Debate Topic: "China, Will It Lose Many Years?"
I didn't expect to speak first, but what I say might be a bit challenging.
This topic is called "Will We Lose Many Years?"
But I want to ask, in this world, who has truly lost many years?
Professor Fan just mentioned how many years Japan has lost; did Japan really lose them?
Objectively speaking, the countries that have truly lost many years are the Philippines in the 1970s, followed by South Africa, and later Venezuela... They are the ones who have really lost many years. If we can count, we can also include Iran after 1979. These countries once reached a glorious point in their development but have since become failed states, unable to recover.
What has Japan lost? Up to now, Japan's economy is of high quality.
For example, who says Japan is low-quality or has developed extensively?
Isn't its industrial structure and technological research and development capability world-class?
Isn't the quality of life for the Japanese people world-class?
Are Japan's social security system and infrastructure still world-class today?
If we can "lose like this," then I think our transition "from extensive to intensive and then to high-quality development" is also quite good!
Regarding Japan, I want to say a couple more things to challenge the host, Professor Fan. He just said that the period from the Meiji Restoration to before World War II is a good analogy for China and Japan.
But actually, in the 1970s and 1980s, the yen rose from 360 yen to 1 dollar, gradually appreciating to 204 yen and over 100 yen. That was an era of an export-oriented economy, with the currency appreciating several times over a decade or two.
At that time, it was also considered a "sword at the throat." For example, during the oil crisis in the 1970s, oil prices rose from 2 dollars to 10 dollars, and after the Iranian Revolution in 1979, oil reached 30 dollars a barrel. Wasn't this a fatal blow for Japan, which relied on imports for over 90% of its energy and raw materials?
Yet, during this process, Japan produced a large number of well-known companies and brands that we are familiar with today. Count the Japanese brands you know, including automobiles and home appliances; even Japan's Shinkansen was built during this time. The real estate market in Japan went from 0 to 1, and from 1 to N during this phase, which is the era we can compare Japan to today.
I hope our media does not spread some untrue information and looks at which countries have lost 20 or 30 years and which have not truly lost.
The Boao Real Estate Forum has been held for over 20 years, and the first topic we discuss every year is what policies we can expect next; this is a hope for policy. The second is to complain about policies, saying that this policy is not good and needs to be changed quickly. The third is how we deal with policies.
If you keep hoping for your mother to help you, or how to avoid her care, it shows you haven't weaned yet!
Fan Gang: The debate has begun, and the challenge is on the table. Next, I invite Lu Ting to speak.
Lu Ting: China currently faces greater difficulties than Japan's real estate in the 1990s.
Chief China Economist at Nomura Securities
I completely agree with what Professor Chen Huai just said about Japan.
Looking back, could the Japanese government have done better after the real estate bubble burst in 1991? What lessons can we learn to minimize our losses in the real estate industry during the sharp decline of the past few years?
First, they should have decisively cleared the real estate market and their banking sector.
The peak of Japan's real estate market was in 1990 and 1991, and its bottom was in the first decade of this century. If we do not consider the impact of the global financial crisis on Japan's real estate, it was around 2005 or 2006 when Japan's banking and financial sectors had the highest bad debts, approximately in 2003 or 2004, when the bad debt ratio was around 8%.
The Japanese government may share some similarities with the Chinese government in being paternalistic, trying to prevent problems from erupting dramatically when issues arise. I think this is a strength, which is why China's real estate sector has declined so rapidly in recent years but did not experience a collapse like the Lehman crisis in the U.S. in 2008; this is an advantage of our system.
Did Japan experience a severe financial crisis in the 1990s? Actually, no. There were no major bank failures, especially among the leading securities firms, so Japan did not experience such a financial crisis. Of course, this also led to a relatively long process of clearing. I think this is a lesson from Japan.
Another lesson is that during those ten years, Japan rapidly expanded globally amid the wave of globalization, but in some high-tech industries, Japan was indeed not as adept at seizing the pulse of the times as it was in the 1970s and 1980s, failing to break into high-end internet and chip industries, with some industries flowing to mainland China and Taiwan. There are lessons to be learned from this process.
Looking back at the comparison between China and Japan in the 1990s, we are still a middle-income country, while Japan in 1990 and 1991 was one of the countries with the highest per capita GDP in the world.
