Icebreaker Lecture: China’s Financial Sector – Reform and Opening Up

Jim O’Neill

And welcome, everybody online. We’re also going out livestreaming, so welcome to everybody out there. Let me also make a couple of housekeeping comments before we go any further. The event is going to be on the record, and as I’ve said, is being livestreamed. And very importantly, of course, tonight’s event is co-hosted by ourselves, at Chatham House, with the 48 Group Club, and, of course, the Chinese Chamber of Commerce here in the UK. When the event is finished, or the formalities are finished, there is going to be a reception for everybody that is welcome to attend, upstairs in the Neill Malcolm room, which is on the ground floor, and that will take place immediately following the event. And the reception will be sponsored by the Bank of China, as well as HSBC. So, let’s get going.

I was going to introduce you to the one and only Stephen Perry from the 48 Group, but, sadly, I gather Stephen has a very bad bug, and given how warm and so many people are in here, it’s probably a good job that he’s decided not to come and infect the rest of us, but in his place, as I just teased the one and only Peter Nolan about, and Stephen, I’m sorry, but I can’t resist saying, is an upgrade. Peter is going to come and say a few words. Peter, as I’m sure many of you know, is a, if not the top thinker about broader matters of China and the UK, and goes back a long way, and is right at the core of the spirit of everything that Stephen talks about so often about China. So, Peter, please.

Peter Nolan

Yeah.

Jim O’Neill

Yes, please do.

Peter Nolan

Thank you. Thank you very much. It really is a great pleasure to be here, and a great honour to introduce Zhou Xiaochauan, and especially on behalf of Stephen and the Icebreakers to welcome Zhou Xiaochauan to give this talk. In fact, we were just remembering that, last October, which now seems a very long time ago in terms of global markets, last October, Jim’s muttering, “Very long time ago,” and we had a most interesting talk with you, mainly about the question of the stability of global financial markets, and particularly thinking about what China’s contribution can be to regulating intelligent regulation of global financial markets. And it was a very interesting discussion, and I thank him for that discussion. Obviously, as China continues, increasingly, to open up its capital markets to Western financial institutions, in which UK-based institutions will play a very important part, China has to consider very carefully its interaction, and consider carefully, the degree of stability and the way in which financial institutions are regulated in the West. And China and the West have no choice, méiyŏu xuănzé, choice of no choice. China and the West must work together to try to co-operate, and together influence intelligent regulation of global capital markets, to make sure that this integration is safe for everyone. So, it’s a great pleasure to welcome you tonight to talk about what this very, very important issue for this country, and for the West and for China, and, indeed, for the whole future of the global political economy. So, thank you very much indeed for coming to join us, Thank you [applause].

Jim O’Neill

Thank you. I’m also now delighted to introduce another special guest, Mr Fang Wenjian from – who’s the Chairman of CCUK, who, amongst other things, is also leading the efforts of Bank of China here in the UK, and has the distinguished pleasure of introducing, formally, our guest this evening. Welcome.

Wenjian Fang

Thanks, Lord O’Neill, thank you for the kind introduction, and President Zhou, ladies and gentlemen, good evening. First of all, on behalf of the CCCUK, I would like to thank you all for joining our – the Icebreaker lecture tonight. Thank you for choosing to listen to our lecture instead of the debate in the Parliament that is going on now [applause], and many thanks for Jim and to host the event tonight. And, in fact, I have been told by my colleague that this lecture today has been – has created a new record in the CCCUK event history. It was fully booked within only one hour. So, that’s the fastest speed we ever had in our event history, and…

Jim O’Neill

No pressure.

Wenjian Fang

So, President Zhou, you can see how anxious we are to see and listen to you in person, and with over 200 members in the UK, CCCUK takes great pleasure to work with, to partnership with The 48 Group and other entities here, at the forefront of China-UK economic and trade co-operation. There’s no doubt that financial co-operation is an important part of such relationship. The Icebreaker Lecture this evening give us the rare opportunity to here from the Architect himself on China’s reform and opening up in the financial sector, and help us to better understand its future directions and the opportunities it may bring to all of us. So, actually, tonight, my task is to make a formal introduction to the keynote speaker. Actually, I’m not sure whether he needs any introduction at all from me, but I take great pride in doing it, because, myself, you know, have special connection with President Zhou, and some of you may know that President Zhou used to be a Senior Executive Member of Bank of China, in Head Office, many years ago, and many of my Chinese friends also share the same feeling, because President Zhou has also worked in many other Chinese financial institutions, you know, including Bank of China, the China Construction Bank, China’s Security Regulatory Commission, and the People’s Bank of China, etc.

