function, and it has been operating this way for decades. The sudden attempt to reduce leverage and cut down debt was too much for companies to handle; as a result, some firms with high levels of debt experienced broken capital chains. Moreover, these firms had various connections with other companies that had normal debt levels, which led to problems for those normal companies as well. Preventing financial risks is the right thing to do; there’s nothing wrong with it. The problem is that the negative consequences it brings to light as well; from an economic perspective, any measure taken is a double-edged sword. Therefore, a major challenge arising from the need to prevent financial risks is the severe shortage of funds for enterprises. Debt defaults and broken capital chains, coupled with the rough tactics of some in the operations and a reckless reluctance to provide loans, have made the situation even worse. Firstly, it is necessary to prevent financial risks from leading to negative consequences; companies are under enormous pressure. 2. Second, we are carrying out supply-side structural reforms. Structural reform on the supply side is essentially structural adjustment; economists divide people’s livelihoods into the demand side and the supply side. On the demand side, there are investment demand, consumer demand, exports, and so on – these constitute the demand side. The supply side refers to the production side, and the supply-side structure refers to the industrial structure; therefore, the industrial structure is being adjusted because some of the industries that used to support us can no longer sustain China’s economic growth. Industries such as traditional manufacturing, construction, and real estate find it difficult to achieve sustainable growth, as they have all encountered various problems one after another. Regarding the severe overcapacity in traditional manufacturing, we propose capacity reduction. A real estate bubble is forming, and we need to curb asset bubbles; this indicates that these industries are unable to continue supporting China’s development, and China needs new industries that can drive growth. After analysis, it has been determined which industries will be able to support us; three key industries are identified as those that will support China in the future. The first category consists of strategic emerging industries, such as new energy, new materials, bioengineering, information technology and mobile internet, energy conservation and environmental protection, new energy vehicles, artificial intelligence, and high-end equipment manufacturing. These are collectively referred to as strategic emerging industries, and they will contribute to our economic growth. Second is the service sector, which will become an important industry to support China’s development. Consumer services, business services, production services, spiritual services, and so on, will all contribute to China’s growth. Third is modern manufacturing; sectors such as aerospace manufacturing, high-speed rail equipment manufacturing, ultra-high voltage transmission and transformation equipment manufacturing, and traditional modern manufacturing will all contribute to China’s growth. Recognizing that these three industries will support China’s growth, structural adjustments are being promoted. However, adjustment takes time; we are currently in a period of adjustment. The contribution of traditional industries is declining rapidly, while new industries have not yet emerged, or are just beginning to develop and do not yet possess sufficient strength, resulting in this period of structural adjustment. The negative consequence of such a gap is significant pressure to slow down growth; growth fails to stabilize, and revenues keep declining. Therefore, the period of structural adjustment creates significant pressure; the pressure associated with a slowdown in growth is considerable, which leads to uncertainty in forecasts for the future. This is the negative aspect resulting from the second issue: the period of structural adjustment creates considerable pressure for a slowdown in growth rates. 3. Thirdly, China is undergoing a transition from old to new drivers of growth. It turned out that cost advantages were the main factor supporting China’s growth, and these advantages have now disappeared rapidly. Logically, as the cost advantage disappears, it should be replaced by a technological advantage; once the cost advantage is gone, the technological advantage should grow rapidly to ensure China’s growth. But the problem now is that it takes time to establish a technological advantage, which creates a gap during the transition from old to new drivers of growth. The existing advantages are being lost, and no new technological advantages have emerged yet, resulting in considerable pressure for growth to slow down. During the transition from old to new drivers of growth, there was also a period of uncertainty; the negative aspect of this was significant pressure for a slowdown in growth, and people’s expectations did not seem very optimistic. 4. Fourthly, China is carrying out what is known as ecological civilization reform. You know, the biggest difference compared to the past is the mention of the “five major reforms” in the areas of economy, politics, culture, society, and ecology. Ecological civilization reform has become one of the “five key tasks” for reform, and we are advancing reforms in this area. Ecological civilization boils down to two things: one is to address the treatment of wastewater, waste gas, and solid waste in the process of industrialization and urbanization. This requires raising corporate emission standards, because implementing this inevitably demands that companies raise their standards for wastewater, exhaust gases, and waste. Another matter is the restoration of the ecological environment, as this is an important aspect of what is known as ecological civilization – namely, the restoration of the ecological environment. Ecological restoration also imposes high demands on enterprises; for example, in the Yangtze River Economic Belt, no factories or similar enterprises are allowed to be built within 3 kilometers. What about those that were built in the past? We have constructed many factories near large rivers, lakes, mountains, and watersheds, and now those factories must be removed. The reforms in the field of ecological civilization have led to one thing: companies are under great pressure due to ecological issues. Coupled with the rather harsh methods used in law enforcement, many companies have had to close down and cease operations, which inevitably results in a slowdown in growth rates and creates significant pressure. Reforms in ecological civilization have led to a serious problem: whether it is emission standards or the relocation of enterprises, these factors affect current economic growth, resulting in considerable pressure for a slowdown in growth rates. In the past, we said that ecology and the environment had to give way to development; as long as development proceeded, everything else would be fine. Now the situation has reversed – it is development that must give way to the ecology and environment. Different approaches to governance have emerged as a result. It turns out that development is easy to achieve, but environmental and ecological impacts are a problem. It is now clear that development must give way to the ecological environment. Initially, when the Yangtze River Economic Belt was mentioned, people thought it would lead to significant development; yet in the end, the focus shifted to protection. Factories and enterprises are not allowed to be built within 3 kilometers of certain areas, and those that already exist there must be moved elsewhere. As a result, economic growth has slowed down, and there is considerable pressure on growth rates. It’s already clear what you want: in the past we focused on development, but now it’s the ecological environment that matters, and of course development and growth will be affected as a result. Last time, a pharmaceutical company in Yinchuan was shut down due to environmental issues, as it was responsible for the production of raw materials for many pharmaceutical companies; I went there specifically to take a look. I understood right away what you really wanted: if you want to develop and continue production, then the environment has to be shut down. The trends of our mountains are all towards the west; only the Helan Mountains run from north to south, giving rise to the Yinchuan Plain. If left unattended, this plain will disappear within 20 years at the latest, so it’s necessary to understand what needs to be done. It is now clear that an environment and ecology are necessary, which in turn puts considerable pressure on slowing down the growth rate. 5. The fifth issue is the Sino-US trade war. The United States has launched a trade war; we didn’t intend to do that, at least I didn’t. After all, the U.S. economy is in an upward trend. From an economic perspective, it makes sense for them to launch a trade war during a downward economic phase, but it’s unexpected that they would do so when their economy is growing. We originally thought that a trade war would have little impact on us, but unexpectedly it had a significant effect on people’s psychology. Logically speaking, we have calculated that the United States can cope with engaging in a trade war with us. But if we had fought ten years ago, we would definitely have been finished and laid low. You can look up some information: in 2007, our mode of growth was export-oriented. The total GDP that year was 27 trillion yuan, with exports amounting to 9 trillion yuan and imports at 5 trillion yuan. Exports account for over 30% of GDP, while the trade surplus makes up 11.3% of GDP; these figures indicate that China is an export-oriented country. That’s why the United States wants to wage a trade war; we will surrender on the spot because we can’t bear it. Later, in 2008, a global financial crisis occurred. This crisis made China realize the importance of being mindful of certain issues; an economy as large as China’s cannot rely on exports as the driving force for its economic development. China is adjusting its strategy to focus on domestic demand. We started the transformation in 2008; it took ten years, and we finally completed the transition last year. Last year, the total GDP was 82 trillion, with exports amounting to 15 trillion and imports at 13 trillion. The proportion of exports in total GDP dropped by about 15%, falling from 30% to 15%, meaning it halved. The share of exports in the trade surplus dropped from 11.3% to 1.3%, indicating that China has managed to make adjustments. We did the calculations: if the United States were to pursue a trade war to the end and prevent China from exporting anything to the U.S., it would have an impact on us of a 0.2–0.5 percentage point decrease in growth, which we can handle; there’s no problem with that. But we didn’t expect it to have such a big impact on our psychology; as soon as the United States announces tax increases, the Chinese stock market drops sharply the next day. Investors keep asking us questions, and since we don’t have any exports, it’s always we who suffer. The export volume of listed companies is not high either, so why does it keep affecting the stock market? Due to psychological factors, the stock market is the one most affected by psychology; I didn’t expect the impact to be so significant. This psychological impact has almost had a significant effect on us as a whole. Since Sino-U.S. economic relations have remained relatively stable over the past 40 years, the emergence of this issue has left people uncertain, and they are worried that it might lead to a cold war. If a real cold war were to break out, China’s economy would be in big trouble; therefore, the psychological impact is enormous, leading to confusion among people and relatively poor expectations. In each of these 5 things, there are negative aspects; they are manageable when considered individually. But when all 5 things come together, those negative aspects also combine with each other, giving rise to the economic concept of cumulative negative effects. Negative factors have collided with each other, and their negative effects have compounded, ultimately leading to a cumulative negative impact on the Chinese economy since March. This analysis allows us to conclude that the Chinese economy has not entered a recession phase, but rather a period of adjustment, which is an important assessment. Fundamentally speaking, we have not entered a recession, as five factors have combined to produce negative effects on top of each other, signaling that the Chinese economy is in a period of adjustment. We estimate that at least three years are required for the adjustment period – 2018, 2019, and 2020 – three years of adjustment are needed to enter the stage of high-quality development. The stage of high-quality development is not just a slogan; a real shift toward standardization is needed, and three years will serve as a period for adjustment. Only after