Dr. Srgjan Kerim gives address to Global Forum of China's Road to Human destiny Community
Dr. Kerim stressed that opening of China’s economy to the world was playing a key role.He recalled the slogan of Deng Xiaping " Socialism with Chinese characterisics”.
“ China joined the first 10 ranking nations in world trade 1995. with 123 billion dollars, while total amount of world trade was 6,1 trillion dollars. Its share was only 2 percent of world trade. In 2004. China reached rank 4 with 516 billion dollars. which was 5 percent of total world trade amount of 10,3 trillion dollars. USA was the leader in world trade from 1961.to 2018. with a share in total trade between 10 and 20 percent. In the year 2018. China became number one with 2,6 trillion dollars, USA number two with 2,5 billion dollars. Rank 3,4 and 5 are Germany, Japan and France. Today China’s share in total world trade is 11 percent. Total world trade amount is 25,1 trillion dollars “, Kerim said.
According to Kerim, this data are relevant because they are showing the strength of a nation.
“Since the 16 th century people are measuring power and prosperity of nations based on their exports and foreign trade balance. I will add some other parameters as well in elaborating my argument that now days ideology is of secondary importance while economic and trade performance has a major impact on geopolitical influence and power”,Kerim stated.
Raising global role of China
In elaborating arguments in favor of the raising global role of China Dr. Kerim says that Peoples Republic of China's(PRC) economy represents about 13% of the world economy. Compared to the USA and European Union at 22% and 24% respectively. However for many countries the PRC is now as a trading partner more important than the USA, with much of Asia centered around the PRC. Especially because of its development model enabling poorer countries to become rich.
“Globalization and the emerging digital era are significant shift from ideological disputes to technological domination and prevalence. In terms of business and what will have the most direct impact, this will be technology and who controls it. Technology standards and data, areas in which China has actually made huge headway, are becoming crucial. This could lead to the creation of a new framework for technology rule enforcement-controlling the movement of high technology. The latest tensions around Huawei, s 5G system and its distribution are an appropriate example in this regard”, Kerim said.
Slump in Chinese M&A activities
Please find down a full text of dr. Kerim’s speech at the Conference in Ningbo.
“Let us focus on an analysis of some of the most important global economic activities of China starting with Merger & Acquisition (M&A).While the past 10 years have witnessed China as an active participant in the global M&A market, recent political and economic developments, especially the trade conflicts with the USA, have caused a slump in Chinese M&A activity.
The Chinese outbound M&A market used to be dominated by state-owned enterprises, but it is not longer the case. In 2018, state-owned enterprises only contributed 10% of total outbound M&A deal value. The recent M&A trend has been characterized by an expansion of privately-owned companies which have reached a market share in outbound M&A of 48% in 2018.The top 3 investment destinations are Europe, Asia and the USA, with Europe being the most favored continent by means of 50 billion dollars in deal value. The vast majority of transactions take place in sectors such as Technology, Consumer Products and services, Healthcare and Industrials.
Privately owned companies, as well as financial investors with a share of 42% in the outbound M&A market, have become the major driving force behind Chinese companies going abroad.
On the other hand the state-owned companies shift to the Belt and Road Initiative (BRI) which was introduced in 2013, as development and cooperation framework connecting 60 counties alongside the ancient "silk road" and the "maritime silk road". This countries have a total population of 4,6 billion and a total economic output of 21 trillion dollars which is exactly the size of China’s GDP. Stimulated by the government and headed by state-owned enterprises, Chinese investment in these countries has been increasing and will continue to pick-up.
Talking about the BRI and its implications on Southeast Europe, which is part of the "China +17" format, means being aware of the complexity of this cooperation framework. Through bilateral and multilateral forms of cooperation as well as launching of regional and inter-regional infrastructural and transport projects the BRI becomes the central project of the 21st century. Direct investments in these countries only in 2015. reached 15 billion dollars. The magnitude of BRI as a inter-continental project becomes obvious through the planning of the establishment of the Maritime Silk road Bank with a capital of 100 billion dollars.
In summing up the considerations on that particular aspect of China,s global economic activities one may note that there are a lot of potential opportunities in this regard.
On the other hand, for an economy of its size, China’s spending on outbound M&A is merely 0,6% of its GDP, less than a half of Japan for instance spends.
Emphasis on qualitative factors of China’s development
An issue, deserves special attention within this context. Spending on scientific research or spending on R&D, meaning research and development including the innovation index.