So, I’m not going to repeat his CV and all the official positions President Zhou has ever held, but I must add that President Zhou has had a number of other titles in his successful career. Just to name a few, the longest serving Central Bank Governor in China, China’s [inaudible – 06:40], Mr RMB, and the face of Chinese economic policy in global markets, and we would all agree that this is a very kind and good-looking face. President Zhou has also won a lot of international recognition. Back in 2011, he was announced as Euromoney’s Central Bank Governor of the Year, and just last month, President Zhou was given Central Banking’s 2019 Lifetime Achievement Award for his contribution in reshaping the Chinese economy, which will be presented to him tomorrow night at the annual gala dinner. So, let’s, President Zhou, if you don’t mind, let’s give you a big congratulations, one day ahead. Congratulations [applause].

Now, without further ado, ladies and gentlemen, let’s extend our warmest welcome to President Zhou Xiaochauan. Welcome, President, the floor is yours [applause].

Zhou Xiaochauan

Through the Huawei mic? Oh, yeah, don’t worry, and yeah.

Jim O’Neill

If you feel happy, please, feel safe in just walking across there.

Zhou Xiaochauan

Yeah, I choose to standing here. Thank you very much. It’s my great pleasure to be here in Chatham House to have a talk. Yeah, thanks for Peter and Mr Fang’s introduction about me, and I need to thank you very much, Lord O’Neill, for host this talk, and my regard to Stephen Perry for The 48 Group’s Club. Yeah, I know that this is a very important moment for talking about China-UK economic and the financial relationships, but I fully realise that, for this moment, almost everybody here focused on the MP’s vote on the Brexit.

Jim O’Neill

This is…

Zhou Xiaochauan

But it’s…

Jim O’Neill

This is much more interesting.

Zhou Xiaochauan

It’s impressed me that, in this occasion, that we have so many participant to listen to me and to discuss the economy of China, and also, our relationship. So, I’m deeply impressed and yeah, I am going to try my best to have a discussion with you about Chinese economy, Chinese financial sector and our relationship.

Let me start it to say that three months ago, in China, we celebrate our 40 anniversary of reform and the Open Door Policy. That was in the end of 1978, Mr Deng Xiaoping initiated a series of debates on the policymaking, and later on, we start to have quite a serious economic reform under Open Door Policy. So, the people like me are in my age. I now am a little bit over 70. So, we spent 80% of my lifetimes in the economic reform. Obviously, that’s to live with the economic reform transition, from a centrally planned economy to the market economy.

Another 20% of my lifetime, except my childhood and the age as a student, that’s – another 20% is in the so-called country revolution, and that’s the painful life in the age of centrally planned economy. So, the – my generation realised very much the importance of reform and Open Door Policy, and the – my understanding is that the 40 years of reform under Open Door Policy is tried to introducing the concept of market economy, and tried to understand how to run it, and try, also, to see that what is the best way to transit from the older regime into a new regime. There are many quite challenging problem to deal with during the transitional period.

So, we – in this period, we have a lot of comparison with the former Soviet Union and the central Eastern European country, and, finally, there’s, I think, China, during this process, reach a lot of achievement. The GDP and per capita GDP have grown substantially. So, what I would like to say is that Chinese people really support the economic reform and the Open Door Policy. It starts, like in some of other country, in the transition, that they may have so-called reform fatigue, but in China, I think, the people would continue to support and to implement the reform and the Open Door Policy.

Also, now, we still have many things that are not have been done very well, but, anyway, that – I’m optimistic that the reform, under Open Door Policy, can continue. Also, we regard some of outside impact. For example, some countries or some economies may started to have protectionism, to have a challenge to the multilateral organisations, or – but, anyway, it – we heard it. It’s a Chinese response, especially our President, Mr Xi Jinping, had a speech two years ago, in Davos, to say that China is going to embrace the free trade and the investment systems, and to support a multilateral solution for that. But, I also see, recently, and we’ve heard a lot of critics and doubt about the Chinese economy, and the policy orientations. The critics says that now China may slow down the economic reform to emphasise, once again, that the industry policy, the state-owned sectors make a serious market distortion, that it’s not in the fair competition, the market access got some kind of a problem. We see that this is a understandable argument, but, however, I would like to say that this is a process of transition from – it’s – we’re beginning. Up to now, there’s – you should also see some of the progress in this process.