addressing these negative factors one by one during the adjustment period can China’s economy enter what is known as a phase of high-quality growth. IV. During the adjustment period, do three things well. The Chinese economy has not actually entered a recession phase; it has entered an adjustment period instead. How to make adjustments and gradually reach a consensus? Generally, three things need to be done: Ⅰ. First, it is necessary to stabilize the financial system. Finance must be stable; there should be no sharp fluctuations in the financial sector. Therefore, the first thing to do is to stabilize finance. Because once finance becomes unstable, it is very difficult to get through the adjustment period. The development of the real economy as a whole relies on financial support; if there are significant fluctuations in the financial sector, chaos may arise during this period of adjustment. Therefore, the first thing to do is to stabilize the financial system – it is essential to keep finance stable. How to stabilize finance? It is estimated that five things need to be done: 1. Control monetary policy well. The core of finance is monetary policy, and it is essential to manage monetary policy properly. The goal of managing monetary policy is, on the one hand, to prevent operational risks, and on the other hand, to meet the needs for growth; these two aspects must be combined. In this context, it is crucial to keep three key aspects under control when managing monetary policy; these three points must be properly managed: ① The first point is to maintain a neutral and prudent monetary policy, and this must not change. If monetary policy becomes loose again, financial risks will definitely emerge; there’s no doubt that pressures leading to financial risks will arise once more. Therefore, it is necessary to maintain a neutral and prudent approach in monetary policy. Maintaining neutrality and stability is an important goal; the growth rate of the money supply needs to be kept under control. Those here know that the growth rate of the money supply can be simply understood as the speed at which money is created, the pace of money issuance – it can be understood in that simple terms. This figure must be carefully controlled, as it indicates the level of currency issuance. An important indicator of monetary stability is that the growth rate of the money supply must remain low. According to economic principles, the growth rate of GDP plus the inflation rate, plus another parameter, should equal the growth rate of the money supply. In terms of this indicator, we have basically brought it under control: the money supply growth rate in September was 8.3%. As you know, in the past it was always below double digits, with an average annual rate of 17%; now it has been reduced to single digits, at 8.3%. This figure is obtained by adding 6.5% GDP growth to a 2% inflation rate, along with some adjustment factors, to arrive at the appropriate value. It seems that this indicator is performing well at the moment; it has remained in the single digits throughout this year, at 8.3% in September, with figures for October not yet available. It is essential to ensure that these figures remain neutral and stable; if they are not properly controlled, it can lead to significant operational risks. The first key aspect of managing monetary policy is to maintain its neutrality and stability. ② Second, ensure sufficient liquidity. The liquidity required for a company’s production and business operations must be sufficient; this is what is meant by adequate liquidity. It seems this item has been adjusted recently to ensure an adequate supply. What to do? Many monetary tools need to be employed, such as reducing the reserve requirement ratio. A few days ago, another 150 billion was injected through reverse repurchase operations, which meant an additional 150 billion in liquidity was released into the market. Thus, an important aspect of monetary policy is to ensure an adequate level of liquidity; to that end, monetary policy tools are employed. The recent adjustments have been made in order to meet enterprises’ normal funding needs and maintain sufficient liquidity, and it seems that this goal can be achieved. ③ Third, monetary policy must achieve its objectives smoothly. The transmission mechanism must function smoothly; for example, monetary policy should support the real economy and the private sector, which are the targeted objectives. To enable transmission, it is necessary to ensure that the monetary policy transmission mechanism functions smoothly. For example, recently, to support the private economy, a new indicator was added to the banking assessment criteria, namely proportion control. Assuming 10 billion is lent this year, 40% of it must be directed toward the private sector, with strict evaluation criteria in place. In the past it was just a slogan; now it is a target that ensures smooth flow to the private economy. To ensure a smooth monetary policy transmission mechanism, certain adjustments are necessary. The most significant adjustment at present is the structural control over bank loans: it is determined how much money will be lent this year and how much of that amount will go to the private sector, with quality requirements in place. Comrade Guo Shuqing recently said that at least one-third of the loans issued by large banks should be directed toward the private economy. Two-thirds of the loans issued by small and medium-sized banks must go to the private sector; this figure is set to reach 50% in five years, as part of structural control measures. This control ensures a smooth transmission mechanism for monetary policy. In the past, it was often said that support should be given to the private economy; the reason for not being able to provide such support was problems with the transmission mechanism, as the support did not reach its intended targets. Now, it is necessary to ensure smooth transmission of this support. Furthermore, to support the real economy, it is necessary to set limits on loans this year; for example, out of 10 billion, 9 billion must be directed toward the real economy, with only 10% going to sectors that are not part of the real economy. Only in this way can we truly speak of supporting the real economy. New assessment criteria are applied to all banks, and an important outcome of these new criteria is a smooth transmission mechanism. To support the real economy and the private sector, the transmission mechanism must be smooth. Adjustments are being made at the moment, and I estimate that in about a month, people will generally feel that there is indeed support for the real economy and for the private sector, as the transmission mechanisms have been adjusted to ensure smooth delivery of such support. The first thing we do to stabilize the finance sector is to manage monetary policy well, focusing on these three key points. One is to adhere to a neutral and prudent monetary policy ； Second, it is necessary to ensure sufficient liquidity to meet the company’s funding needs ； Third, the transmission mechanism is smooth, enabling the achievement of set goals. For example, supporting the real economy and the private sector is the first thing that needs to be done to stabilize finance, by properly managing monetary policy. If these three aspects are adjusted properly, we can achieve the goal of stabilizing finance, which is the first thing that needs to be done in order to stabilize finance. 2. The deleveraging policy needs to be adjusted now. Deleveraging is a good idea, as the leverage level is indeed very high. According to the data released in the first quarter of this year: **debt accounts for 35.2% of GDP, which is a low figure.** The reason for the lower figure is not fraud, but rather the fact that **liabilities were not included in the calculations and were instead classified as part of the company’s liabilities.** Secondly, corporate debt accounts for 159% of GDP growth, which is a high figure; corporate debt should not be that much. The high figure is due to the fact that these two categories are classified as corporate liabilities – one being debts related to development zones and the other being debts from local financing activities. If these two are excluded, corporate liabilities account for only 130% of GDP, so the figure isn’t that high. The entity that incurs debt is indeed a company; if that is taken into account, the actual debt level of companies amounts to 130% of GDP. Thirdly, personal debt accounts for 55.8% of the total GDP; at the end of 2015, personal debt made up 30% of the total, and it rose rapidly in 2016 and 2017, reaching 55.8% now. Personal debts mainly consist of mortgage loans and car loans; in urban areas, mortgages are the dominant type of debt, while in rural areas it is car loans, which contributes to the rapid increase in personal debts. Although it hasn’t reached the red alert level, the rise is too rapid. When these three types of debt are added together, the total debt of society accounts for 250% of GDP, which is indeed too high. According to some scholars, when social debt rises to 270% of GDP, it can trigger serious financial risks. At the beginning of this year, we began to reduce leverage in order to lower the debt ratio. Based on the experiences and lessons from the first half of the year, it seems a bit too aggressive, and somewhat one-size-fits-all. At the *** meeting on July 31st, it was proposed to make adjustments to the deleveraging policies, specifically two adjustments. One is to control the pace of deleveraging carefully; this pace must be well managed and not too rapid, as companies cannot withstand such a fast pace. It is necessary to keep the pace under control. No one has ever estimated what level of intensity constitutes it, or what that means; no one knows exactly how much it is. I checked the information on the relevant decision-making departments and realized that by \"strength\" is meant that the leverage will not be reduced to normal levels this year, but over a period of three years. First, reduce the leverage ratio from 250% to 200%. 200% is still high; there’s no need to rush. Reduce it further after three years, and take another two years to bring it to normal levels. It will take five years in total to get the debt levels back to normal. If it drops from 250% to 200% over the first three years, the deleveraging amount would be 40 trillion, or about 13 trillion per year. Around 13 trillion – companies can afford it, so there shouldn’t be too many problems. In this way, after making adjustments to the level of control, it is possible to ensure that financial risks are mitigated, while also preventing the company’s capital flow from being disrupted and satisfying its funding needs. One adjustment is to properly control the intensity ； The second adjustment is to achieve structural deleveraging, which means moving away from a one-size-fits-all approach. Since the leverage ratio of the private sector is already low, there is no need to impose deleveraging measures on them. Structural deleveraging: the burden falls on those with higher leverage. I identified two key areas: state-owned enterprises and local **debt; these two indeed have relatively high levels. Deleveraging state-owned enterprises and local governments has become a key focus in terms of structural leverage. Regarding the deleveraging of state-owned enterprises, it seems that in the first half of the year, new debt accumulation by these enterprises was brought under control through two methods; in other words, new levels of debt were kept in check. The State Council issued a strict directive stating that the debt levels of all state-owned enterprises must meet specified standards, starting with those that are centrally owned. The regulations are strict, leading to a continued rise in debt. Another proposal is that we should stop enforcing mandatory repayment; for the debts of state-owned enterprises, **no more funds will be provided. In the past, it was always provided – this was known as mandatory repayment; state-owned enterprises had no trouble borrowing money because they could always repay it, thanks to the guarantee in place. In the first half of the year, it was officially stated that **no more guarantees would be provided; all liability is limited. Therefore, one should be cautious when borrowing money from state-owned enterprises or purchasing their bonds, as there is a possibility that the money may not be recovered. Many state-owned enterprises end up undergoing bankruptcy reorganization; a great deal of money is lost forever and cannot be recovered. **Rigid repayment guarantees are no longer in place. Strictly speaking, there are no so-called guaranteed-return financial products nowadays, as all involve limited liability. This adjustment has led to the rate of new debt accumulation by state-owned enterprises being brought under control; now the question is what to do with the existing debt – what to do about the loans taken out in the past. Later, a strategy was established: the existing issues of state-owned enterprises should be addressed, and the