Lou Jiwei: In the face of the most dramatic global economic recession since the Great Depression, Japan should seek a correct understanding of China and strengthen cooperation to overcome difficulties together

By Xu Xinyu, People’s China

On October 25, the 17th Beijing-Tokyo Forum opened at the Beijing International Hotel. At the plenary session that morning, Lou Jiwei, chair of the Foreign Affairs Committee of the 13th CPPCC National Committee and former Chinese Finance Minister, conducted a thematic dialogue with Japanese guests on topics such as Sino-Japanese relations and cooperation in a world with profound changes. He also elaborated on his unique insights on global economic recession under the impact of COVID-19 and responded to issues related to Hong Kong, Xinjiang, and human rights raised by the Japanese.   

Lou Jiwei. (MA GENGPING)

The theme of this year’s forum is “China-Japan Relations and Reshaping International Cooperation under Great Changes – Thinking on the 50th Anniversary of the Normalization of Diplomatic Relations.”

The key phrase is “great changes.” Lou noted that the world is experiencing the most dramatic economic recession since the Great Depression over 90 years ago, even worse than the recession caused by the 2008 global financial crisis.

How are the two recessions different? Lou pointed out that when the 2008 financial crisis took place, the G20 mechanism played an important role in helping countries around the world overcome difficulties in solidarity. At the G20 serial meetings at that time, member nations frankly and openly discussed their respective policies and countermeasures, jointly safeguarded globalization, opposed trade protectionism, and brainstormed reform methods to address common but differentiated structural issues facing different countries. In particular, weak links in the financial sector inspired suggestions for joint efforts to establish an international cooperation mechanism. Unfortunately, however, such is not the case today, which is the biggest difference.

The second difference is that in the three years after 2009, China contributed more than 50 percent of global economic growth through strong stimulus, which is impossible now. At that time, China’s macro leverage ratio was around 90 percent, which has since increased to 260 percent. Therefore, another Chinese global stimulus is very unlikely.

How should China and Japan deal with the economic recession caused by this pandemic? Lou thinks that from the perspective of national character, Japan is relatively more pragmatic. It would not go so far as to turn economic issues into ideological or political disputes. Therefore, China and Japan should cooperate better and contribute wisdom and strength to global win-win cooperation.

The whole world now faces extremely high leverage ratios. “The macro leverage ratio in developed countries has reached 300 percent, while the global average has reached 270 percent,” Lou said. To prevent the current recession from devolving into another Great Depression, countries around the world have adopted loose fiscal and monetary policies. Lou pointed out that when the pandemic comes to an end eventually in the future, extremely loose fiscal and monetary policies will have to be phased out. If that is done improperly, it could trigger another crisis, including tumbling stock markets, collapsing real estate, and collapsing balance sheets for residents and businesses. We should prevent that. Meanwhile, we should steadfastly advance deleveraging. There’s a contradiction between the two. It’s very important to apply the proper rhythm and skill.

Lou Jiwei responds to a question. (WANG ZHONGYI)

A common concern is whether developed economies will follow the Japanese economy in the late 1980s and early ’90s when stock and housing prices rose sharply before falling sharply, causing the balance sheets of banks, businesses, and individuals to deteriorate tragically. Lou indicated that the problem has not been solved by either the QE (quantitative easing) or the QQE (quantitative and qualitative easing). We have to proactively prevent it from happening. 

Lou also expressed views on the digital economy. He believes that the digital economy has many advantages, especially for the general public. Many rural residents in China have been lifted out of poverty simply through access to the internet to sell their products. However, some major problems remain to be solved, for example, the protection of personal privacy, anti-monopoly on internet platforms, definition of data boundaries, clarification of data ownership, management of cross-border data involving national security, and more. He suggested great potential exists for China and Japan to cooperate in this field. 

In the same dialogue, Lou also responded to some issues of concern to Japanese guests.

As to the theory that strengthening of the QUAD alliance (the U.S., Japan, India and Australia) was caused by “belligerent posturing” by the Chinese military, Lou pointed out that the United States began to implement the “Pivoting to Asia” strategy and turned hostile against China in the late Obama administration. Given the world’s dependence on China’s contribution to global economic recovery, President Obama allowed for unforeseen circumstances in practice. However, President Trump reinforced the strategy and pushed it to extremes. No one should confuse cause and effect. Under such circumstances, China cannot be blamed for strengthening its own defense capabilities.

“China is not the former Soviet Union,” Lou added. “We follow the principle of nonalignment with any country. China has built a strategic cooperative partnership, rather than an alliance, with Russia. We respect the choices made by each country and do not impose our own values or growth model on other countries. China has always said this and always done it.”

With regard to some Hong Kong and Xinjiang-related issues that the Japanese media brought up, Lou responded by asserting that Hong Kong is a special administrative region of China. The majority of Hong Kong people warmly welcome the implementation of the National Security Law, which has restored economic and social prosperity and stability in the region, he said.

With reference to claims of “forced labor” and “genocide” in Xinjiang, Lou called it “a sheer fabrication out of nothing” and “a rumor.” The Ministry of Finance has allocated funds to help the Xinjiang Uygur people improve their command of the Chinese language, which has helped them find jobs. They are very pleased to receive the aid. “Many of the rumors sought to provoke China, and we have responded properly,” he said.

Lou believes that communication is very important. “We should let others know what we think,” he said. “The Beijing-Tokyo Forum is a very good platform for communication.”

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