In comparison with the other country, the transition of economies, some of them had a shock therapy. Shock therapy may immediately change the mentality of the people and the officials. They may try to give up the old mentality and economic analysis framework of centrally planned economy, but, however, the result may not be as good as the people really expected. So, China, as a large country, we had a serious study of those, of transition experience, whether China should have a shock therapy or not, that our conclusion is that China, as a very large country, it seems not safe to do that. So, China managed to have a so-called gradualism in the economic reform. Also, some things is not quick enough, is relatively slowly, but, however, in the gradual changes, China could manage to guard so-called Pareto improvement. That means, step-by-step, that we see, as reform and Open Door Policy, bring the GDP growth, bring the improvement of people’s living standard. So, all this reform and Open Door Policy, we – and the support from the whole population. So, there is no big backlash, no reform fatigue, but, surely, that this kind of transition strategy also brings some of shortcoming. For example, that we still see that some of the remaining mentality of centrally planned economy. We still see a lot of debate between the different peoples. We still see some people have nostalgia of the centrally planned economy. They may strongly support central planning and industry policy, but, however, as things – what I say that that’s the whole population got a very substantial beneficial during the reform under Open Door Policy.

So, no matter what kind of noise you may heard, but, anyway, that reform directions is not going to be moved. That’s – let me start the talk about 40 anniversary of reform under Open Door Policy. Yeah, you know that’s a massive speciality is central banking under the financial sectors. Just now, Mr O’Neill, we just talk about this. When there’s Central Bankers stand down from the Government position, it’s not very convenient to talk about money through policy, but, however, yeah, I think that I may have a brief review of the financial sector reform in China, including the reform of central banking.

I may say that in 1980s, in China, we introduced the central bank. Before that, we didn’t have a central bank. We have only one bank, both the central and the commercial bank. So, at that time, it was named as the People’s Bank of China. Later on, we would like to use that Central Bank of China, but, unfortunately, Taiwanese already used that name. So, we need to negotiate with them, so later on, we see that it’s okay to be named as the People’s Bank of China. But when we go to Germany, they say, “You are the Volksbank.” They said – we say, “Yeah, also, we named ours Volksbank, but, actually, we are the central bank.”

And then we tried to set up a competition banking sectors to have big five Chinese bank and a dozen of medium-sized commercial bank, for them to compete each other. In 1990s, it’s, you know, that’s a – we tried to reform those so-called specialised commercial bank into a fully competitive environment for the banks to have a full range of financial service, and, meanwhile, we started to set up the stock market, corporate bond market and to develop the insurance sectors. But, meanwhile, one of the important things there is to have, the first round of the exchange rate reform in 1994. So, I think that the Open Door, at that time, has already started to allow the foreign bank, such as HSBC, Standard Chartered Bank, to have 100% branch of subsidiaries in China. China announced to accept IMF Article VIII, so the current accountability in the end of 1996. At that time, China, I think, was fully prepared to have a much better, much wider Open Door Policy to yeah, to give the market access to the foreign financial institutions to operate in China.

However, in the end of 1990s, there was the Asian financial crisis, and that the impact was serious, especially for Thailand and Malaysia, Indonesia, Hong Kong and South Korea. So, people started to ask questions, that in this occasion, whether we should first be – try to figure out that what was the reason of the Asian financial crisis. So, substantially, the Open Door Policy, in the financial sector, was delayed.

In the period of year 2000 up to the recent global financial crisis, China, once again, to have a financial restructuring for Chinese banking system, and you also know that the further exchange rate reform. After that, Chinese financial market and financial sectors, I think, were ready to have, also, its more Open Door Policy, especially China had a commitment, when China entered the WTO, and so we say that WTO negotiation was happened during the period of Asian financial crisis. The – both Chinese negotiator and the other negotiator, especially US negotiator and those from Geneva, to say that it’s understandable that in the period of Asian financial crisis period, it was not, you know, have a certainty, have a – the confidence to ask China to have more Open Door Policies in the financial sector. But the WTO negotiator gave a condition to say that, after five years, or ten years, when China entered the WTO, we needed to have a careful review. That’s why China needed to have a further Open Door Policy. So, at that time, I think, once again, China would like to consider the wider Open Door Policy, especially the market access and the financial market participation, but, however, in the beginning, for 2007, people already sense that the crisis of subprime was coming. So, later on, there was a debate, both domestically in China, but also internationally, to say that, maybe, for one thing, the crisis contingent is more important than Open Door Policy at that time.