resolution of their debts needed to be integrated with the reform of these enterprises. How to integrate them? This year, there are two key focuses for the reform of state-owned enterprises: one is to determine the core business, which must be defined. Once the main business is determined, non-core assets must be sold and converted into cash. The money generated from sales cannot be used for new investments; it must be used to repay debts, through sources of income that are not related to the main business. The second focus of state-owned enterprise reform is the mixed economy; it is necessary to promote this model on a large scale by allowing substantial amounts of non-state capital to enter state-owned enterprises, thereby increasing the proportion of state capital in these enterprises. The share size increases, while the value per share decreases. The most successful example is China Unicom’s reform; an important outcome of this mixed-ownership reform was a reduction in China Unicom’s debt levels. How is it brought down? It is brought down by **using upward movement as a means to gain absolute control**, so that China Unicom no longer has control rights; debt levels are reduced through structural reforms. With the reform of state-owned enterprises, the volume of such enterprises seems to have declined a bit. Another aspect is the local governments; they have now brought under control the increase in new debt, as the \"three measures\" implemented in the first half of the year were quite strict. One approach is to cut off all debts of the development zones, prohibiting loans to them altogether. Development zones are an important channel for local **debt; in the first half of this year, this channel was completely shut off, with no loans being granted at all. I estimate that the development zone will basically come to a halt next year, operating solely on loans, which will cut off all support. Second, PPP projects were streamlined, and 3P projects were also streamlined. At the local level, the main source of new debt nowadays is 3P projects; the central government has carried out a thorough review of these projects, and as a result, new debt accumulation at the local level has been brought under control. Thirdly, the Organization Department issued a document stipulating that for any promotion or transfer of officials, the assessment criterion is the debt ratio – it’s not about how much GDP has been generated or how many roads have been built; rather, it’s necessary to check what the debt ratio is. Those whose debt-to-asset ratio exceeds the limit are dismissed on the spot and will never be employed again; it’s quite severe. Recently, several county party secretaries were removed from their positions because their debt ratios exceeded the allowed limits. Especially in poor counties, it has been noted that several county party secretaries have been removed from their positions recently. This indicator links the official positions together, making it difficult to increase the debt ratio further. These three measures have effectively brought under control the new local debt. So what is the main issue now? What to do with the existing debt, and what about those debts that were incurred in the past? I went to a place where the annual GDP is only 10 trillion, and the debt amounts to 200 trillion – how on earth is that debt supposed to be repaid? Out of the 31 provinces and municipalities across the country, only 6 pay money to the central government; the rest rely on central government transfer payments to sustain their operations. Think about it: how can it repay its debts? There are basically two ways to do this – through taxes or by selling land. Basically, a lot of taxes cannot be repaid because they rely on central government transfers. Another aspect is land sales, which are constantly failing to find buyers. I believe that in the future, the biggest problem related to existing debts will be local government debts, and figuring out what to do about them is a serious issue. People often ask me why I prefer state-owned enterprises; they are located in the upstream stages of various industries, and it is their tax revenues that help the central government balance finances across different regions, with those revenues exceeding 3 trillion per year. Although the efficiency is very low, the money was **paid**. Private enterprises are more efficient, but the money isn’t given away; some people don’t understand this, so you need to realize that it is used to balance finances across the country. State-owned enterprises are all in the upstream part of the industry; those in the downstream sector are very strong and are all making profits. Although central state-owned enterprises are not very efficient, they **pay money, and this can balance things out. This is a serious problem; local debt is a major issue, and there is structural deleveraging. I think the state-owned enterprises sector is also somewhat at a disadvantage in this regard. Locally, **there’s basically no loss at the moment; Hangzhou is fine, Zhejiang is fine as well, but many other places have problems. There are more problems than areas without problems, so it’s a difficult situation, but it can be addressed gradually. De-leveraging was not mentioned again at this meeting; I think some new adjustments will need to be made to the de-leveraging policy in the future. Why is there a shift from deleveraging to stabilizing leverage levels? The goal for this year has been almost achieved – significant efforts were made in terms of deleveraging, and the targets have been nearly met; it is likely that the focus will gradually shift to stabilizing leverage levels. Calm down first, don’t rush; stay stable for a while and wait until growth picks up again. The deleveraging policy will shift to stabilizing leverage, which may be the next step in adjustments. It is necessary to manage the deleveraging policy properly. As we can see, adjustments have been made twice so far this year – the first time was on July 31st, when it was stated that the pace of deleveraging should be controlled, that a structured approach to deleveraging should be adopted, and that a one-size-fits-all approach should not be used. The task of deleveraging cannot be completed in one or two years; it is a process that may gradually lead to a more stable level of leverage. In the coming months, it is right to shift from deleveraging to stabilizing leverage, as it is necessary to ensure financial stability; financial markets should not experience sharp fluctuations. Therefore, leverage needs to be stabilized at its current level. I took a look at the figures; by the end of August, the leverage ratio had dropped from 250% to 242%, and those are the figures for the end of August. It seems that this year the upward trend in leverage has been brought under control; under these conditions, things should gradually stabilize over time. It’s not appropriate to act too aggressively or too quickly, and the focus should shift to stabilizing the leverage level. After December, people will feel that the tight funding situation gradually eases, and the overall demand for funds in society will decrease, so there should be no major problems. This is the second thing that needs to be done to stabilize the financial system: to adjust and control debt-reduction policies at all times, so as to both prevent financial risks and meet the needs of economic growth. This is the second task in ensuring financial stability. 3. Stabilize the foreign exchange rate. The foreign exchange market must be stabilized. Everyone should note that the central bank officially released its monetary policy report yesterday; in the report for the third quarter, there was a mention regarding the foreign exchange market, stating that \"more attention should be paid to the regulatory role of the market.\" This time it’s different; it’s clear that more attention is being paid to the regulation of foreign exchange, and once again it’s emphasized that nothing should go wrong with foreign exchange. Stabilizing the foreign exchange situation seems to have been basically settled; nothing should go wrong with the foreign exchange. The previous quarterly monetary policy report still emphasized the role of the market; the fact that emphasis is now placed on ** shows that stabilizing the foreign exchange rate is an important factor in maintaining financial stability. If there are problems with the foreign exchange rate, then there will be problems with the domestic currency as well, and the balance of the entire economy will be disrupted, leading to severe turmoil. Stabilizing the financial sector hinges on stabilizing the foreign exchange market. The central bank’s monetary policy report released yesterday once again emphasized the importance of stabilizing foreign exchange, and **actions will be taken in this regard. How to ensure stability? There are two approaches: First, the RMB cannot continue to depreciate – that’s one approach. Someone once asked me what the specific indicators for this statement are – what level constitutes continuous depreciation and what level does not constitute it; in other words, what is the numerical threshold. Judging from now, it’s impossible to break below 7; this might be an indicator. Pay attention: there were two instances when the price was on the verge of breaking 7; on August 21st, as well as a few days earlier. In each case, the price dropped below 7 but then rebounded immediately two hours later – it must have been the central bank intervening. Recently, the vice governor of the central bank once again told the world that those who want to short the RMB should be careful; we have already clashed before, and I warn you not to short the RMB. If it can’t drop below 7, then it can be said that it can’t continue to depreciate. Judging from the current situation, the fact that it cannot continue to depreciate means it cannot expire. The fact that it came close to breaking 7 twice in a row before rebounding indicates that policymakers are determined not to allow further depreciation, meaning it cannot drop below 7 – and this is an indicator of that determination. The second indicator is that foreign exchange reserves must not continue to decline. There is a certain level below which reduction is not possible, and then there is a level at which reduction can occur. It seems that the figure is quite clear: it’s 3 trillion – 3 trillion is the bottom line. By the end of October, it had reached over 3.05 trillion. September was a difficult month, with a drop of over 20 billion; some people are worried whether 3 trillion can be maintained. I estimate that 3 trillion is the benchmark price; it cannot be lower than 3 trillion. Thus, there are two goals for stabilizing the foreign exchange rate: first, the RMB cannot continue to depreciate ； One, the volume of foreign exchange cannot keep decreasing. How can this be achieved? I think four things will need to be done: first, those areas that have already been liberalized as part of the foreign exchange reforms will continue to remain so. For example, one ID card can be used to purchase $50,000 per year; information related to studying abroad and similar matters will be included there and will not be changed. If there are no changes, things will have to be suspended for now; for individuals, all three types of overseas investments have been essentially halted. As for overseas real estate investments, if they are not allowed, people either use underground banking services, create fake trade accounts, or arrange for funds to be taken out by others. I’m sorry now; if you want to buy it, don’t make a fuss about it, otherwise there will be problems if it gets discovered. Everyone should be aware that things might get stricter in this area; what used to be considered a gray area is no longer acceptable, and individual investments in overseas real estate will basically be subject to strict restrictions. For overseas securities investment, buying American stocks in the U.S. market – we had discussed whether to proceed with this, and now I’m telling you that we won’t do it; it has been discontinued. Insurance investments for overseas investment have also been completely halted; we are focusing on consumer insurance products. In the past, there were gray areas regarding card usage; now only consumer-related transactions are allowed, as investment-related transactions have been completely prohibited. There is basically no discussion anymore about relaxing restrictions on individual overseas investments in these three areas: real estate investment, securities investment, and investment-related insurance investments, as this is necessary to stabilize foreign exchange reserves. In the past, there were no restrictions on withdrawing money with a bank card abroad; now, there is a limit of 100,000 RMB per person per year. Moreover, a quite significant measure was introduced recently: the reserve requirement ratio for forward foreign exchange transactions was raised from 0 to 20%. If a bank wants to sell $100, it must deposit $20 as a risk reserve with the central bank. I’ve done some