Yao Yang on China's Economy

Yao Yang, “China’s Economic Future is Bright”[1]

Translation and Introduction by David Ownby

Introduction
 
Yao Yang (b. 1964) is a well known economist at Peking University, Director of the China Center for Economic Research and the Dean of the National School of Development.  He is a prolific writer on a variety of subjects and translations of a number of his writings are available on this site.
 
The text translated here is based on a talk Yao gave on September 13, 2022 to MBA students at Peking University, in which he addressed the topic of the “resiliency of the Chinese economy.”  I find the text useful because it is concise, not overly technical, and quite frank about the challenges facing China’s economy, although Yao remains optimistic, particularly in the long term.  The text appeared first on the platform Yao’s institute on September 26, 2022, and was subsequently reprinted by Guancha on September 30 and by Caijing on October 16, although Caijing made changes to the text I will discuss at the end of my introduction.
 
Yao openly admits that 2022 has been a difficult year for China’s economy, with consumption having been dragged down, particularly by the real estate crisis, as well as by the ongoing effects of the coronavirus pandemic, which means that most firms in China are producing at only roughly 80% of capacity.  Yao seems to suggest that state efforts to cool down an overheated real estate market last year by tightening up lending practices went too far, meaning that both banks and consumers have lost confidence.  Central and local governments need to work together to make sure that housing gets to the market and that the market performs.  His tone, however, is not apocalyptic (as Western commentaries on China’s real estate crisis often are), and he pointedly notes that “if the Chinese economy was going to collapse, it would have done so in the 1990s” when China privatized or closed some 80% of state owned enterprises, producing large-scale disruption and unemployment. 
 
I might note in passing that the comments section in Guancha was not enthusiastic about Yao’s suggestion that the real estate market should “return to normal,” and many denounced high housing prices and Yao’s seeming support for real estate developers.
 
Yao further argues that China’s consumption will not get back on track until “more accurate” measures for dealing with the pandemic are in place so that “people will have the time and freedom to consume.”  It should be noted that these remarks do not appear in Caijing’s version of Yao’s talk, but do appear in the original and in the version published on Guancha.  Yao’s language is diplomatic, but his meaning is clear:  we cannot keep locking down cities and disrupting travel and expect the economy to flourish.
 
On long-term issues, Yao is bullish on China, arguing that China’s economy is growing, upgrading its technical capacities, and not decoupling from the world, despite much media commentary to the contrary.  He notes pointedly that U.S. containment measures have succeeded in harming Huawei, but not Xiaomi—one of Huawei’s chief competitors—or the high-tech industry as a whole, because Huawei was targeted while Xiaomi was not.  Of course, Yao gave his talk before the announcement of the Biden administration’s new policy on the export of advanced American technology to any Chinese company, the goal of which is more or less to treat all of China the way the Trump administration treated Huawei.  As if anticipating this policy, Yao remarks that “Half of the world's chips are sold to China, so if U.S. manufacturers do not sell their product there, where will it sell them?  So even if there is a ban, companies will find a way to get around it.”
 
This is indeed the crux of the issue.  Even if the Biden administration manages to impose the ban on American semiconductor manufacturers—and I cannot believe that there will not be push back, if perhaps not open push back—can they impose it effectively on Japan, South Korea, and Taiwan, where much of the industry is located?  For those interested in such issues, I highly recommend Chris Miller’s Chip War:  The Fight for the World’s Most Critical Technology, which just came out and is excellent.  I had no idea how high the stakes are and how much money is involved.  One misstep can bankrupt a company.  Two or three missteps can affect the fate of a nation or perhaps the world.
 
A final note.  I mentioned above that this summary of Yao’s talk was published in at least three places online.  The versions found on the Peking University platform and on Guancha appear to be identical, while that published on Caijing is somewhat different.  Unfortunately, I happened upon the Caijing version first, and completed my translation before discovering the other versions, and thus the differences.  These differences are quite strange, and include what appear to be editorial additions which, while not fundamentally changing Yao’s message, nonetheless put words in his mouth which he did not say.  It’s as if Caijing said “there are already two versions of this online—let’s spruce ours up a bit and see if the readers like it better.”  Had I known this at the outset, I would of course have translated one of the other versions.  “Reader beware” is I guess my conclusion.  I have no idea if this is a common practice in Chinese journalism, but I hope not.    
 