So, what I would like to say is that, in China, the top decision-maker have several rounds serious discussion for the financial sector open this, but, however, the two round of crisis, you know, substantially delayed it, these kind of policy changes. So, yeah, after so many years, I think, now, China is, in the financial sectors, we now have much more confidence to have a further reform under Open Door Policies. During the early stages of Open Door Policy, HSBC and the Standard Chartered Bank, many others, including Citigroup, the Deutsche Bank, when they entered China, in the late 1980 and the early 1990, at that time, China was in a situation of foreign exchange shortage. There is not enough hard currency; foreign exchange reserve was pretty low. So, when China encouraged those foreign bank who got into China. So, naturally, they say that we had a problem of accountability. So, if you do the foreign exchange business, to provide foreign exchange denominated financial service, you are not allowed to do [inaudible – 29:34] be denominated financial service. So, the RMB business and the US dollar business strictly separated, but later on, since the 1994’s exchange rate reform, the situation substantially changed. So, that we has no longer to have these kind of obstacles, and out of that, China tried to, gradually, yeah, connect our financial service for the foreign exchange and the RMB business, and allow the Chinese company, including bank and insurance company, to have a IPO, and that easily, not only in China, but also Hong Kong and the other market, we have ADR on the GDRs in New York and also, in London.

So, we see that in the early stages that the exchange rate and the foreign exchange reserve was a key issue to look at the Chinese policy. I think many emerging markets had a similar situation in their early stage of development. In the late 1990, and that was a how to read the Asian financial crisis, and what is the very severe is that? I still remember that some of Asia economic leader strongly worried about the hedge fund. Those hedge fund may had attack to the Tibar to Korea one, but, after so many years, perhaps, people may have a much better understanding of that, but, however, for the emerging market, it’s always easier that how to deal correctly with the exchange rate policy under the caveat of law. I think, in this round of financial crisis, it’s still yeah, a debate on that, and I have some of the paper to have a serious review and a discussion on this issue. But, anyway, along with this economic reform and the Open Door Policy of China, and gradually, I think that have several round of the exchange rate reform, and accumulate a quite big size of the foreign exchange rate reserve, now they become much more comfortable for the further Open Door Policy, and that’s to create the condition, also, for RMB internationalisation.

I should especially appreciate that the London financial sector have a lot of support for the reform on the Open Door Policy in China, The 48 Group Club, country built a lot to introduce some things to China, and we have a currency swap with Bank of England that Chinese Minister of Finance and the London Institution issued a RMB bond in London market. It have a lot for us. We see that, in China, the people’s attitude to this financial openness is gradually changing. In the beginning, I mean, in the late 1980 and early 1990s, in China, people, especially the leadership, the Government officials, say that the financial sector is too much sensitive. It’s a borderland of economy. It’s relatively related to the national security. So, it’s, at that time, I think, the mentality was not yeah, fully prepared for the international competition, but later on, now, I think more and more people, including the top leadership and the Government officials, see that the financial sector, the commercial bank, Western banking, the brokerage, actually, is a part of the service sector with competition. So, if you created a level playing field for the competition, it’s good for the sector to grow, and, also, provides better quality of the service. So, I think this kind of change in the mentality, I think, yeah, can be very helpful for the further policymaking.

We always know that we needed to learn the experience in the other country. Initially, China learnt a lot of experience from Hong Kong, but Hong Kong is, you know, that’s a UK system for many years. So, we indirectly learn the experience of UK financial market, and we know that here, in London market, yeah, this is very comprehensive. It’s the market with dips. You have yes, a good regulation and supervision. So, we see yeah, that we have a good opportunity for further co-operation among each other. So, China, as in the transition period, I think it’s very much a learning process. Yeah, learning how to run the market economy, but in the learning process, yeah, we also have some puzzle. For example, 20 years ago, China seriously study the financial sector supervision system, and to learn the UK system, to set up FSA. Recently, that people found out that FSA, once again, yeah, came yeah, to be a part of the Bank of England. So, it’s also for a call for China to consider what kind of yeah, financial architecture, especially in the supervision, we should have.