research recently, and it’s not easy even now to get what you need; when trying to buy foreign currency, they come up with all sorts of excuses to refuse to sell it to you. 50,000 dollars per person, various excuses – all of these actually signal one thing: a tightening of foreign exchange controls. It’s a way to stabilize the foreign exchange situation. The second approach is overseas M&A; support for technology-related M&A will continue, with no issues – as much foreign exchange as needed will be provided. But all non-technical areas have seen a complete ban; last year policies still involved strict scrutiny, while this year a complete ban is in place. The National Development and Reform Commission has issued an official order prohibiting all six types of overseas financial investments; the acquisition of cinemas, wineries, and clubs abroad is completely banned. Last year there was strict scrutiny, while this year such investments are outright prohibited. It was also suggested that companies and individuals who used to purchase such items abroad are figuring out ways to send foreign currency out, and now trying to get it back in. Otherwise, bring it back; we’ll see what happens. It seems like a threat. Now many people are selling these things overseas to bring back foreign currency. Recently, a list of 100 private entrepreneurs from the past 40 years in the private sector was released; those companies that used to buy assets overseas in previous years are no longer on that list. Why? First, get the foreign exchange sorted out. Let’s try to get it back; we’ll see what happens. In essence, it’s telling everyone that foreign exchange controls have been tightened across the board. Overseas M&A and technology-related M&A continue to be supported, while non-technology-related ones are completely halted. The third approach is investment under the \"Belt and Road\" initiative, which will involve using the RMB for investments, without relying on foreign exchange reserves anymore. “In the future, investments under the Belt and Road Initiative will be carried out entirely in RMB, with no use of foreign exchange reserves anymore, in order to stabilize those reserves. Investing in RMB in practice serves a dual purpose: it reduces foreign exchange reserves on the one hand, and promotes the internationalization of the RMB on the other. This is beneficial for stabilizing the foreign exchange market. Under the \"Belt and Road\" initiative, we are the ones who drive the investments, and we have the authority to decide what kind of investments to make – there are no issues with that. It is estimated that in the future, more investments under the Belt and Road Initiative will be made in RMB, thereby reducing foreign exchange reserves and stabilizing the foreign exchange situation. The fourth approach is to carry out more operations under the capital account. There are two channels through which foreign exchange enters China: the trade account and the capital account. Currently, the trade surplus is narrowing, and the inflow of foreign exchange is slowing down. To maintain stability, it is necessary to operate under the capital account; it is likely that efforts will be intensified in this area going forward. For example, recently **5 billion yuan worth of government bonds were issued**, which helped to regulate the relationship between the dollar and the yuan, and this is beneficial for stabilizing foreign exchange rates. If another 5 billion dollars worth of Treasury bonds are issued, it means that foreign exchange reserves will increase by 5 billion. Currently, many in the international community are optimistic about China’s long-term prospects. Personally, I am willing to purchase foreign exchange-denominated bonds; we plan to issue $5 billion worth of such bonds, which will increase our foreign exchange reserves by $5 billion. Issuing RMB-denominated government bonds helps stabilize the exchange rate; issuing $5 billion equates to an increase in foreign exchange reserves. Next, **frequent operations will be carried out in the capital account; adjustments will definitely be made in order to stabilize foreign exchange reserves. Under the trade account, the surplus is narrowing due to the so-called trade war between the United States and China, which has affected China’s exports; however, cooperation is still possible in the capital account. In particular, China has taken some significant steps in these areas. Last month, we established the Shanghai Petroleum Futures Exchange, explicitly stating that the currency used for trading on this exchange is the RMB, thereby linking the RMB to oil on a long-term basis. For a long time in the past, the dollar was linked to oil. You know it was inevitable for the United States to launch a trade war against us; we were essentially stabbing it in the back. Now, at the world’s three major oil exchanges – London, New York, and Shanghai – transactions are no longer conducted in US dollars. It has been officially announced that oil-producing countries can receive RMB when selling oil to us, and they can then use this money to buy gold at the Shanghai Gold Exchange in China. The world has discovered that China holds such large gold reserves; we are **one of** the countries with the largest gold reserves in the world, and this helps to maintain stability in the foreign exchange market. In fact, many people do not have a sufficient understanding of the Shanghai Petroleum Exchange and do not know what it means; in reality, it is a significant decision made by China. With this decision in place, the foreign exchange market should be under control, so there’s no need for excessive concern. Generally speaking, these four methods are used to stabilize foreign exchange, and the foreign exchange rate should be able to remain stable. As long as the foreign exchange market can be stabilized, as long as this \"counterweight\" doesn’t encounter problems, and as long as it remains in place, there won’t be significant financial fluctuations during the transition. The third aspect of stabilizing the financial sector is to stabilize foreign exchange; this is roughly the current situation, and it represents the third task that needs to be carried out in order to stabilize the financial sector. 4. Stabilize the stock market; it is essential to keep the stock market stable. In the past, there was not enough understanding of this issue, but now it is recognized that the market must be stabilized, and efforts should be made to stabilize the capital market. How can we stabilize the capital market? It seems there are three ways to do this. The first way is to improve the quality of listed companies; the quality of these companies must be enhanced. If the quality of listed companies is low, who would dare to buy their stocks? People might not buy them, so it’s necessary to improve the quality of listed companies. Any restructuring or merger related to improving quality can be permitted; as long as it helps enhance the quality of the listed company, such restructuring or merger can be pursued. Second, reduce administrative intervention in the stock market. Regulatory authorities should not interfere in stock market trading; they should simply do one thing: ensure transparency. Make information disclosure transparent and ensure the release of information. Third, long-term financial support is required. The Chinese stock market is unstable due to a lack of long-term capital support; therefore, funds such as social security funds and insurance funds can enter the market. The next step is to encourage such long-term capital to flow into the stock market in order to address this issue. If these three points can be achieved, it should be possible to stabilize the capital market. It seems to have been falling constantly lately, and it has dropped below 2600 again. I guess it has to do with the announcement in Shanghai that the SSE will introduce a new board segment, the Science and Innovation Board, and that a registration-based system will be adopted. This is a good thing – it represents reform as well as the promotion of technological innovation. The Sci-Tech Innovation Board helps to raise funds for technological innovation in China, while the registration-based system constitutes a means of reforming the stock market; in short, it’s all positive developments. But the impression among stock investors is that there will be an expansion, so the stock market declines. In this way, as everyone knows, the issues related to the stock market are quite complex; these three basic strategies should be fine, and that’s correct. But since people’s judgments about the stock market influenced certain issues in the minds of existing investors, which was actually a good thing, it was unexpected that the stock market dropped as soon as that information was made public. The reason is that people think expansion is needed, and they worry that if expansion takes place, the stock price might not rise. Originally, both reforms were related to this area: one aimed at facilitating normal financing for the technology sector, and the other involved changing the approval system to a registration system. It is both a scientific innovation reform and what is known as a systemic reform. Unexpectedly, this good news turned into something negative, resulting in a decline. I think people need a process of understanding; this approach is correct and there’s nothing wrong with it. In essence, what’s being done is to ensure the quality of so-called listed companies. By introducing the science and innovation board and the registration-based system, we aim to improve the quality of listed companies and make it easier for good companies to go public. However, in the short term this may give the impression of an expansion in the number of listed companies, which leads to a drop in stock prices; but there’s nothing wrong with that. One thing is clear, however: the decision-makers have placed stock market stability on the agenda as a matter of priority; it was made very clear this time that the stock market must remain stable. If the stock market is unstable, finance cannot be stable; therefore, a key aspect of stabilizing finance is to stabilize the stock market. With the policy announcement in Shanghai this time, I thought it would be good news, but it turned out to be bad news instead. Overall, the goal is to stabilize the stock market; this is the fourth thing that needs to be done to stabilize the financial sector. 5. Prevent asset bubbles from bursting and triggering widespread financial turmoil. What this sentence means is that real estate represents a major problem; next year, real estate will be the key factor in determining whether we can stabilize the financial system. In the past, housing prices rose rapidly, and we had solutions – there are strategies for both the medium and long term, as well as for the short term. But what if there is a sharp drop? The real estate market should not rise too quickly, nor should it fall too quickly. House prices are falling too fast; that means the bubble has burst, and that’s not acceptable either. This year, two types of financial institutions should have been essentially cleared out: one is the non-bank financial institutions, and all of them have been reported. The second point is that the stock market has reached its lowest level; in fact, diversification of financial risks has already occurred, and it’s not just a systemic issue. The system also includes banking financial institutions; banks are currently not facing any problems, while non-banking financial institutions and the stock market have already been cleared out. But banks cannot fail; if they do, it means a systemic financial crisis has erupted. The prerequisite for banks to remain stable is that the real estate sector must not face problems, and this is a major issue. Next year, the main issue affecting financial stability is likely to be the real estate sector; recently, housing prices have started to fall, with second-hand homes in Beijing returning to their levels from 2016. If we look further back, to what extent can things be brought under control in order to stabilize the financial system? This is something worth studying. The main issue in stabilizing the financial sector next year is what to do in the face of a sharp drop in housing prices. If housing prices drop sharply, you know that 65% of Chinese people’s wealth is in real estate; that means everyone’s wealth will decrease. Secondly, trust relationships are currently primarily based on housing prices. If there is a sharp decline, could it lead to a breakdown in the entire credit lending system? Moreover, many companies, including those listed on the stock market, own properties worth around 1 trillion; what would be the consequences of such a sharp drop? Next year will pose a significant challenge for us; perhaps the key to stabilizing the financial system lies in the real estate issue. If this can be stabilized and we manage to overcome this difficulty, it will be easier to address financial issues in 2020. It seems that the biggest issue at this stage is related to the