Our current per capita GDP is only 12,000 dollars, leaving much room for development; our urbanization rate is far less than Japan's 80%, at only 66%, and many of those people do not have household registration, so there is still space.
Currently, our foundation is still relatively weak, but as long as we handle it properly, there is still a lot of room for development.
However, compared to Japan in the 1990s, what are our weaknesses?
First, if there is a bubble in our real estate, this decline is not just in major cities; it is actually more pronounced in small and medium-sized cities. This is very different from Japan. At the same time, our issues are more in residential areas, not in commercial real estate, although commercial real estate is also starting to face some problems.
Japan's most significant issue at that time was the commercial real estate problem in several major cities, while we still have a large number of issues regarding housing delivery. As far as I know, Japan did not have a severe housing delivery problem in the 1990s. Over the past two or three decades, the real estate industry and the fiscal system have been closely tied together, and the decline of the real estate industry has also brought a shock to the entire fiscal system. When dealing with these issues, we need greater determination and creativity.
The second difference from Japan is that Japan also faced trade wars back then. The geopolitical issues Japan faced in the 1990s were not severe; instead, it was a time of rapid globalization, so Japan had no significant problems setting up factories in the U.S., Europe, and many other places.
Today, when Chinese companies go overseas, it is much more challenging to set up factories in the U.S. compared to Southeast Asia or Mexico. Our companies face a much more complex environment than Japanese companies did when going abroad.
From these perspectives, I am not saying I can determine how many years we will lose, but I believe the environment we are facing now is perhaps more challenging than Japan's in the 1990s.
Chen Qizong: Every country is different; there are principles to learn from, but specific practices cannot be directly copied.
Honorary Chairman of Hang Lung Group and Hang Lung Properties
I believe both speakers are correct, but each is only presenting one side of the story; if we combine both, it would be quite perfect.
Of course, I personally want to add one more point. The paths taken by each country cannot be completely the same because the national environments are different. China has a population of 1.4 billion and has rapidly developed from a very impoverished state; honestly, it is somewhat similar to Japan from the Meiji Restoration to before World War I. Different perspectives will lead to different conclusions, but China must follow its own path.
Overall, I believe that China's development over the past 40 years, including the development of the real estate industry, has been remarkable, but there are also many difficulties that we need to solve ourselves. We can learn some principles from others, but we should not directly copy their specific practices.
Lastly, I want to mention that I agree that AI and high technology have a significant impact, especially on both developed and developing countries.
Now the U.S. uses these things as a means to attack you, sparing no effort; it is an all-around assault, so I am not as confident as you are that if we do our own thing well and develop AI and other aspects, there will be no problems.
I still see issues because the world has never seen an all-around world war. Although it has not reached the level of guns and cannons, everything else has been used to the fullest, including technology, economy, trade, and monetary measures.
Therefore, I hope the public does not think that everything is peaceful now; they should be more concerned about when we hit rock bottom and how many years we will lose. I believe these are all debatable issues, but they are not the most severe problems facing the country.
The most severe problems are still the international situation, the unprecedented changes in a century, combined with internal conditions; together, they become very complex.
Fan Gang: We are currently much more difficult than Japan in the 1990s!
Vice President of the China Economic Reform Research Association and President of the Shenzhen Comprehensive Development Research Institute
I will make a brief comment and then invite everyone to ask questions.
Professor Chen Huai just criticized the media for following the crowd. This is not just the media following the crowd; it is Japanese economists and entrepreneurs saying how many years they have lost. Their concept of losing years is the same as what we are discussing today—how much money they have lost over the years, how they have not made money for decades, and their GDP has been zero or negative growth, with interest rates being negative. It has indeed not been easy for them over the years, so their entrepreneurs feel they have lost a lot of money.
When our entrepreneurs ask how many years we have lost, they also want to know when they can start making money because they are currently bleeding.
What I just mentioned is that compared to Japan, we may have some positive factors in overcoming our difficulties because our development level is still relatively low.
