Chen Wenling: Characteristics of the Current International Economy and Views on Sino-US Trade Frictions

A speech delivered by Chen Wenling at the Third Understanding China Conference

Thank you! The 5-minute speech is very short. I am still quite worried about the current international economy. The haze in Beijing has disappeared, but the haze in the world economy is still dense.

The current world economy currently can be described as four “lows” and two “highs”.

The first is low growth. The International Monetary Fund has lowered its world economic growth forecast four times this year, from 3.7% to 3.5%, 3.3%, 3.2%, and 3%. Whether or not we can stop the downward trend depends on if the Sino-US trade war can be stopped. The global trade growth has fallen from 3.7% to 2.6%, investment has fallen by 23% in 2017, 19% in 2018, and it will continue to decline this year.

The second is low interest rates. Many countries in the world have now adopted ultra-low interest rates, or even negative interest rates. 17 countries have already experienced negative interest rates. In other words, customers need to pay banks money when making deposits. Globally, the national debt with negative interest has reached 17 trillion US dollars, 4 trillion of which was added in the last three months. This is terrible because that means the yield of ten, twenty or thirty years bonds is even not as good as the yield of two to three months. You can not get any money from buying long-term government bonds, you may lose money in the end.

The third is low inflation. Many countries are experiencing low inflation, including the United States and Japan. Although there are some problems with pork prices in China, the inflation rate in China is still around 2%. Low inflation has also become a prominent problem in the world economy.

The last one is the low return. The global total factor productivity is decreasing, and the input-output return of the economy is also decreasing.

The current world economy is also featured with two “highs”.

The first one is high debt. The world’s total debt is at its highest level ever. Different international organizations have different data, but the prevailing view is that the total debt has reached $247 trillion. The latest data shows that US Treasury bonds have reached 22.72 trillion and are still growing, and the annual debt will increase by about 1 trillion US dollars.

The second “high” is high leverage and bubble. The loosening monetary policy has already begun worldwide. The United States has reduced its interest rates twice this year and 35 countries have followed suit. A new round of liquidity floods and high leverage have begun. For example, the Libra coin launched by Facebook has been boycotted by many countries. Germany, France, and Italy have banned Libra coins from entering the market, but the promotion of the Libra coin is still very fast. At the highest level, a bitcoin worth $20,000, then it dropped to $4,000, and now it has risen to more than $6,000. This kind of bubble is more harmful than the damage caused by financial derivatives in 2008. Therefore, I think the world economy is full of haze and there are many problems.

Are there any highlights in the world economy? I think the answer is yes. First of all, the fourth round of economic globalization, the industrial revolution, and the scientific and technological revolution are now intermingled with each other for the first time. The new round of scientific and technological revolution has given birth to a huge space and potential for the conversion between old and new kinetic energy. If we can have revolutionary breakthroughs in new technologies, formats and business models, it will bring new and powerful growth momentum to mankind and the world economy.

The second highlight is the emergence of new public goods. In particular, the “Belt and Road” proposal launched by China received positive responses from 136 countries and 30 international organizations. The 195 cooperation agreements have formed the largest international economic cooperation. Mutual consultation, joint building and sharing will bring new hopes to the world. From China’s development path and the suggestions made by China, other developing and developed countries have not only seen the hope of sound world development, but also the hope of their own country.

Thank you!