real estate sector. Can we maintain stability? House prices rising too fast is not good, but falling too fast is also not good. It is worth for China to study under what conditions stability can be achieved. Looking at international experience, in countries like the United States and Japan, if you study these cases carefully, you’ll find that it is always the real estate sector that triggers financial risks. What was behind the financial crisis in 2008 when the United States last experienced such a crisis? It was the subprime mortgage crisis – the real estate sector triggered the entire financial crisis. For China, an important question going forward is whether the real estate sector can be stabilized. If it can’t be stabilized, things might get more troublesome. Next year, the key issue for stabilizing the financial sector is the real estate market; it is important to see if housing prices can fall within the range we consider acceptable. Moreover, it seems that some market issues are not as straightforward as we thought; once a chain reaction occurs, things can get very troublesome. Beijing is facing serious problems right now – goods are available but there’s no market for them. The listing price is there, and it must be reduced at the time of the final transaction. After March this year, I worked at a brokerage firm in Beijing for ten days, because you can’t rely solely on statistical data; you need to experience it firsthand and observe what the mindset of buyers and sellers is like. I found that a house costs around 5 million in total, has liquidity, and is mostly purchased by those with genuine needs. Once it reaches tens of millions, liquidity becomes very poor; once it reaches thirty or forty million, there is basically no liquidity left. One day, a man wanted to sell a house located next to the Olympic Village; it was quite large, and its listed price was 35 million. After being on the market for half a year, no one showed interest in it, and he was very anxious. That day I went to the agency by myself, and happened to run into him; I talked with him, and he told me that no one had shown any interest in his property, which worried him a lot. As a result, two people came to view the property. He enthusiastically told them that it was fully furnished and had never been occupied, so they could move in right away. If paid in one lump sum, a discount is available – how about 30 million? After hearing that, those two guys said, \"Dude, it’s not those 500 we’re short of; it’s 30 million！」 This leads me to notice a problem: who will take over the real estate sector? Think about it – it’s a major issue. If housing prices fall too rapidly next year, certain real estate policies will need to be introduced gradually; for example, a real estate tax should not be implemented in a hasty manner. Too much haste will accelerate the decline, and an accelerated decline is not conducive to stability. Just as in this year, next year there will be certain policies, such as those related to deleveraging; this year we identified the issues and made adjustments promptly. The same applies to real estate policies: adjustments are made as soon as any asymmetry is detected. Adjustment period, adjustment period – it always means adjustment. None of them persist; once something is found to be wrong, adjustments have to be made. The key next year might be stability; real estate is a major issue. Only by stabilizing the real estate sector can finance be stabilized. If it can’t be stabilized, then the finance sector won’t be stable either. Those of you who own too many houses should pay attention; it is recommended that you focus on this issue, as market forces cannot be controlled in such situations. The key issue next year is whether the financial sector can remain stable; real estate plays a crucial role in this regard, and it’s a major problem. If it can be stabilized, then it can be said that the financial sector will be stable as well. What will test us this year is the near-collapse of non-bank financial institutions, as well as the so-called irrational decline in stock markets. We realize that the key issue next year is that stabilizing the financial sector hinges on real estate problems. Overall, the first thing we need to do is stabilize the financial sector, which essentially involves these 5 tasks. Only by doing these 5 things can the financial situation be stabilized, and the adjustment period overcome. If finance is not stable and the adjustment period cannot be overcome, it is impossible to move into a phase of high-quality growth. Firstly, that’s a general overview of stabilizing the financial sector. As mentioned earlier, China has entered a period of adjustment, and three things need to be done during this period: the first is to stabilize the financial sector ； Second is stabilizing growth ； Third is to stabilize opening up. II. Second is to stabilize growth; there should not be too much decline in growth, as excessive decline could affect the overall mood of society. How can growth be stabilized? Generally speaking, several things need to be done. First, fiscal policy should be more proactive, because as mentioned earlier regarding monetary policy, it is necessary to guard against risks; its scope for action is limited, and it is not possible to change the trend of monetary policy – which remains stable and neutral – nor can it move towards a looser stance. In this context, the key policy for stabilizing growth is fiscal policy, which should be more proactive. There are essentially only two ways to make fiscal policy more proactive: 1) reducing taxes and fees, which must be cut. Last time we cut taxes, we simply did so, but there was one problem with that tax cut: all real estate companies had their taxes reduced by 1/4, while manufacturing companies did not see any reduction. Everyone is very dissatisfied; on the one hand, so much tax reduction was implemented, yet there was no noticeable effect, as issues with the implementation process meant that real estate companies ended up with only a 1/4 reduction in taxes. If you ask them, they are all happy about it. However, manufacturing has hardly declined at all, and this is a lesson to be learned. You know, a document is currently under review; the three current VAT rates are set to be merged into two, with a reduction of 1 percentage point overall. At one point, after the merger of the two taxes, that figure should be quite high; if this document is issued, its impact will be enormous. The tax authority chief held a meeting yesterday to discuss this; they are considering more substantial tax cuts, as well as significant adjustments to the value-added tax. In this way, it is likely to be beneficial for companies in terms of tax cuts; I estimate that the impact this time will be significant, and all companies will feel a real reduction in taxes. Unlike in the past, when only the State Council felt that taxes had been reduced and no one else did. Because the tax policy in September is only 6%, which is lower than GDP growth. It hasn’t decreased in the direction it should; this time, the reduction in taxes and fees is likely to be significant, and that’s one point. Fei, it has been clarified that the so-called “three insurances and one fund” or “five insurances and one fund” will see a reduction this time. Although everyone knows that our collection agency has changed, taxes and fees will not increase; in fact, they will decrease. Tax and fee reductions will be officially announced at future economic meetings; an important change is the reduction of taxes and fees, so that people can truly feel this reduction. A positive approach to fiscal policy is to reduce taxes and fees, and this time the reduction should be substantial so that everyone can truly feel that the taxes and fees have been lowered. The second approach is to increase fiscal investment; such investment should not be used for profit-making purposes, but only for infrastructure and livelihood-related projects. Investments in infrastructure and people’s livelihoods will be increased further this year, and may also increase further next year. Investments in infrastructure development and projects related to people’s well-being will account for a larger share of next year’s **budget, which will enhance the economic stimulus effect of overall social investment. In the first half of next year, there will be tax cuts and increased fiscal investment; both measures will be highly effective in stabilizing economic growth. Because it’s no longer possible not to do it; it must be done. This is one way to stabilize growth; fiscal policy will be more proactive. Recently, the decision-makers have been conducting continuous research and discussions, covering issues at all levels; financial meetings are likely to announce these major decisions. Next year, fiscal policy will play a significant role in ensuring stable economic growth. 2. Second, accelerate structural adjustment; this process must be sped up, and the three industries we had originally planned to develop need to progress more rapidly. The first category is strategic emerging industries, which include eight key areas: new energy, new materials, life and bioengineering, energy conservation and environmental protection, information technology and mobile internet, new energy vehicles, artificial intelligence, and high-end equipment manufacturing. Progress in these eight areas must be accelerated. In the process of advancement, it is necessary to unleash market forces on one hand, while simultaneously accelerating **support and promotion for these industries. In areas like artificial intelligence, China aims to be among the world’s best teams in the future. For those companies in the market that perform well, **it is possible to invest money; after reaching a certain level of investment, one can withdraw from that investment at that point. Companies like Tencent are doing well in the field of medical imaging; it’s really good. What to do? **Increase investment.** Now Tencent’s technology can show every detail of a person’s internal organs, and maybe one won’t even need to see a doctor in the future. We originally thought iFlytek would make breakthroughs in voice artificial intelligence, but recently there have been too many negative developments. In fact, there has been significant progress in these areas, and efforts should be made to advance them as soon as possible. Where technological breakthroughs have already been achieved in these areas, **additional efforts should be made to ensure that these goals are met, thereby facilitating the rapid development of strategic emerging industries. I took a look recently, and there has indeed been significant progress in these areas. Regarding these key points, I visited one company each, for a total of 8 companies. I’ve found that in this regard, there has indeed been significant progress over the past few years. I estimate it will be about three years; on these eight key areas, some companies will emerge from time to time and may exhibit strong growth potential. We need to accelerate the development of strategic emerging industries – we can no longer wait. We need to shorten this adjustment period as much as possible, so that they can exert their strong effects to the fullest. The service industry needs to be accelerated as soon as possible. A few months ago, I met a teacher who was 91 years old; I was his first graduate student, his top disciple, yet he no longer recognized me. As soon as we met, they asked who I was; just two minutes after that, they asked who you are. His son told me that the old man suffers from senile dementia; he is unable to be taken care of at home and no longer recognizes his family members. Tell me that three nannies were hired, only to find that they tied the old man to a chair and went off to have fun on their own; that’s when I realized how important it is to receive care in a facility. When I was studying in Japan, my mentor mother suffered from senile dementia at the age of 75 and passed away at 90. Where did I live for 15 years? I lived in a nursing home in Japan. There are two large types of institutions in Japan: kindergartens and nursing homes. He once took me to see his mother, and that’s when I learned that she had spent 15 years in a nursing home, and that she had been very happy there. Why? Its nursing homes are finely categorized, with one section dedicated to elderly patients with memory loss – those are the people who live there. I checked specifically, and the deputy director told me that those who treat patients with memory loss in this facility must have at least a degree from a university’s psychology department; otherwise, they are not allowed to work here. Because these people often say things that make no sense, one needs to respond properly. He told a story: one day, as he was leaving the office, he met an elderly man with amnesia who claimed to have won a huge prize of 200 million. He immediately said that he was aware of this matter; indeed, two hundred million had been won. As for what the winning numbers were, he told the old man that those two hundred