Recently, in China, we setup a new so-called Financial Stability Committee that tried, to some extent, integrate the central banking money through policy, and the financial stability policy. So, we still have a lot of things we needed to do. Especially, we emphasise the development of a capital market, the diversification of the financial market, especially the financial derivative market, which is a strength of London City. We needed to have a further reform in the pension system, and develop a pension reform. Let me also talk for Chinese financial sector. We emphasise very much the financial sector should have provided the service to the real economy, not only for financial sector themselves. We saw some of over – yeah, you know that speculation of those financial derivative mar – product among the financial sectors. It seems to make a lot of money, but, however, if it’s not well connected to the real economy, it may create some of a potential problem. So, in the beginning of global financial crisis, and after the Lehman Brothers bankruptcy, China, PBOC yeah, raised the question that we needed to light the financial sector to merely provide a good service to the real economy.

So, I think that for real economy, that to this audience may have some questions on that. I’m waiting to have a Q&A on this, but recently, I heard some of questions. So, I choose a few of them to talk my opinion and my analysis. Initially, I talk about the reform transition. That means the Chinese economy is still in transition, and there is some of imperfections, that there is some of instability. Sometimes, Chinese policymakers may make a mistake. So, we’ve got some anxiety, and the critics on this or that ones, but, however, my observation is that the Chinese economy, basically, is quite resilient, partly because the policymaker are quite pragmatic, partly because China is still a very high saving country. The saving rate now is still 45% of GDPs. So, yeah, we have our resource to carry on the reform, and including to correcting the mistake we made by ourselves.

One of – on that, I should say that we especially try to study very carefully about the lessons in Japan, because we see that, as an Asian economy, Japan had a very fast development, and later on, have a so-called Lost Decade. So, Chinese economy may have a similar overheating and overleverage problems. We needed to absorb the knowledge and the lessons from Japan, but, meanwhile, I think we need to have the careful observation of Chinese economy. Recently, there are three or four major questions and doubt about the Chinese economy. Number one is that the debt leverage is too high, but the Chinese Government now already have a deleverage slogan, and some plans. Personally, I don’t think that there is a quick ways to deleverage. Chinese economy may maintain their overall leverage in GDP around the 250%. We tried to stabilise in these things. We know that we needed to prevent any further acceleration of that financing, but, meanwhile, we also say that we needed to treat different country differently. In some other economy, yeah, they may have a similar percentage of total debt, but if the debt is a US dollar foreign exchange denominated, it’s much more dangerous for China. Also, the debt to GDP ratio is high, but mostly, it’s a domestic currency, it did not denominated, and since China is a high-saving economy, those are the saving transfer into that financing.

We sincerely hope that some of saving may develop into equity financing, but, however, the equity market develop gradually. Sometime, it’s a bumpy road. So, also, we sincerely hope to develop a faster equity financing, but we still needed to have a patience, but, along the gradual development of equity financing, I think the total debt financing percentage could lower down a little bit. So, another – we see, in the future, that the saving rate is going to come down. It’s already come down from 52% of GDP, now it’s 45% of GDP. In the next generations, yeah, because of demographic changes and the habit of expenditure of the young generation, so we’re going to see that it’s going down to 40%, or even lower. So, it’s also – we’re in the change of that leverage problem. And other critics to say that they saw very much of a capital outflow recently in China, that we’re going to work together with many emerging market to deal with this kind of problem. Many emerging markets have similar problems. Theoretically, Western countries suggested to use only exchange rate to solve the balance of payment and the capital inflow-outflow problem, but, however, yeah, we need to have a more carefully study on the situation of the emerging market. We need an internal and an external condition. So, for many emerging market, we still need a kind of buffer to deal with the inflow and outflow. So, I think it’s another kind of challenge, but hopefully, I think, China may have a better condition to deal with these kind of things.

Finally, at least people see that the confidence of Chinese private sector now is declining, or is relatively in the low level. So, recently, the Central Government – and I think last week we heard there’s a Chinese Premiere, Li Keqiang talk about how to encourage the confidence of private sector in China. Partly, I think that we need to be careful in the policymaking to create a level playing field, to prevent that the resource allocation to crowd out for private sector. But, on the other hand, there is a phenomenon in the recent years, some of the large private companies, they had some problem. They use fraud measures to capitalise themselves. So, it’s not really equity money, but they borrow some money to be the capital. Later on, used the high leverage to financing themselves to have many risky investment and then, when does the, kind of, bubble burst? We needed to deal with those kind of bankruptcy case. Yeah, some of you may heard of some of big case, like the Anbang insurance, or the others, other names.