Translation
 
Over the course of the past year, China's economy has encountered strong downward pressures, and people in general tend to treat short-term downward pressure as a long-term trend, so society is somewhat pessimistic. I want to talk to you today about the resilience of China's economy, as well as the source for the future momentum of China's economic growth, and then finally discuss the issue that is on everyone’s mind, which is whether or not China and the world are decoupling.  
 
Personally, I don't think China is decoupling from the world. At the same time, if we keep talking about decoupling, decoupling will become a self-fulfilling prophecy. 
 
I also want to tell you that the Chinese economy is in fact starting to lead the world in some areas. So we don't need to be pessimistic. And of course we certainly don't need to feel that China is "the best in the world 天下第一," this is not something we need. 
 
After discussing the long-term situation, I will also address some short-term economic issues. The long-term looks bright, but if we can't get through the short-term difficulties, the long-term won't exist. So we will also talk about the reasons for the deceleration of economic growth in the first half of 2022, and then look ahead to the future. 
 
At the end, I will talk about the consumption issue. I personally think that consumption is the key bottleneck in the economy right now, and the question is how to eliminate this bottleneck? I think the government can do two things.  The first is to give the people some cash to stimulate consumption.  The second may be even more important, and involves finding a long-term mechanism to deal with the pandemic that will give the people more time and more freedom to consume. 
 
Long-Term Trends:  The Next 30 Years will Represent China’s Best Opportunity, China’s Moment to Shine 
 
Let's start with the first big question, the resilience of China's economic growth. Looking back at China's economic development journey over the past 40 years, we can see that the Chinese economy has progressed in ten-year cycles. 
 
The 1980s were an era of high growth, but the high growth was at a relatively low level, driven mainly by rural reforms. At the time, we were also attempting urban reform, but it was slow going. 
 
In the 1990s, we entered a period of adjustment, the goal of which was mainly to solve the structural problems of the urban economies, especially the problems of state-owned enterprises (SOEs).  We carried out price reform, meaning that the market set the prices, unified purchase and sale was done away way, as well as the government's control of prices.  Then we carried out the reform of SOEs, even if many of us have now forgotten the scale of such reforms. At that time, we privatized more than 80% of the SOEs or let them go bankrupt, and at the peak of the reform, we had 50 million people either laid off or unemployed, and life was indeed very difficult for city dwellers at that time. 
 
Then we joined the WTO, which was a key step in reform and opening. Then we had banking reform, because at the time under-performing bank loans accounted for 30% of bank assets and 25% of GDP, and several of our major banks were technically insolvent. What did we do? Injected capital. When we talk about difficult periods the Chinese economy has experienced, there is something we might call “the theory that the Chinese economy is on the verge of collapse,” and the closest that theory came to coming true was in the 1990s.  But the collapse did not occur, and if we didn't collapse in the 1990s, I can’t see us collapsing at any other time. 
 
In the first decade of the 21st century, China experienced super-fast growth.  How fast was it?  Between 2001, when we entered the WTO, and 2008, our exports increased five times.  A 500% growth in exports in seven years is unheard of.  In fact, the face of China changed dramatically in these 10 years. Think about it, the face of Beijing actually changed in this decade.  The fourth ring road only opened in 2001.[2]
 
But precisely because of this extraordinary growth, we also had some imbalances in the structure of our economy. 
 
So beginning in 2010, and especially in 2012, we began to make structural adjustments. What was the goal of these adjustments?  To make innovation the driving force behind economic growth. The growth model of the first decade of this century, based on continued expansion, has stopped, and our next step is to push economic growth forward through innovation. The general trend of the economy has been a move away from the virtual economy and toward the real economy, and over-financialization has been effectively curbed. For a period of time, we vigorously developed shadow banking,[3] which played a very important role in breaking interest rate controls and enriching the entire financial market. 
 
But we also saw the emergence of certain problems in the financial sector, especially P2P lending,[4] which became a big problem, and there were also problems of excessive financialization. 
 