million were in the bank, and gave him the password. As a result, the patient was very happy; otherwise he would have broken things, so it was necessary to deal with that. These people get irritable every evening and have to make up stories every evening. One day at noon, the news broadcast brought the announcement that the Japanese Prime Minister was coming to their city. In the evening, they announced that the Prime Minister would be visiting them that day, so everyone went to bed early. By the next day, they had forgotten about it. Sometimes they are reluctant to get injections, but then the doctor tells them that this hospital was founded by them and that they should experience it themselves, so they line up neatly to get the injections. These industries are of great value, and the returns will certainly be high. In the United States, people start contributing to pension funds as soon as they start working, and they work hard their entire lives for this purpose, all for the future. China has entered an aging society. Vice Premier Liu He is right – entering an aging society creates a very important need, namely the need for elderly care, which represents a huge market. Now, we are discussing that a market guarantee system is something that needs to be implemented; whereas elderly care is an industry, not an elderly care security system – it’s a matter related to industries. There is a huge demand for these services, and it is recommended that everyone pay close attention to these service industries. I believe that sectors such as the service industry, regardless of the specific type, have great prospects in China in the future, as they rely on the country’s population. China has a population of nearly 1.4 billion, so the service sector market will play a significant role in driving growth in China in the future. Modern manufacturing is divided into two types: traditional manufacturing and modern manufacturing. How to divide it is not about who is modern and who is not. It is classified according to the social nature of the products produced; those that produce private goods are referred to as traditional manufacturing industries. Cars are classified as part of the traditional manufacturing industry because they produce consumer goods. Any activity that involves producing public goods is considered modern manufacturing; it has nothing to do with whether something is modern or not – the classification is based on the nature of society. We have a severe surplus of **private products, a severe surplus of goods for eating, wearing, using, and living, as well as a severe surplus of traditional products. There is a severe shortage of public goods, so producing public goods is a direction for strong development in the advancement of modern manufacturing. As for how to develop this field, five key areas have been identified: the first is aerospace manufacturing and aviation manufacturing, where aerospace refers to satellites while aviation involves large aircraft. The second is high-speed rail equipment manufacturing; this is a key area, with a huge market in China, and all technological innovations need to be achieved in this field. Third is the manufacturing of nuclear power equipment. The focus for the future development of China’s new energy sector is nuclear power; by 2030, 33% of the total electricity generation will come from nuclear power, and nuclear power equipment is a key component in this context. Fourth is the manufacturing of ultra-high voltage power transmission and transformation equipment; China is currently preparing to upgrade its power grid by utilizing ultra-high voltage technology. The so-called UHV technology enables the transmission of electrical energy over distances of 5,000 kilometers; it represents a high-speed highway for power transmission, and UHV power transmission and transformation equipment is considered a priority area. Fifth is modern shipbuilding and marine equipment manufacturing. If China is to establish a world-class ocean-going navy, supporting the key industrial sectors of such a navy is modern shipbuilding. Overall, these five key areas have been identified, and efforts need to be accelerated to advance them. Once it’s up and running, it makes a huge contribution to our growth. It can be seen now that the industries where structural adjustment is being accelerated are mainly these three: one is strategic emerging industries ； One is the service industry ； One is modern manufacturing. As a result, some private enterprises asked in the last discussion that it seems impossible to work in any field other than the service industry. Wrong; in fact, regarding the state-owned and private sectors that have been discussed recently, two characteristics in terms of industrial structure will be very evident in the future. One is a fundamental industry that should be carried out by state-owned enterprises. For example, in non-competitive areas, the amount of investment required is huge and the time frame is long; take large aircraft engines for instance – individuals cannot afford to invest in such projects, the return on investment is not guaranteed, and it’s unclear when success will be achieved. Basic industries and heavy machinery, which require a long investment period, should be handled by state-owned enterprises. Second, it is to achieve a division of labor and cooperation between private and state-owned enterprises; in other words, the future direction of modern manufacturing lies in such division of labor and cooperation. An airplane has over 6 million parts – can’t you establish a production facility for these parts? In the future, there will definitely be a need for division of labor and cooperation. Companies like Shanghai San Gong Group focus on one thing only: design and assembly, with all components purchased through bidding processes. There are so many components in high-speed trains; aside from the chassis, which is under CRRC’s control, everything else is procured through bidding. You can’t just bring one of those components in on your own! In the future, the key division of roles between the private and state-owned sectors will be that **the former will likely focus on basic industries or those requiring large amounts of investment, while the private sector will handle what are known as consumer goods. Through division of labor and cooperation, component supply ensures progress. In this way, the layout of private and state-owned industries will become increasingly clear, ensuring that everyone has something to do. It’s not that there’s no work to do; there’s plenty of work to be done. Think about it – shipbuilding involves so many industries, and you still can’t even make a single component! I’m a student; she supplies components for modern ships. A female student runs such a large business, which involves the supply of components and teamwork. In the future, the private and state-owned sectors will divide tasks within industries, and there will also be division of labor within individual industries, with each sector leveraging its own advantages and strengths to drive development. In the next step, we should accelerate progress in these three industries, as it will be of great significance. I estimate that China will shorten the period of structural adjustment; perhaps in the next step, it will provide further policy and financial support to accelerate this process, aiming to enable industries that contribute to China’s economic growth to go public as soon as possible. The State Council has held several symposiums this time, with the aim of accelerating and shortening the adjustment period. Only shortening the adjustment period is meaningful for stabilizing growth, and China has already realized that it holds a very advantageous position in the global industrial chain. Now, all these developed countries are focusing on the creative economy; yet in the end it turns out that creativity can only be put into practice in China. Just like in the United States where Apple couldn’t succeed no matter what, it became popular in China because all the necessary supporting industries are available there. We are at a higher level than developing countries, which puts the entire industrial chain in a favorable position; therefore, it is necessary to accelerate structural adjustments, and this is the second key aspect for stabilizing growth. The third thing is technological innovation. An important constraint for weaknesses is technology; we’re at a loss when it comes to dealing with chips. As you all know, we spend 400 billion dollars each year on importing chips, which is the same amount as what we spend on importing oil. Our biggest weakness is technology, and technological innovation must be accelerated. And there’s no more room for slogans; we need to get down to work. It is necessary to understand what the company needs to do; **one must figure out what needs to be done. An important platform for technological innovation is a modern laboratory; without one, it is impossible to pursue financial innovation – this is not just empty rhetoric. A very important platform is a modern laboratory; without such a modern laboratory, no one can succeed. Relying on enterprises alone won’t work; **action must be taken to establish a modern laboratory system to serve these enterprises. This initiative has been launched recently; Beijing aims to establish three major science cities: Global Science City, Future Science City, and Zhongguancun Science City. Once completed, these cities will be open to all private enterprises, with some offering services free of charge while others charge a fee. They are accessible to all enterprises because without such platforms, companies cannot carry out technological innovation or conduct experiments. These locations thus provide the basis for what could be called a \"laboratory economy\". West Lake University was also established in Hangzhou. It offers only three majors: biological life engineering, artificial intelligence, and the Internet; no other majors are provided, and enrollment starts at the doctoral level. For a doctorate, the laboratory is crucial; without a laboratory, it’s impossible to pursue a doctorate. A doctor spends their whole day working in the laboratory; your job is to cultivate bacteria – otherwise how can one work in bioengineering? Adding Zhejiang University, Alibaba is also setting up laboratories. There is no platform that prevents any private enterprise from carrying out technological innovation. Companies that produce drugs **must provide numerous laboratories to serve this purpose**. Companies can conduct experiments here for free; ultimately, the focus is on providing services, and such technological innovation must be accelerated. The reason behind the United States’ strong innovation in technology is its massive laboratory ecosystem, which provides a platform for the entire society. It is this experimental economics that can be put to use to win various Nobel Prizes. We don’t have such a platform; **we must establish one. Now the plan is pretty clear; results of these efforts will become apparent in about three to five years. Therefore, it is important to boost innovation in technology, as this is a crucial aspect. The fourth thing is that reforms must be deepened. Moreover, reform has been underway for 40 years now; it can no longer be done in the same way as before – reforms must be carried out on the basis of these 40 years of progress. Reforms of the private economy must be accelerated; it is impossible to proceed without ensuring the personal and property safety of those in the private sector. In the past, everyone was a proletarian with nothing; now many people have become proprietors. Of course, with wealth comes concern for the safety of one’s property and personal safety. Therefore, it is necessary to address the issues facing private enterprises – this is an important reform. If we don’t guarantee their personal and property safety, how can the economy function once they all migrate? Of course, don’t emigrate either; there’s no point in it. In the end, you’ll find that it’s still possible to make money in China, and safety must be ensured. China’s biggest problem is ensuring private property and personal safety. I believe that ensuring the personal safety and financial security of those in the private sector will become even more important in the next step. Three things need to be done: first, no institution without judicial authority shall be allowed to seize private property, and strict evaluations must be conducted. Second, even judicial authorities cannot seal up properties arbitrarily; a case must be filed as a prerequisite, which limits the abuse of power by judicial authorities. Third is the separation of judiciary and administration; the judicial system and the administrative branch must be separated, as otherwise it is difficult to protect property rights. Under the current circumstances, we should do these things to truly ensure personal safety and property security. He knows very well how to make money; you don’t need to teach him how to do it. Just carry out those actions, and ensuring