Here, I want to add a few points about Japan's ability to overcome crises; it is slightly stronger than ours, and the situation they faced was better. There are several factors:
First, compared to Japan, Japan's development after the 1960s was a post-war resurgence. It had already developed significantly before the war, and even in the process of re-emerging after the war, its education level, system, rule of law structure, technological level, and corporate systems were more complete than many places in our country now. Therefore, under the same market environment, recovery is relatively easier, and they have a strong ability to go abroad; many companies have gone out, and although their GDP has not grown, their GNP has increased, and companies have been making money abroad. Many of our entrepreneurs going abroad are also seeking sustained growth overseas.
Then there is the very important international environment. At that time, although the U.S. was containing Japan, they were still allies, and many things were still part of the camp. But now, the U.S. is containing us in an all-around manner, which is a significant difference.
From last night to today, Mr. Chen Qizong has been emphasizing the great cycle, stressing that the most powerful country in history is suppressing a developing country with a per capita income level still 7 times lower in an all-around manner. All aspects will have an impact on economic development and recovery.
Moreover, precisely in the past six or seven years, we have faced the impact of three years of the pandemic on one hand and the impact of three years of the real estate bubble bursting on the other, along with the U.S.'s all-around suppression. Everyone needs to have a full understanding of these issues; we are much more difficult than Japan was at that time.
Exchange rates, oil prices, and these issues were not very difficult for Japan to digest internally. For us, digesting these issues indeed requires everyone to pay close attention and even fully estimate their difficulties, which are not only national difficulties but also the difficulties our enterprises face.
In summary, I think we still need to discuss this issue.
Question and Interaction Session
Shao Yu: I have a question for Mr. Chen Qizong. Your position is different; you have already achieved success and retired, viewing U.S.-China competition and China's economic development from the perspective of a wise person. We have many young people here, mainly professional managers. How should we choose? Especially now that everyone is overwhelmed and cannot roll up their sleeves or lie down comfortably; the situation is too complex. What should we do?
Chen Qizong: Honestly, I can't be more straightforward.
Do you remember I previously advised everyone to leave the market and real estate as a choice? Is there anything more powerful to say? It has already reached the end.
I am very interested in what the organizers mentioned, but I feel that they are using an old model to look at new problems. The new real estate market is likely a very different environment from the past; we need to grasp these things, stay clear-headed, or else you will become the next victim in the next round.
I want to mention another point regarding the issue of Japanese companies going abroad.
Currently, Chinese real estate developers haven't mentioned these things. In the past, those who made money went overseas to buy properties in London and New York, believing it was a good way to preserve value, but I genuinely worry for them. I have been doing this for 40 years, and I have experience buying properties in the UK and the U.S.
What they are doing is a desperate measure because they do not want to put all their eggs in one basket. I tell them that these people may not have a good ending in the future; do not think what they are doing now is correct. Because going overseas is not necessarily good.
If things do not work out domestically, going overseas may not be good either. So what should we do? This is a common problem faced by entrepreneurs worldwide today.
Other industries are going out more; I genuinely worry for them.
I also help them; anyone who comes to me, I try to help as much as I can.
There is a manufacturing entrepreneur who invested 2 to 3 billion dollars in Mexico and wants to invest another 2 to 3 billion. I introduced him to my Mexican friends, including some ministers and ambassadors. When I communicated with him privately, I told him I am not saying what you are doing now is wrong, but I can tell you that one day, the U.S. will not allow Chinese companies to set up factories in Mexico or other countries close to the U.S. to sell products to the U.S.
You do not understand American culture; blindly investing overseas is very dangerous. So before you invest 2 to 3 billion dollars, I advise you to consider my words.
He said, "Where else can I go?" I said the whole world has already "split in two," and that is what the Americans want to do; you have no other perspective.
The entire world pattern is changing. If we do not clearly recognize these issues, going out is very dangerous.
Including real estate developers, I also give everyone a piece of advice: do not be so sure that going out is the right thing. There is a Chinese saying that the neighbor's rice looks more fragrant. There is also a saying among foreigners that the neighbor's grass is greener. This means you know your own difficulties, but you do not know the difficulties of others.
I know their difficulties quite well, and I am very cautious. You think you can do it, but history may prove that you may not be able to.
Fan Gang: After listening to Mr. Chen's remarks, I have two feelings.
First, we say that the current international issues are all geopolitical factors. In the face of geopolitical issues, economics is powerless and pale. You cannot talk about "mutual benefit" with them; no one will discuss that with you.