So, we see, suddenly, the rise of default rates for private sector, large companies. Then, during this process, the private sector’s confidence may have been lower down. So, we emphasised that we needed to have a good disposal procedure to dispose those of a failed company, but, meanwhile, we still needed to emphasise how to improve Chinese private sectors, as a major engine of Chinese economy. So, there may be many other questions that I would like to discuss with you, but I think everybody know that the trade war was a major topic in the last year, especially after June of the last years. But, however, recently, there are some of good news. It seems that the trading negotiation is going well. Yeah, we sincerely hope that we don’t have too much things to worry that much, but, anyway. So, China, we clearly mentioned that we are standing for free trade and investment. We support multilateralism, and, also, we’re going to actively join the WTO reform discussion. I think we may share a lot of common point with the UK and with – especially the financial sectors in the city. So, yeah, I already talked too much. Thank you very much for your attention [applause].

Jim O’Neill

Thank you very much. Governor Zhou, thank you on behalf of everybody. I had lots of questions myself, but in view of the time, I’m going to not ask any, and in the unlikely event that nobody here does. So, I’m going to probably let it run a little bit longer than we’d planned, also. So, there are roving mics around. Two instructions before I come to the first one. Put your hand up if you have a question. Youth and sex are on your favour here, I’m trying to make sure – I’m a big believer of Chatham House becoming younger. So, no hint there, but whoever asks a question, if you start making a speech, I’m not going to allow you to continue. So, it has to be a brief question, in the precious few minutes we have left. Who wants to ask a question? You look quite young, so you can be the first person. Please say who you are.

Member

Thanks, Jim, and thanks, Governor, for the very interesting insight for China’s financial sector. I’m a Journalist from China Daily. My question is…

Jim O’Neill

Oh, the lighting’s bad. I wouldn’t have let a Journalist ask the first question. It has to be really quick.

Member

The Chi – my question is about the China’s new foreign investment law. So, at this year’s two sessions, I think, China’s new investment – foreign investment law is one of the most important legislative agenda. So, would you be able to – would you please elaborate a bit more first, and the real effect of introducing such legislation, and, second…

Jim O’Neill

Uh-huh.

Member

…the timing and significance of…

Jim O’Neill

This sounds like it’s becoming a speech.

Member

No, that’s – the timing and significance of introducing the bill amid the China-US trade war? Thank you.

Jim O’Neill

Okay. While you’re thinking of that one, come over here, there’s a young lady sitting in the middle.

Eva

Hi, my name is Eva and I’m financial crime risk screening compliance. My question is a little bit more generic. You say – you’re saying the China financial sector is still in the process of reform, and I just wonder whether there is such a thing like the end of the game, or the end of the journey, and if there is such a thing, like, completed and complete financial sector reform…

Jim O’Neill

Where you – where…

Eva

…how does it look like?

Jim O’Neill

Where the end game is of reform.

Eva

Yes, thank you.

Jim O’Neill

Perhaps one more, and then you can try to answer all three. I think there was a couple of hands further towards the back. Oh, they’ve gone. Okay, would you like to answer those two questions, and, I mean – oh, there’s another lady at the back there. Go on, here’s our third question.

Meho Chen

Thank you. Hi, Mr Zhou. My name is Meho Chen, I work for McKinsey & Company. So, you mentioned in the talk that China has constantly been thinking about reforming, and as a young person in her 20s, I feel the change every time I go back home to Beijing. Things are so different, I need to adapt to a new way of life. That’s amazing, but I was wondering, at what point can we be confident as the Chinese to say that we no longer have to feel desperate about changing reforming all the time, but rather we’re happy about how we’re doing, and our priority would be keeping the stability rather than, you know, racing and sprinting all the time. Thank you.

Jim O’Neill

That’s a cousin of this question, really, but Governor Zhou.

Zhou Xiaochauan

Okay. Thank you very much for these question. I try my best to discuss that. For the foreign investment law, yeah, let me say that the first joint venture law in China was legislated in 1979. So, at very beginning of the reform on the Open Door Policy, I talk about the end of 1978, that Mr Deng Xiaoping initiate the new policy framework and the reform on the Open Door Policy, and the second year, we set up joint venture law. At that time, it’s continuous into 1980s and 1990, that we have three foreign investment law. One is joint venture law, another is foreign partnership law, and another is wholly foreign owned investment law. So, that’s gradually, we need to streamline the different legislation in China. Another one is that in the early version of foreign investment law, there was not enough class to mention about the modern corporate governance. You know, recently, at China, we joined the G20 together to recognise a so-called G20 and OECD Corporate Governance Principle. So, we needed to put those governance issue into the foreign investment law. That is also to provide the guarantee, to provide the confidence about the foreign investors.