For example, at that time, some people thought that moving capital around was an enterprise in itself, and capital was everywhere. Others insisted that “at the cliff’s edge, even pigs can fly,”[5] and that “wool comes off the pig’s back.”[6]  Looking back, such ideas were wrong, and the companies that believed in such ideas died out. Money can't make money, and will only produce value when used in the real economy.
  
1. Innovation as Driver of Economic Growth 
 
Such trends have now been reversed. Many people who used to be in finance and trade in the past 10 years they have turned their hand to investing in industry and are doing very well. Our invisible champions continue to emerge. One example is Zhao Yan's 赵燕 (b. 1986) Bloomage Biotech 华熙生物.  Zhao Yan used to be in real estate, but started to invest in industry over the past 20 years, mainly producing hyaluronic acid.[7]  Bloomage is the parent company, and when it went public, Zhao became the richest woman in Beijing.  
 
How advanced is Bloomage’s hyaluronic acid technology? It is considered second in the world, and is twice as efficient as Japanese companies. In fact, Zhao Yan's hyaluronic acid company is at the top of world technical standards in the field. Of course there are many such examples, for example, the Ministry of Industry and Information Technology has recently announced another 546 “small giant enterprises.”[8]
 
In addition, there are some fields where we are actually leading the world, such as AI, green energy, electric vehicles, etc. In AI, China is neck and neck with the US and Japan, because China uses AI in many settings, so ours is developing very fast. Some people may say that we don't master the core technologies, that is, the core AI algorithms, but once you have a wide range of applications, these algorithms will  multiply, becoming self-generating. 
 
This is not to mention the green energy sector, where we are completely dominant, producing almost 80% of the world's total solar electromagnetic panel equipment, meaning that our wind power holds an overwhelming advantage, and in the past few years, half of the world's new wind power capacity has been produced in China, which is a very impressive achievement. 
 
Manufacturing capacity remains strong in China. The table below [not reproduced] compares the top 10 countries or regions in 2010 and 2020, in terms of the percentage of world manufacturing. Mainland China accounted for 18.2% in 2010, and rose by 11 points to 29% in 2020.
 
The United States is actually grew a bit as well, and the decline is mainly in Europe, Japan, etc.  India is in there too.  Many people have worried that India would take China’s place in terms of manufacturing, but according to this table, that is not the case at all.  India is a developing country, and performs pretty well for a large country, but its share of the world's manufacturing is actually declining, not rising. 
 
By contrast, in East Asian regions like South Korea or our Taiwan, the percentages are rising. In fact, the table shows that the entire world's manufacturing industry is still moving toward a concentration in East Asia. The U.S. is not in decline, but is simply running slower when compared to China. The graphic on the right [not reproduced] tells the iPhone story, the percentage of intermediate components produced by different countries in 2020 to put together the iPhone.  We can compare this with 10 years ago, in 2010, when, for iPhones assembled in China, China contributed only 3.6% of the value added, while this number has increased to 25.4% in 2020, comparable to South Korea. This shows that iPhone production is moving toward a concentration in China and East Asia.  The big picture is quite clear. China is a manufacturing giant, a position that is hard to challenge. 
 
Now the iPhone 14 is also starting to be produced in India, but I can assure you that the Indian added value is minimal. China has to export intermediate inputs to India in order for India to assemble the iPhone. This is the potential of China's economic growth. We are seeing China's connection to the world strengthening, not decoupling. 
 
2. Connections with the World are actually Growing Stronger 
 
After Trump started his trade war with China, we saw a drop in both Chinese imports and exports, but after the beginning of the pandemic China saw a huge rebound. 
 
On the one hand,  this was because China and the Western countries paid for the recovery from the pandemic in different ways.  In the West, governments basically handed out money, which the people spent;  China mainly supported production, so supply went up, which also benefitted China’s manufacturing industry.
  
Trade between the U.S. and China has actually recovered and the U.S. dependence on China has ironically increased rather than decreasing. You can see the U.S. trade deficit with China has been increasing year by year since 2020, and in the first seven months of this year it stands at $240 billion. If this keeps up it will surpass $400 billion this year without difficulty. 
 