property and personal safety is the most important thing. That’s why people are constantly worried about their property and personal safety these days, especially after becoming wealthy; therefore, it should be promoted. In the future, it is crucial to ensure a corporate class and to emphasize the corporate spirit. An important political reform in China should aim to create a genuine business society, one in which the so-called entrepreneurial class and entrepreneurial spirit become the mainstream of this society; such a reform is the most crucial one. I believe that if this reform is implemented successfully, it will be beneficial for future development. Now we say that reform and opening up are setting sail again, which means it’s not the same reform as before; it’s a new start, building on 40 years of technological progress. Recently, people have noticed that what we used to call it was commemorating the 40th anniversary of reform and opening up, while now it is called celebrating it. Commemoration means it’s over, while celebration means it continues. Recently, the central government is planning to hold a conference to celebrate 40 years of reform and opening up; by setting sail on this journey of reform and opening up once again, it aims to introduce some major decisions. On the one hand, we need to summarize the past 40 years, and on the other hand, look ahead to the next 30 years. Commemoration means that the event has passed, while celebration implies that it continues, which in turn drives further reforms. Recently, private enterprises always emphasize six things, with personal safety and financial security being of greatest concern to them. Because they know how to make money; as long as personal safety and property are ensured, they’re capable of doing it. This provision must be implemented in law; it is essential to do so. Specific provisions have now been made in the Criminal Law and the Civil Law, but many people haven’t seen them. The General Provisions of the Civil Law was passed last year, and it contains clear provisions regarding property protection. Next, the entire society needs to create an environment that ensures the personal and property safety of private enterprises. This is the sixth point mentioned by the leader, and it is also the most crucial one that requires further reform and improvement. Reforms in China will continue to advance and will not stop. Moreover, China’s reforms include economic reforms, and some aspects of these are political reforms; recognizing the legitimacy of the private economy is a form of political reform. Leaders keep talking about \"their own people\"; in the past they called you a friend, but a friend isn’t yet one of their own people – you need to become one of them. Because you are an important part of Chinese society, and no longer being considered separately indicates that this reform has actually given rise to political reforms. I estimate that in the next step, China will further amend the Criminal Law, the Constitution, and the Civil Law in order to gradually improve such protection; this will be meaningful for boosting confidence and ensuring people’s motivation to create wealth. In this regard, this time represents a significant policy adjustment; there have been new changes in the way the private economy is described and referred to. The next step is to turn the leaders’ speeches into laws and into established systems. Recently, various departments are taking action – the Supreme People’s Court, the Supreme People’s Procuratorate, and others – to comprehensively reform the entire legal system. Anything that is not in line with the spirit of speaking needs to be revised and adjusted. Reforms will be further deepened, which is of great significance for stabilizing growth. The current focus of reforms in China is on the private economy, which is the issue that receives the most attention. The core issue for the private economy is not how to ensure that they make money, but rather personal and property protection is important; they know how to make money. If these gradually become systems and laws, it will be beneficial for China’s long-term stability. These are the four things involved in ensuring stable growth, and actions have already begun on them. Through a year of effort, we finally gradually realized that this would be a good direction. These are the four things necessary for stable growth, ensuring that the growth rate remains at a normal level. It is no longer possible for China’s growth rate to return to 7% or 8%, as the foundation is now too solid. 20 years ago it was 7 trillion, 10 years ago it was 27 trillion; the growth back then was minimal. Now it’s 82 trillion, and even a small increase represents a significant amount. Don’t aim for 70 or 80 percent; it’s good enough if it meets the requirements roughly. Furthermore, it would be good if China’s growth rate could remain at 5%; that is still a high growth rate and quite significant. To stabilize growth, we need to gradually carry out these four tasks, as it will be beneficial for ensuring future growth. This is the second thing we need to do during this adjustment period: stabilizing growth. III. Thirdly, maintain steady openness. Opening up must continue. As for how to achieve this opening up, there are three key points: 1. First, it is necessary to handle relations with the United States properly; these relations must be managed well. The Sino-US trade war marks a readjustment in Sino-US relations; the relationship as it was in the past can no longer be maintained in the future, and we must be aware of this. Some may choose to continue staying low-key; what if they can’t do that? In the past he acted like a fool; he was 1 meter tall back then, but now he’s grown to 1.8 meters – how can he still act that way? In the past, one was either acting like a fool or truly a fool; now it’s no longer possible to act that way. What to do? One has to adapt to this era. It is clear that Sino-U.S. relations need to be adjusted; it’s no longer possible to rely on the other party as in the past. The Sino-US trade war is not really a trade war; it is actually a historic and symbolic event marking a readjustment in Sino-US relations. It is an event that signifies that these relations will undergo changes. China must do well; it must absolutely avoid strategic mistakes and be sure to understand things clearly. I was surprised to find that Reagan, who ranks third among the best presidents in the United States, is actually considered one of the best. Reagan became one of the best presidents; during his tenure he dealt a blow to Japan and the former Soviet Union. Engaging in an arms race with the Soviet Union necessarily required the development of heavy military forces. To rely on heavy military force, it is necessary to cultivate three types of people: scientists, writers, and political elites; a dual-track system as well as a special treatment system are thus established. These three groups were given special treatment and had access to certain things, while the ordinary people got nothing; as a result, it turned into a political issue, and everything was ruined in just one night. In its current state, Russia has lost the possibility of competing with the United States; it has eliminated both of its rivals, and that was due to strategic mistakes. After the Plaza Accord was signed, Japan turned to stimulating domestic demand and fostering it. Germany continues to improve its supply capacity and pursue technological innovation; Germany will get through this, while Japan is finished – a strategic mistake. Faced with a trade war, China must have a very clear definition; in handling its relations with the United States, China should adhere to three principles: first, to protect China’s core economic interests, which must not be compromised. We don’t talk about politics; we talk about the South China Sea and Taiwan. Our core economic interests must be protected, and these core economic interests lie in China’s current optimal position within the global industrial chain – that is its core advantage. For developed countries and for developing countries, China is able to do this – and this represents its most important core interest. China must protect its optimal position in the global industrial chain and must avoid any mistakes. Secondly, when the United States criticizes China’s trade policies, some of its arguments are valid, and we should use those arguments to reform ourselves. Use their criticism to reform internally and spur us to make changes. The United States is right in some of its approaches in the trade war; things like providing various export subsidies and subsidies to the state-owned economy are appropriate, and we should carry out reforms. By waging a trade war against us, they aim to drive internal reforms in China; we will definitely carry out the reforms that are necessary, so external trade wars should be used as a means to promote such internal reforms. Third, a cold war must be avoided; China must improve relations with the United States. ***By working with us, you can build closer relationships with the American business community and local authorities in the United States. We must not move toward confrontation between China and the United States, nor toward a cold war – that is a principle. China will surely take the initiative to stay close to the United States; the more you attack, the tighter we will hold on to you. In fact, it was a pity from a strategic perspective that China didn’t do so in the past; during the 2008 U.S. economic crisis, we should have provided funds to those companies and become their shareholders. We didn’t lend money to the United States**; it was the United States** that saved the companies, and now problems have arisen. We borrowed over 1 trillion from the United States; don’t lend to the U.S. itself – lend to American companies instead, and we can become shareholders. At that time we were a bit nervous; we shouldn’t have just held each other, we should have held on tightly. This time, 180 American companies participated in the Shanghai Import Expo. Last time they imposed tariffs on China; 200 billion worth of goods were subject to a 25% tariff, but it was only 10% due to the opposition from these companies. It’s a matter of interests at play, nothing else. Under no circumstances should a cold war situation arise with the United States; it is necessary to increase communication with American companies and local authorities there, and avoid moving toward a cold war. China must not listen to some extreme elements and should avoid moving toward confrontation with the United States; this is what needs to be done. There is also a continuous increase in communication between various cities, and this issue needs to be taken into account. To manage Sino-U.S. relations well, these three principles must be adhered to; the trade war should not alter those relations. The key to maintaining open relations is to manage Sino-U.S. relations well; we should not end up in direct confrontation with the United States due to trade wars, and must avoid such confrontation. It is necessary to move toward further integration at all levels, as it is one of the most developed areas; ways must be found to achieve this integration. This is the so-called important issue of further stabilizing openness, namely handling Sino-US relations well. Don’t let the trade war lead to other thoughts; instead, we must find ways to improve Sino-U.S. relations. The leader is scheduled to meet with *** soon, and it seems that there are more positive signals in the various reports that have come out. The United States is facing tough times now; don’t think that things are good there – the situation in the U.S. is even more difficult than ours. If you go to the United States, you’ll see for yourself that the middle class is in a difficult situation there, and blue-collar workers haven’t had their wages increased even by a penny in 20 years. The United States has a population of over 300 million, but only more than 100 million people have passports; many have never been abroad, having only traveled to Canada or Mexico. Last time I talked to an American friend, I said that despite what you see in cities like Beijing and Shanghai in China, if you drive for an hour, you’ll see that things are different. He said it’s about an hour by car from New York to Washington as well. U.S. Treasury bonds amount to 20 trillion dollars, which is equal to the GDP. The total GDP of the United States in the first half of the year was just over 10 trillion, while its debt this year has reached 21 trillion. The United States also needs help; avoiding confrontation is in China’s interest. One approach to maintaining openness is to handle Sino-U.S. relations more effectively following the outbreak of the Sino-U.S. trade war; that’s one way. 2. Second, China must open its market in all aspects. China cannot merely claim to be a manufacturing powerhouse; it should also add that it is a market powerhouse. As long as the market is here, where else can you go? China cannot be a manufacturing powerhouse; being a