Another reason, in my mind, is that although Beijing had yeah, some correct conception of foreign investment law and regarding policies, however, many of Chinese local officials, the provincial Governors, provincial officials, the municipal officials, they made either some of their own policies, yeah, together with their own understanding, including some things are not create fair enough competition that’s among each other. Sometimes they may have implied subsidies or created subsidy among each other. So, we need to have a clearer concept, and the new laws to let the whole nation, especially the Local Government, to know that to – what to implement, what trying to avoid, yeah, including some of local industrial policy. It may actually prevent the [inaudible – 60:51] competition. It may not give a good enough confidence about the foreign investors.

Personally, I don’t know whether it’s related to the China-US negotiation, trade and negotiation, but surely, that some of complainment, some of critics, I think, is helpful for Chinese legislators to realise that we still need to do the job better. So, this is my understanding of the legislation work, but, you know, I am not the authority in this regard. We’re waiting for the People’s Congress, I think, in a few days, to conclude the new legislation. According to my experience, many – this kind of legislation should not go to the level of a People’s Congress. For example, that you see we have some company laws, we have security laws. I mean, there’s a security market laws. It’s actually – it’s passed in the standing committee of People’s Congress, but the reason there’s the foreign investment law now is a percentage to the People’s Congress, the highest level to discuss and to legislate. That’s because, in the beginning of the reform, that was 1979, the first joint venture law was approved by the People’s Congress. So, later on, yeah, if you tried to improve the law, you tried to have a new version, modifications of the laws. So, it’s come to the People’s Congress. Thank you about that.

Jim O’Neill

But Zhou, the endgame.

Zhou Xiaochauan

The endgame. Theoretically, if…

Jim O’Neill

And your young Chinese overseas citizens relax.

Zhou Xiaochauan

…if – we say that to making changes of the society and the economy, it’s never ending, but in my understanding, if we talk about the economic reform, yeah, my understanding is merely means that the Chinese economy shifted from the old pattern of centrally planned economy, the Soviet type of economy, into a market economy, yeah. So, if we gradually, yeah, you know, to let the market to play a good enough decisive roles of resource allocation. If related legislation, basically, completed, that’s yeah, basically – we are – we may end this round of reform, but, however, yeah, each country, each economy, still have many new challenge and for future, to change along the times.

Jim O’Neill

There is never an endgame for anybody.

Zhou Xiaochauan

No, no, yeah. But there can be an end for a specific transition. We always know that for the social and the economic improvement, we try to measure by using the GDP. I think the GDP is, especially per capita GDP, is a good measurement for people to, you know, to become happier, but we also know that some things is very difficult to be measured by the GDP. So, that’s – we may hide some things, yeah, the indicators about the happiness, including the environmental protections for Beijing, I think the good air qualities, and also, to emphasise the value of the family, to emphasise those cultural values, cultural traditions. You know, many things yeah, I think is also on the way for Chinese Government to emphasise, but for the Economist, we hope some things could integrate into a good formula of indicators. For example, we may consider to use the negative contribution to GDP of the environment factors to say that if you have a pollution, that, actually, the GDP should deduct it, but other – because, [inaudible – 67:08], you know, it’s very difficult to add the economic indicator with those of the social indicator, the happiness indicators and the family, yeah. Different people may have different views. There is no aggregate things. So, we still think that the aggregate formula is useful, and maybe helpful for the more general aggregated indicator. Thank you.

Jim O’Neill

So, actually, Governor Zhou, you’ve brought us to a rather nice place where, unfortunately, I’m going to stop proceedings, with your very interesting comment there about deducting pollution to GDP. I think you may get another invite from Chatham House to talk for our sustainability centre, ‘cause it’s a very interesting idea. I apologise to everybody else that, I’m sure, had questions. I don’t want to separate anybody from their refreshments, especially our special guest. To remind you, it’s going to be on the first floor, as you go up on the left, I guess. So, thank you, for everybody, for coming and for your time, and, of course, please join me in thanking our very special guest [applause]. Thank you very much.