The U.S. wants to decouple from Chinese in terms of technology, and has some taken some genuine initiatives, such as the Entity List, which has had a real impact on our companies, but this impact should not be exaggerated.  This is because while the companies on the list are affected, their competitors are not. For example, Huawei was affected, but Xiaomi was not. In terms of semiconductors, the United States has passed a new bill to lure chip manufacturing companies to the United States with subsidies to prevent them from setting up factories in China. But this will cost real money. How much influence will this price factor have? It's hard to say, because it's hard to say how much money the U.S. will ultimately shell out.  As for “Chip 4”—the U.S. government’s proposal to put together a “four-way chip alliance” including the U.S. South Korea, Japan and Taiwan—the goal of which is to bring together South Korea, Japan, and our Taiwan to implement a supply chain blockade of mainland China, South Korea has said that they do not want to belong to an organization that excludes others. A complete decoupling of the U.S. and China is unlikely. 
 
This kind of U.S. approach can slow down China's technological progress, but it cannot stop it. The end result will be to slow technological progress throughout the world. At present, the global innovation ecology is in relatively good shape, but if America chooses this approach, this ecology will be destroyed and the welfare of the world will decline. 
 
The U.S. itself needs China’s huge market. Half of the world's chips are sold to China, so if U.S. manufacturers do not sell their product to China, where will it sell them?  So even if there is a ban, companies will find a way to get around it. 
 
It is impossible to completely decouple the academic science and technology fields in areas of innovation, because so many innovations are based on fundamental science.  In addition, for some technologies, you have to publish your results, which means that Chinese and Americans can both see them. 
 
Multinational companies are very dependent on China, mainly because China is a huge market, and China's production capacity has also increased, so they cannot leave. Especially a country like Germany, which has a lot of investment in China, is highly dependent on China. 
 
The latest story is BASF's [German chemical company] investment in Zhanjiang, which should be at the level of 10 billion euros, producing chemical raw materials for export back to Europe, while these chemical raw materials are also in great demand in China. The U.S. and some European politicians want to force a decoupling from China, which is the same as shooting yourself in the foot.
 
3. Last year, China's green vehicle sales accounted for nearly 60% of the world’s total 
 
Let's look at the example of green vehicles.  China last year sold 3.545 million electric vehicles, accounting for nearly 60% of the world’s total, six times more than the United States. Retail sales in the first half of this year came to 2.26 million units, and at this rate we are moving toward 4.5 million vehicles for the year, which means an increase of 1 million units over last year. The growth rate is still very fast. 
 
BYD[9] [a Chinese automobile company] is leading the pack, its sales are number one, and its growth rate is one of the highest. Globally, BYD's sales volume has already surpassed Tesla's, and it has become the most traded car in the green vehicle world, and its market value is only exceeded by that of Tesla and Toyota.  It has truly created a miracle in the history of Chinese automobiles. 
 
China only started work on electric vehicles in 2011, and it is a remarkable achievement to be first in the world after only ten years.  
 
There are two reasons why we could pull this off.  One is that China's Internet technology and AI technology are world leaders. Electric cars are new technology, which means that China can achieve a breakthrough by “passing on the curve 弯道超车,”[10] unlike the situation with gasoline-fueled cars which can rely on the advantages accumulated over the years.   
 
The second reason is our battery technology.  Six of the world's top ten power battery manufacturers are in China, and their production accounts for 56.5% of the world’s total.  The other four factories are basically in East Asia, meaning South Korea and Japan. Because of these two advantages, I think China's electric cars will take the same the path that Japan's economy cars did in the 1980.  To my mind, this is not an illusion, and we should see big exports in the future. 
 
Looking at the figures over past few years, China exported 220,000 units in 2020, 310,000 units last year and 200,000 units this year.  Tesla was the main export, accounting for nearly half of the total. But our own domestic manufacturers are also developing. In Europe, our green vehicles have achieved 10% of market share, while our traditional vehicles hardly sell at all there. Europe will phase out all fuel vehicles by 2035, so the next decade or so will be a huge opportunity for Chinese automobiles.
 
This is the long-term situation, and we should be confident. The future of the Chinese economy is still bright, international long-term capital is still pouring into China, and FDI is still growing, which also shows that the world's capital is still bullish on China. 
 
