Morgan Stanley economist: New regulations to reset China’s economy
Recently, a slew of regulations issued by the Chinese government covering several sectors, including technology, education and data privacy, caused Chinese stocks to fall.
The new measures indicate “an important moment in the history of the Chinese economy and capital market,” said Robin Xing, chief economist for China at Morgan Stanley.
Behind the regulatory reset lie China’s new goals at the time, “to move from ‘growth first’ to a more balanced approach between development and sustainability, Xing told CGTN.
He believes Chinese policymakers are trying to “follow a middle path between reducing the worst effect of market forces, while ensuring a reasonable and sustainable rate of economic growth.”
Besides regulatory change, China is also promoting common prosperity.
How to interpret this new policy has also sparked much discussion about its implication. Some critics doubt that this means China would kill the rich to help the poor.
Xing believes that the aim of this policy is to reduce inequalities and give all citizens a fair share in the creation of wealth.
The most urgent need for China today is to tackle income inequality and increase the share of weights in GDP to support the long-standing goal of rebalancing the economy towards consumption, a Xing said, adding that the guiding principle of common prosperity is “right to deal with this issue,” which “would pave the way for healthy and balanced economic growth for China.”
The following are excerpts from the interview, which has been edited for clarity and brevity.
CGTN: What kind of signals do you think the government is sending through the new regulations?
Xing: I think the signal is that we are at an important point in the history of China’s economy and capital market. What is behind the regulatory reset are China’s new goals in this new era: to balance growth and sustainability. It is a program focusing on social equality, environmental sustainability and data security.
CGTN: What does the Common Prosperity Guideline mean for individuals and businesses?
Xing: We believe that policymakers prioritize common prosperity by focusing on the challenges of increasing income inequality. The most urgent need today is to tackle income inequality and increase the share of weights in GDP to support the long-standing goal of rebalancing the economy towards consumption. Thus, with a weight share of less than 50% of GDP and a relatively high level of precautionary savings, given the limited access to health care, education and housing, in particular for migrant workers , the share of private consumption in GDP is naturally limited. And increasing the share of household income in GDP and reducing inequalities while tackling the Big Three Mountains, such as escalating costs for health care, education and housing, should support a higher share of private consumption is therefore the objective of common prosperity, rebalancing the economy in favor of work and in favor of consumption.
CGTN: In your opinion, which sectors could benefit from this policy and which sectors could suffer from it?
Xing: We see regulatory headwinds for sectors associated with growing tensions of social inequality, environmental sustainability and data security risks, which can lead to systematic downgrades of the business model and valuation for some sectors. But this new framework, as we mentioned, while policymakers were trying to strike a balance, this new framework also provides policy support to sectors such as advanced manufacturing, technological localization and clean energy. This means that, for the business community, their investment may need to be realigned. For global companies and investors, they gradually had a more balanced allocation or exposure to China, with a reduced weighting for items like the internet, but with a much higher weighting for sectors such as advanced manufacturing, hardware. computing and clean energy.