This issue is of key importance for the modernization in the new era process launched by President Xi Jinping. Putting the emphasis on qualitative rather then quantitative factors of development means exactly investing more and more in innovation and advanced technologies.
For, scientific research is proving to be the driving force for sustainable development of national economies.
In his keynote speech at the opening ceremony of the Second China International Import Expo in Shanghai, on November 5 2019, President Xi pleaded for an open world economy with innovation: "We need to facilitate integration of science and technology with economic growth, and increase the sharing of innovation results."
What President Xi says fits absolutely into a picture of a world which is heading towards a technology run economy. Governments across the globe will be increasing their efforts to ensure that they will not be left behind. The outcome of research efforts should be of good value to the people around the world and promote peace and stability.
It is interesting to observe the statistics of research and development from various points of view. The top five countries with the highest percentage of GDP spent on scientific research are: Israel with 4,1%,South Korea 4,15%,Japan 3,49%,Finland 3,32% and Sweden with 3,30%.With 3,12% China is ranking as number 6.
To add other relevant parameters concerning technological one should mention the ranking of countries the ranking of countries with most advanced technology: Japan, USA, South Korea, Germany and China are among the top five. If one has to predict the future trends China will become the most advanced country in the coming 10 to 20 years.
China’s spending on Research & Development 370 billion dollars
Measuring Research & Development (R&D) spending China is number 2 with 370 billion dollars, behind the USA with 476 billion dollars. However the percentage of the R&D share in the GDP, in the case of China it is less than 2% of GDP, which is pretty low.
To increase this percentage is all the more important bearing in mind that China is not among the top world innovation leaders measured by the Global Innovation Index of 2019. Countries like Switzerland, Sweden, USA, Finland, Singapore, Germany etc. are ahead.
In the era of globalization we are actually living in a digital world or a world of the 4th industrial revolution and that process is unstoppable process, spurred on by the fantastic development of innovations, research and technology. Especially in the fields of information and communications.
We should be thinking about the creation and growth of industrialization at the beginning of the 19th century. This process has been protracted for over 200 years. It started in England and Germany, was continued in the USA and Japan, and will be completed in China, India and other newly emerging economies of the so called Third world.
In the 19th and 20th centuries industrialization was the engine of economic growth and eventual prosperity, thus promoting social development.
Globalization will decisively shape the 21st century. It will take on a new dimension of the digital society. Still the resolution and creation of such social relations and well balanced distribution of wealth will remain a key issue in the formation of just society based on equality of people.
The digital world as the embodiment of globalization and the 4 industrial revolution is not the only great challenge of the 21st century. The influence and implications of climate change should on no account be underestimated. The same goes for demographic changes and trends in migration. All these phenomena deserve our full attention not at least because of their global character.
International institutions, among them the United Nations, need to adopt themselves to this profound shifts in world affairs. They need to undergo serious reforming processes. China should play in this regard a very important role both ways. In changing itself as well contributing to the required changes of the international institutions.
Xi Jinping’s Concept of Modernization in the New Era
Whereas Deng Xiaoping and other leaders of the Communist Party of China introduced the concept of profound Reforms and Opening forty years ago Secretary General Xi Jinping launched the concept of Modernization in a New Era. It is basically a combination of the values of Socialism invented during Chairman Mao’s time, and the reforming and opening model of Deng Xiaoping. Marxism was and remains the foundation in both cases.
In his speech of May 2018, during the celebration of the 200th anniversary of Karl Marx birth, Secretary General Xi said: "Karl Marx is the greatest thinker of modern times".
At the start of his second five-year term as SG of the Communist Party of China (CPC) in October 2017. Xi Jinping announced that the "principal contradiction" facing the country was the tension "between unbalanced and inadequate development and the peoples ever - growing needs for a better life".
At the same time a famous CPC slogan was posted on billboards in Beijing. It says:" Do not forget your original intentions".
Long run: Rate of return of capital has tendency to exceed rate of growth of input and income
It is very important to deal with the distribution and redistribution of income in order to preserve the balance and stability not only of the economy but of the society as a whole. Following the co-relation between the rate of return of capital and the rate of growth of input one will realize that the rate of return of capital has the tendency to exceed the rate of growth of input and income, in the long run.
Actually it happens in the same way today as it was the case during Karl Marx time in the 19th century. This way it threatens to be the major norm in the 21st century, thus causing unsustainable and unjustifiable inequalities in the distribution of income.