If people from other countries are optimistic about China, there is no reason why people from our own country should not be equally optimistic. I have said on many occasions that the next 30 years will be the best opportunity China has seen over the past thousand years, and that we should achieve our second 100-year goal of building a modern socialist power by 2049.[11] 
 
The chances are very good that we can achieve this goal, and that China will become a world leader in technology. At that point we will perhaps only trail the United States in technological terms, having surpassed South Korea, Japan, and Germany, all of which are ahead of us at the moment.  
 
Short-term perspectives:  Economic growth decelerated in the first half of the year, with consumption having been hit the hardest 
 
1.  Looking back at the first half of 2022
 
So that’s the long-term perspective.  Let’s look at the short term as well. 
 
Looking back, we see that economic growth decelerated throughout the first half of the year, with consumption having been hit the hardest. Consumption grew very quickly once the economy began to recover, but then declined, especially in the restaurant industry, and investment has also been relatively weak. The first quarter was okay, but the growth rate fell beginning with the second quarter, with negative growth in real estate.  Fixed asset investment has recovered, but is still not very stable. 
 
Neither the PPI (Producer Price Index) nor the CPI (Consumer Price Index) seems to be a big problem, although some people keep saying that China is experiencing stagflation. In fact, there is inflation in the American and European economies, but not in China. You can see that the PPI reached its highest point in China last year, and there was no inflation then.  This year, the PPI has fallen and the probability of our having inflation is even lower. 
 
Of course there is always the pork cycle—the price of pork is going up again—but I think this is normal.[12] But there is no reason for prices to go up in other sectors. There are two main reasons for this.  The first is the lack of domestic consumption, because if consumption is insufficient, prices do not go up; the second is that businesses are not at full capacity. With businesses at less than full capacity, everyone is competing to increase their production, and who raises prices while they are doing that?  So prices can’t go up.  So we should not worry about concerns over inflation. If China's CPI really showed an increase of 5%, it would mean that our economy has recovered, demand has gone up, and enterprises were operating at more or less full capacity. 
 
At present, the biggest problem is real estate, where the decline was only too obvious, because the whole industry fell by more than 30% compared with last year. Sales dropped by half in the first half of 2022, and land acquisitions dropped by 60%. On the one hand, sales are not good, and on the other hand, expectations for the future are not good, so land acquisition dropped, which is a very big challenge.[13]
  
In my view, in order to understand real estate objectively, we must first understand the real estate industry rationally, and not demonize it. 
 
First of all, let's look at whether China really has enough housing.   Many people say that we have enough, arguing that since reform and opening, the amount of housing has increased 19 times.  This is indeed a great achievement, but in terms of international comparisons, we don’t have as much housing as we think we do. Our per capita square footage is not as much as in the United States. We visit Japan and talk about the “pigeonholes” they live in, but our per capita square footage is less than in Japan. And we are not talking about quality.  In quality terms, our housing is much worse than that of developed countries. 
 
Taking these two considerations together, we cannot say that our real estate industry has reached its end point.  And there are huge regional inequalities.  Per capita square footage in first- and second-tier cities is less than in third- and fourth-tier cities, and per capital square footage in urban areas is less than in rural areas. 
 
We are continuing our urbanization effort, and between now and 2035, we still have about 150 million people who will need to move to the city. So when you look at things, it may seem like there are some places with a high vacancy rate, but there are still many places without enough housing. 
 
How much does real estate contribute to economic growth? 
 
Ren Zeping's[14] 任泽平 (b. 1979) team calculates the contribution to be 17.2%, and the indirect contribution is greater than the direct contribution. 
 
Real estate affects many other industries. Real estate not only touches things like steel, concrete, and real estate agencies, but also influences downstream industries like home decoration, furniture, home appliances, home services, etc. So in my opinion, the deceleration of consumption growth in the first half of 2022 is very much related to the decline in real estate. Real estate sales are down 30%, and if real estate’s contribution to GDP can be as much as 17%, then its real contribution to economic growth during this period was negative 5.4%. 
 