manufacturing powerhouse is a matter of exports and interests. The market powers have trapped everyone; the markets need to be fully opened up. We are opening up three major markets in a comprehensive manner: the first is the full-scale opening of the market for physical products. Comprehensive opening sends several signals. First, establish a permanent Import Expo in Shanghai ； The second is to reduce tariffs ； Hainan Island as a whole has become a free trade island. There are no more tariffs, which will stimulate consumption in China in the short term. I took a look at the China International Import Expo – there were so many great products that we wanted. In the past, prices were too high because of high tariffs. Once the tariffs are reduced, things become cheaper right away. I estimate that around the 15th it will be the cheapest, as all tariffs will have been reduced, which will boost domestic consumption right away. With so many good products coming in, the Chinese have a strong ability to learn; it won’t take them many years to produce similar products of their own. China is a major country in terms of counterfeiting; in the long run, it is necessary to improve China’s supply capacity. I recently visited the China International Import Expo and found that many products are very beneficial for China. As long as it is purchased, the Chinese have a strong ability to learn*, and they will quickly raise China’s supply level. Second, fully open up the service industry market. Full openness in finance, education, healthcare, and insurance. It seems that China is in short supply of qualified teachers. From your news reports, it appears that these qualified teachers always want to give injections. In the Philippines, we have 100,000 early childhood education teachers who have excellent English skills and do not give injections; therefore, it will be quick to open up the market for Filipino workers. With the opening up of the service sector and the need for people to come in, why is the State Council in such a hurry to establish an immigration bureau? These are all issues related to the immigration bureau. Products are a customs issue, while the service sector falls under the jurisdiction of the immigration bureau; by establishing a new immigration bureau, we will open up the service sector market in all aspects. Third, fully open the investment market. Recently, the State Council revised the negative list regarding foreign investment in China; the original list contained 69 items, but it has now been reduced to 42 items. Moreover, there have been adjustments in Sino-Japanese relations; as we can see, China and Japan have officially proposed shifting from a competitive relationship to a cooperative one, with both sides working together to develop third-party markets. Japan actually has strong production capabilities, and integrating the Southeast Asian market would be of great benefit to China. Recently, Japan has adjusted its relations and is working together to develop third-party markets; the key is to build infrastructure in Southeast Asia and South Asia. China is now holding back Japan in Asia, the United States in the West, and Germany and France in Africa – that’s enough; they should work together. As long as we work together, China will surely be the one to succeed in the end, because the Chinese are very hardworking. Where you work for four hours and then take a break, we don’t need that; we work for 12 hours. Opening up the investment market; reaching an agreement with Japan this time is very significant. I estimate that it won’t take several years before, in partnership with Japan, Southeast Asia and South Asia can be brought under control, which would be of great significance for China. We open our markets in all aspects, opening them up across the three major markets, so that China can become a major market force; only then can it truly move to the center of the world stage. Moreover, we have the capability; with a population of 1.4 billion gradually becoming wealthier, it is right for China to open its market in all aspects – this is the second thing that needs to be done to ensure continued openness. Third, manage the Belt and Road Initiative well. “The Belt and Road Initiative covers three continents and two oceans: Asia, Europe, and Africa. Two oceans, the Pacific Ocean and the Indian Ocean. So pay attention: the United States is anxious and has blocked North America and the Atlantic to avoid direct conflict. Five years ago, China considered this issue: what if the United States prevented Chinese products from entering its market? It was necessary to find new export destinations and new locations for investment, which led to the formulation of the \"Belt and Road\" strategy. Recently, China held a symposium on the Belt and Road Initiative, turning it into a real strategy rather than just a slogan. At the **level, three things need to be done well regarding the Belt and Road Initiative: first, financial services must be improved, which is why we established the AIIB. What is the purpose of the AIIB? To provide financial services for the Belt and Road Initiative ； The second is infrastructure construction – it is necessary to establish a functional infrastructure; otherwise, how can products be exported and how can companies operate overseas? ； Looking again, the Eurasian high-speed rail has been put into operation, and now the seafood we consume comes from the Indian Ocean and the Pacific Ocean. The Indian Ocean is so close to China; China’s Belt and Road Initiative needs to take this into account, as the ‘Road’ includes both the Indian Ocean and the Pacific Ocean. The Pacific is understandable, as it borders China. In the Pacific, we have limitations. The Strait of Malacca is a problem; the United States can completely block it, but that’s not an issue as we can take the route via the Indian Ocean. Third is legal services; we have established a new court, the Belt and Road Court. “The “Belt and Road” courts are designed to serve Chinese companies that operate abroad, helping them handle international lawsuits as these companies expand their operations overseas. **To manage the Belt and Road Initiative effectively, these three aspects must be handled well: financial services, infrastructure, and legal services. It is important to help Chinese companies go global, especially small and medium-sized enterprises; therefore, it makes sense for us to encourage such enterprises to participate in the Belt and Road Initiative. This year I went to Africa for a research trip, to Morocco. Morocco has no industries at all; its only sector is tourism, with no manufacturing industry present. The products for sale are made in China, so once I was there, a friend warned me not to buy anything there, saying it’s all from China and such. In particular, don’t buy cultural relics; they are all from China. A celebrity insisted on buying it; he was very happy to spend 250,000 yuan on it, hung it up at home to show off it, and posted pictures online. Then a company from Guangdong called and said that they were the ones who produced it. Bring Chinese lathes over there – money can be made as soon as production starts. No special skills are required; just by producing goods, money can be earned. Morocco is the main route for Europeans to enter Africa. China has fallen behind; so many companies have left. Morocco has low taxes – there is only one type of tax, an income tax of 13%, with no value-added tax. Moreover, the labor force is relatively cheap, and they are not limited in their loyalty to you; as long as you provide them with employment opportunities, they will be extremely loyal to you. Chinese workers also wonder where their bosses’ money comes from; they never think about it and just keep working. Africa is experiencing a population explosion; there are many people with no industrial manufacturing. In fact, everyone should note that the term \"deindustrialization\" must never be used; in two African countries – Egypt and South Africa – deindustrialization has taken place, so it should not be mentioned casually. The reason why China was able to develop in the past is that its industrial sector is very comprehensive, allowing it to progress easily. Africa in the future: after 2050, Africa will be the driving force for global growth, as Asia will have reached its saturation point by that time. By 2050, China will have become modernized; once China is saturated, the entire Asia will be saturated as well. The future area for growth lies in Africa, so it’s right to make plans in advance. It only makes sense for small and medium-sized enterprises to get involved now. Last time, I met someone born in 1974 who works for a young company that has been involved in building thermal power plants in China; now the market is saturated and they no longer have any work to do. I’m very happy to finally see a tender issued in Turkey for the construction of a thermal power plant. Two deputy directors flew there directly; upon arriving at the airport, they needed to find a car to take them to the bidding location. They tried to hail taxis, but the drivers shook their heads – why? This place is over 400 kilometers away from the airport, and no one wants to go there. Finally, they found a car and the three of them went there. As soon as they got out of the car, they saw a child around seven or eight years old rushing over with a large bag; they became nervous, wondering if it was a human bomb. Why did you run over? I’ve never seen anyone with such a small nose before; it was the first time I saw someone like that, and I really wanted to take a photo. After winning the bid, it was built very well; now that area has complete logistics and spare parts support. China’s level of internationalization is actually quite high; the Belt and Road Initiative holds great prospects for many enterprises, especially small and medium-sized ones. Going out is not about large enterprises; it makes sense for a large number of small and medium-sized enterprises. China must manage the Belt and Road Initiative well, as it is of great significance for many of China’s excess production capacities and small and medium-sized enterprises to go global. We are gradually coming to realize this issue; recently I read an article proving that there was no Silk Road in ancient China. Everyone knows that the Belt and Road Initiative needs an excuse; it’s hard to talk about it without one. Since we had the Silk Road in ancient times, we created a new Silk Road called the “Belt and Road Initiative”; yet he insisted on proving that there was no such thing as a Silk Road! We must manage it well; this is the focus for China’s next steps. It covers a vast area, spanning three continents and five oceans: Asia, Europe, and Africa ； The Indian Ocean, the Pacific Ocean – what a vast area. This time, many have **acknowledged China’s strategy; Japan has for the first time recognized the Belt and Road Initiative, and is joining forces with China to develop third-party markets under this initiative. Russia also acknowledges that, through the integration of its strategies with those of Eurasia and the gradual emergence of a consensus, a path is being laid for Chinese small and medium-sized enterprises to go global; this represents an important form of openness, and thus constitutes a new type of openness. We are not simply entering a new phase of openness; therefore, it is essential to manage the Belt and Road Initiative well. In summary, overall, these three aspects related to maintaining openness must be handled well; first is the Sino-US relationship, and the trade war must be resolved properly ； Second, it is to open up the market in all aspects, so that the Chinese can become a major manufacturing power as well as a major force in the world market ； Third, it is to manage the Belt and Road Initiative effectively, providing support for Chinese products and enterprises to go global, thereby advancing our further opening up. If these three things are done well, China’s openness will enter a new phase. Opening up, in turn, promotes domestic growth and drives changes in a country’s strength; the more open a country is, the more its concepts evolve, which in turn facilitates an increase in national strength. Therefore, to maintain an open policy, it is necessary to do these three things well. China’s economy is entering a period of adjustment, and we need to do three things: stabilize the financial sector, sustain economic growth, and maintain openness. If we manage to accomplish these three tasks, China will be able to get through this three-year adjustment period and move toward the stage of high-quality growth that we desire. It is not yet the stage of high-quality growth; it is a period of adjustment, during which we need to transition from the previous phase to one of high-quality growth. As for my assessment of the Chinese economy, I am generally cautiously optimistic. The optimism is rooted in caution; one can only be optimistic if proper efforts are made, otherwise it is mere blind optimism. It is essential to do these things in order to move toward an optimistic goal.