The top 1 percent of the world adult population own 51 percent of global wealth, the top 5 percent own 78 percent, and the top 10 percent own 89 percent, while the bottom 50 percent own 1 percent. This requires implementation of redistribution of income instruments above all by the state and through its fiscal mechanisms.
This is a blatant case where the CPC as the major force of Chinese society must not fail to deliver. The 18th National Congress of the CPC in 2012, as well
as the 19th Congress in 2017. broke significant new ground for the concept of Socialism with Chinese Characteristic, which was announced by Secretary General Xi Jinping.
China's overall objective of modernization in the new era is to build a great modern socialist country that is prosperous, strong, democratic, culturally advanced and harmonious by 2050.
Main task of modernization to resolve qualitative issues
Xi Jinping’s Thought on Socialism with Chinese Characteristics for a New Era covers all aspects of China’s modernization and governance; it is a complete system with components inherently connected with each other; practical and well-conceived it reflects general laws of social and economic development, and responds to the specific needs of Chinese modernization. To ensure a complete implementation of Xi Jinping’s concept it is necessary to include the following four aspects:
First, changes in the principal contradiction in Chinese society in the new era. In the past several decades ,the main task of modernization was to address quantitative issues. The main task of modernization now is to resolve qualitative issues.
Second, the people centered development philosophy and the new development concept. It is basically a switch towards sustainable development founded on new growth drivers, green development, better utilization of international and domestic markets, and finally to narrow the income gap between urban and rural areas and different regions.
Third, an improved and modernized economy. This was proposed at the 19th Congress of the Communist Party of China. A modernized economy implies high efficiency but at the same time optimally allocated resources to different regions and industries again on optimal combination of all production factors.
Fourth, to pursue a deepening reform process. That means above all focusing on supply-side structural reforms, improving the market system, make the governance system more effective and develop a mixed ownership economy in different ways.
It all requires by itself moving forward with reform in political and judicial fields.
The implementation of Xi Jinping’s concept of Modernization in a New Era means above all that government and party must continue to playing a central role in the economy and society. Without the Chinese government’s industrial policy since China joined the World Trade organization, it is unimaginable that China would have made such progress towards developing globally competitive firms. However these endeavors are still in their early stages. With rare exceptions, their market share beyond China is still small.
As a result of China’s industrial policies, its indigenous firms have begun to produce globally competitive products in high technology industries, including commercial aircraft, nuclear power stations, high-speed trains, telecoms equipment, electric vehicles, and wind turbines.
The government plays a vital role in areas in which there is likely to be "market failure". This includes not only investment in health and education, but also investment in housing, water supply, sewage, electricity, telecommunications, roads, ports, airports and railways. Apart from the obvious contribution of investment in health and education, all the above mentioned areas contribute to enhancing human welfare and opportunities for self-realization.
China’s financial system is dominated by state-owned banks, as well as joint-stock banks and city commercial banks. The Chinese authorities including the CPC exercise supervision and control of appointments of top bank officials. China’s banking system has gone through extensive reform since the country joined WTO. Between 2003. and 2014 the share of large state-owned commercial banks in total assets of banking institutions in China fell from 60 to 41%. The share of joint-stock banks and city commercial banks rose from to 16 to 29%,and the share of foreign banks increased from 1.5 to 16,3%.
In reforming the banking system China’s policymakers were very cautious. They took seriously Marx’s warning about the odd relationship between the financial and the real economy which eventually has negative implications for the real sector in times of crisis. Bearing this in mind Chinese policymakers learned from the lessons of Latin America and Eastern Europe thus avoiding the consequences of the explosion of the global financial crisis in 2008.
Ensuring benefits of global economic cooperation
The world economy is entering an era in which global governance needs to play an increasing role in ensuring that the benefits of global economic cooperation and integration can be maintained, while steering the political - economic system in a direction that is sustainable and harmonious for the whole of human society, including the poorest fifty percent who live at the "bottom of the pyramid". Global governance makes sense only provided it embraces all the nations and national economies regardless of their size and the region they come from.
Based on its 2000 years old tradition of handling the complex relationship between the "invisible hand" of the market forces and the "visible hand" of government regulation China has undergone since the 1970s an comprehensive reform of its economic system which launched the country being a developing country to the top of the world economy thus enabling China to play a vital role within the global regulatory framework that is necessary for a sustainable global future for humanity.