Therefore, whether in the business community or academia, do not apply economic principles; they do not fit. We are in such an era, facing these geopolitical issues, and we must pay close attention.
Chen Qizong: I want to add that in the short term, politics absolutely prevails over economics, but in the long run, economics is dominant. So I completely agree with Fan Gang's viewpoint.
Fan Gang: Second, do not always say that you will not come after retirement; you have more time to come after retirement. We are scholars; we do not know what problems exist on the front line. You have been on the front line for so many years, so you know. So everyone give a round of applause to welcome Mr. Chen Qizong to continue attending the conference.
I will throw out another question: without discussing how many years we have lost, can we make some brief estimates and resolve this issue of loss? How long do you think this round of adjustment will take?
Lu Ting: This question is too challenging.
The core issue is what problems we are currently facing, the severity of these problems, and what opportunities and favorable conditions we have. Everyone has different opinions and views on these aspects.
Moreover, in the process of development, we may have solved many problems and alleviated many issues, but we may also have created some new problems. For example, in the past decade or two, on one hand, we have solved many problems, and China's economy has developed rapidly. I remember when I was studying in the U.S., China's GDP ranked seventh or eighth in the world, and then it quickly rose to third or fourth, surpassing Japan in 2009 to become second; that was our development.
However, when we reached second place, especially when everyone is calculating when China's economy will surpass the U.S., many new problems have emerged that we did not anticipate at that time, such as the U.S.-China trade war that started in 2019 and many subsequent geopolitical issues. Therefore, to be pragmatic, regarding Fan Gang's question, I do not have the ability to answer clearly.
Chen Huai: We will never find a day of calm; there will be no clear skies and sunny days from then on.
In the future, we may always have to move forward in the wind and rain; after overcoming one hurdle, there will be another.
As mentioned earlier, Japan itself claims to have lost 30 years. I have known since my studies that the Japanese archipelago is sinking. The first novel I read was about the Soviet army landing in Japan. Japan is also a country with a strong sense of crisis; the Japanese government has many lessons learned from the 1998 Asian financial crisis and the 2008 global financial crisis. Have you heard of the collapse of Japan's financial sector? This is something the Japanese government did well.
However, the Japanese government also made many mistakes. I spent two years studying Japan's industrial policy, and I visited many respected figures like Professor Fan Gang. One characteristic is that when the Japanese government makes mistakes, the enterprises and industries can correct them.
Have you heard of any industry dying because the Japanese government prescribed the wrong medicine? No.
First, the real estate industry is facing unprecedented difficulties, and do not expect it to recover in two or three days, or that someone has a secret recipe to bring it back to life. Based on my judgment, whether you are young, middle-aged, or elderly, it will take at least three years, and possibly longer.
It is likely that we need time to recuperate, regain our vitality, and correct mistakes.
I firmly believe that anyone who is impatient for quick success is a quack.
Second, China still needs to build many houses and will need to build houses for a long time. Our urbanization has just begun; we have gone through the extensive initial stage. If we want to transform a nation of over a billion people, most of whom live in rural areas, into a nation where most people live in cities, and become a nation with technological competitiveness like Japan's industries, with first-class teams, and directly reach the semifinals in the World Cup, we need to have such capabilities.
In the end, it still comes down to two points:
First, we must forge ahead and have a full understanding of the long-term and difficult nature of challenges. Second, we will definitely have significant development, not just small development.
Fan Gang: I still represent everyone in expressing what everyone wants to hear.
When I spoke earlier, I mentioned that borrowing from others' research, the problems will be exposed in the next three to five years, and then it will take about another three to five years to resolve them. Professor Chen Huai clearly stated that it will take at least three more years.
Next, there are three people raising their hands; these three questions will be asked together.
Three Sharp Questions as Follows
On-site Question 1: Through today's sharing, I feel very confused. China's population has already entered negative growth, and there is also a stock of 750 million square meters. With negative population growth and such a large inventory, where do developers go from here?
On-site Question 2: I have a question for Mr. Chen. Everyone is very confused now because we have never experienced a downturn in real estate. Hong Kong has experienced it, and you have experienced it. Can you tell everyone how Hong Kong got through it, and how did you get through it?