Why finally did real estate decline?  The main reasons are the three red lines [imposed by the government on real estate companies to cool down the market prior to its recent fall]. The first red line is that the company’s debt ratio, after excluding advance proceeds from projects sold on contract, cannot exceed 70%.  This has to do with the system of pre-selling houses on contract.  Debts assumed to facilitate pre-payments cannot be considered part of assets.  The idea here was to limit borrowing for the purposes of pre-payment, which meant that companies had less capital.  The second is that net debt should not exceed 100 percent of equity. And the third is that money reserves must be at least 100 percent of short term debt.[15] 
 
By the end of June of this year, only 24 of the 55 listed real estate companies met the criteria, while the others did not. In other words, their credit remained subject to constraints. 
 
At the same time, we can also see that our monetary policy has entered the phase of "pushing on a string,"[16] in which you spend a lot of money, but the money does not reach the real economy, and instead circulates within the financial sector. One very important reason for this is that real estate has become a financial decelerator. No one is making loans, and not many people are asking for mortgages. So we're seeing a massive drop in the number of mortgages, down 25% from a year ago.  How do we fix things? The central government’s approach at present is to have local governments take up the slack and to ensure that the promised houses are delivered.  What if the local government doesn’t have the money to do this?  It has to go on the market and raise funds, meaning that urban investment bond companies have to issue urban investment bonds.
 
2.  Predictions concerning the growth rate for the second half of 2022 
 
How to assess economic growth in the second half of 2022? Because the growth for the first half of the year was 2.5%, meaning that its contribution to the annual economic growth was a bit more than 1%, so if we want to reach 5.5% for the year, we need to reach a growth rate of 8% for the second half of the year.
 
3.  Consumption is the key to getting the economy moving 
 
The final question has to do with consumption. Restarting consumption is the key, or to put it in a way that is a bit more complex, production and consumption exist in a closed loop.  Production income is used either for consumption or for investment, and investment and consumption determine production and production needs, so if we ignore exports, we are looking at a closed loop in any given country over a short period of time.
  
The situation in China now is that we have overcapacity on the production side, and this overcapacity is very serious. I estimate that enterprises are functioning at roughly 80% of capacity, which means that our bottleneck is mainly in terms of demand. 
 
Some people might say that according to the picture I have painted, consumption depends on income, and income depends on production. If you produce less, income falls, and there is no consumption.  Without consumption, there is no production, so is this not a dead end? But reality is not quite the same.
 
Keynes tells us that endogenous consumption depends on income, but that autonomous consumption has nothing to do with a person's income.[17] 
 
First of all, I continue to strongly suggest that the government issue special consumption bonds worth 1.4 trillion RMB, with an average of 1,000 RMB (approx. 138 US$) per person.  The idea, however, is not to give everyone 1000 RMB, but to target low-income families who were most affected by the pandemic, as well as the unemployed. 
 
Because consumption has a direct effect, it stimulates economic growth. 
 
The effect of this 1.4 trillion RMB would be to boost GDP growth by 1.4%, and its indirect effects would be even greater.  Once the people start using their vouchers, they will supplement them with some of their own money, meaning that the effects will be even greater.  This means that the consumption vouchers will boost everyone’s confidence. 
 
[N.B.  The following two paragraphs do not appear in the Caijing edited version of Yao’s talk.  I took them from the version of the talk published on the platform of Yang’s institute].  The second measure is to establish long-term preventive measures for dealing with the pandemic.  Covid-19 will not disappear, but will gradually evolve into something that coexists with mankind, which is a scientific law. Our preventive measures need to be more scientific and more accurate, and should be applied in practice.  For example, we should implement a dynamic zero-Covid policy that guarantees that everyone active in the society and the economy can go about their business as long as they are not infected; no more silent cities, no more city lockdowns.   We need narrow the scope of prevention and control testing and not apply it to entire districts or counties.  We need to unify national health monitoring data and national epidemic prevention measures.  We should open up domestic travel and transportation and stop discriminating against travelers in terms of whether they are from an infected area or not, and instead use the nationally accepted health code and nucleic acid testing as standards.   We should open up international travel.