On-site Question 3: Just now, everyone compared China and Japan. In addition to real estate at that time, Japan and the U.S. also competed in many industries, including the semiconductor-related industries. Japan and the U.S. have fought over chips and semiconductors for many years. China is also facing some problems now; on one hand, it wants to catch up with the U.S., and on the other hand, there are many economies behind it chasing after it. In this situation, our advantages in labor costs and other aspects may gradually decline. Will we face a problem where these economies behind us put pressure on us?
Chen Huai: I will give a very simple answer to the first question.
The current issue is that the 750 million square meters of inventory you mentioned has serious mismatches in terms of grade structure, spatial structure, and functional structure with our social needs. This does not indicate any problems; as I mentioned earlier, many of us still need improvement, and buying a house has never been a one-time deal.
Regarding the third question about chip competition, our current focus should not be on how to defeat the U.S.; our attention should be on how to ensure that 1.4 billion people live well. Based on the aspirations of the Chinese people for a better life proposed at the 19th National Congress, we can one day surpass them in technological progress.
One of Japan's failures was in chips; in the 1990s, it wanted to become a computer power. The competition between Japan and the U.S. was a 30-year competition in automobile trade, but there was no 30-year competition in chips.
What should we do? Survive.
The market's risk tolerance is always layered; if you lack confidence, find a level that suits you, and you can survive.
Chen Qizong: To summarize: China will not collapse, and the U.S. will not collapse. Everyone has their own development; the question is merely "how is the relationship between the two."
I am not too worried about the future; I believe the U.S. will eventually withdraw from competition and return to isolationism; that is their founding principle. But everyone should not think this is a case of the East rising and the West falling; that is not the case.
The East is rising, but the West is not falling.
If you look at American universities and research institutions, they are absolutely world-class, and no one can come close to them.
The road that China has to walk is still long and difficult, but no one can defeat China. The only country that can defeat China is China itself.
And the only country that can defeat the U.S. is the U.S. itself.
I agree with Chen Huai that doing our own thing well and making life better for the people is the most important thing, but we must be aware of the external environment.
The real estate market in Hong Kong and that in mainland China are entirely two different worlds; their experiences cannot be borrowed. The principles are the same, but the cyclical differences are significant. We can refer to others' experiences to help ourselves, but how they got through it and how the mainland gets through it are entirely different matters.
The last question is about the issue of catching up.
In my view, China does not aim to catch up with anyone; Chinese people just need to do their own thing well. However, the U.S. is watching you, and it will attack you. I do not know whether China will attack others in 100 years; I believe it probably will not in the next 10, 20, or 50 years.
But if you look at American Western cowboy movies, you will understand the character of Americans; their cultural background and history are different from ours. They are very aggressive and have strong abilities to protect themselves; they will attack others. China only cares about doing its own thing well.
There are some things I want to share with Chen Huai that might make you feel better. I recently discovered several remarkable high-tech companies overseas that were founded by Chinese people, not bought by them.
They are overseas, and the locals do not even know that these companies are backed by Chinese people; they do not want to mention it. So, when Chinese people go abroad, they still have their skills. The number of new engineers graduating in China each year is more than the total of G7 countries combined. You can say that our top talents in China are not as good as the world's best, but in terms of quantity, it absolutely allows China to make significant progress in technology.
As for how the latecomers will catch up, do we have any guarantees? There are no guarantees; where is the guarantee? If you stop progressing one day, others will definitely catch up with you. That is how the world works; that is how human history has unfolded, so we can only lower our heads and do what we should do without causing trouble.
And do not be too arrogant, thinking you are remarkable.
The world is vast; let me tell you a little story. I heard that someone from MIT is here today. Anyone who can get into MIT is remarkable. In the past, only those who ranked first in their regions could enter the school, but once inside, they found that everyone was the top student from each state. So by the time of the first midterm exam, some people became depressed. Therefore, it is best not to overestimate yourself, so you will not be disappointed.
And there is no need to underestimate yourself. There is a Chinese saying, "neither humble nor arrogant." This is something that China has not done well for hundreds of years. Now, during this period of significant development, we really need to reflect on this issue. Being able to achieve a balanced view of self-evaluation and evaluation of others is the only way to maintain long-term competitiveness.