We have many public health experts who are focusing on this issue, and I believe that we will be able to develop more accurate preventive measures and find a better balance between preserving growth and controlling the disease.  Only once this matter is resolved will our healthy consumption get back on track.

In the near future, whether our economy can score a victory depends on:  first, whether the decline in the real estate sector can be stopped, or even reversed; and second, whether we can revive consumption.
 
Notes

[1]姚洋, “中国经济未来光明,” published on the online platform of Caijing/财经 on October 16, 2022. 
 
[2]Translator’s note:  The ring roads mark the expansion of Beijing away from the center and toward ever more distant suburbs.  By now there are six or seven ring roads, depending on who is doing the counting.  See here for details.

[3]Translator’s note:  Shadow banking refers to “underground” or informal financial activity that takes place outside of state-approved institutions.  Western media discussions of China’s shadow banking are generally negative, while Yao seems to see the issue differently in this context.   See here for more information. 

[4]Translator’s note:  P2P = person to person, and generally refers to lending that occurs on platforms ostensibly set up for other purposes, such as sales.  Such loans are often not subject to stringent regulations, and consumers can wind up with excessive debt with a click or two of the mouse.

[5]Translator’s note:  在风口上猪都能飞上天.  This quote is attributed to Xiaomi founder Lei Jun 雷军 (b. 1969), who says he drew inspiration from Sunzi’s The Art of War.  The idea is that the entrepreneur must be constantly alert for opportunities and ready to “jump off a cliff” at the right moment.  See here for a discussion of the “flying pig theory” (in Chinese).

[6]Translator’s note:  羊毛出在猪身上, short for 羊毛出在狗身上，由猪买单, which means “the wool grows on the pig’s back, and the dog pays the bill,” the idea being that if you set up a successful platform (or other enterprise), your chief source of revenues will come from advertisers, and not from the customers who buy your products.

[7]Translator’s note:  Hyaluronic acid is a natural substance found in the fluids in the eyes and joints, and can also be manufactured chemically. It acts as a cushion and lubricant in the joints and other tissues. Different forms of hyaluronic acid can also used for cosmetic purposes.

[8]Translator’s note:  The “Small Giant Plan” refers to the identification of a number of small and medium-sized enterprises in in line with national industrial policies, who display high growth and can drive regional economic development.

[9]Translator’s note:  It is worth taking a look at the US BYD website, where the word “China” does not appear and where consumers are urged to “buy American!”

[10]Translator’s note:  To “pass on the curve” is a phrase often used in such contexts, meaning to see an opportunity and to take a risk, allowing one to surge ahead.

[11]Translator’s note:  The first 100-year goal was that of building a “moderately prosperous society,” which the CCP claimed to have achieved at the time of the centenary celebration of its founding in 2021.

[12]Translator’s note:  Pork makes up 75% of meat consumption in China and 12.5% of all food consumption.  Most pigs are produced on small farms, which have imperfect market information, which means that pork prices follow cycles of three to four years in which perceived increases in consumer demand lead producers to produce more meat, which eventually floods the market and depresses prices, and producers respond accordingly.  For more information, see here.

[13]Translator’s note:  Yao is referring here to the basic model of real estate development—and local finance—in China:  local governments “sell” land to developers, who then build units to sell to consumers.  See Zhao Yanjing’s text, elsewhere on this site, for more information.

[14]Translator’s note:  Ren Zeping is vice-head of the Center for the Study of China’s Private Economy, attached to the Chinese Academy of Social Sciences.

[15]Translator’s note:  These measures were introduced in August 2020 to try to cool down an overheated and over-leveraged housing market.  See here for more information.

[16]Translator’s note:  “Pushing on a string” refers to exerting efforts where it is unlikely to be useful. In economics, pushing on a string was first used to describe central banks’ trying to enact loose monetary policy when there was already slack in the economy, resulting in minimal improvements.

[17]Translator’s note:  “Endogenous consumption” refers to consumption that is dependent on other factors in the economy, such as prices, etc.,  while “autonomous consumption” (apparently part of Chinese economic theory) refers to consumption that is independent of income, determined by habits and preferences.  Since he is citing Keynes, I assume that Yao means that whatever market factors tell us, there is room for state intervention to spur consumption.