The following is a transcript of the discussion at Roundtable 1: World Economy, Finance and Global Order.

Ju Jiandong (Host):Thank you, Professor Li Daokui, for your very important topic. The four professors who spoke earlier also covered very important topics: Professor Lin talked about growth, Director Liu Shijin talked about green transformation, Professor Yu talked about responding to changes in the international financial system and potential financial challenges, as well as how our international financial system should be transformed, and Professor Li Daokui talked about how to protect our achievements in fighting the pandemic while maintaining our consumption and putting people first. All of these are very important.

It's already noon, and it's quite an achievement that you've all gathered together. Although we're meeting online, I still want to ask some questions of the professors so we can discuss them together. The main topic of discussion is growth. Professor Lin, you mentioned our potential growth rate is over 5%. I'd like to ask you a question. Let's compare Japan. In 1960, Japan's per capita GDP was about one-sixth of the US's, roughly the same as our current per capita GDP. After 1960, Japan experienced over 20 years of high-speed growth. That's one aspect. But on the other hand, data also shows that Japan's total economic output reached 72% of the US's GDP, roughly the same as our current economic output. After 1995, Japan stopped growing, experiencing stagnation for two or three decades. Where are we now? After the US-Japan trade dispute, Japan's industrial upgrading essentially stalled. Therefore, according to your New Structural Economics theory, to ensure China's future growth, it's particularly important not to repeat Japan's mistakes and to protect the upgrading of the economic structure, especially the high-tech industrial structure. I have the following two questions:

First, what stage are we at in Japan's development?

Second, how can we ensure the healthy upgrading of China's industrial structure?

Lin Yifu:What standards should be used to judge a country's growth, especially for a developing country? We previously discussed the advantages of developing countries. Why are these advantages so important? Because we know that economic growth relies on technological innovation and industrial upgrading. Developed countries already possess cutting-edge technology and industries. Technological innovation and industrial upgrading require self-invention, involving large investments and extremely high risks. Success is incredibly lucrative, but over 99% of R&D investments in new technologies yield no results. Therefore, the average return on investment in invention-driven technological innovation and industrial upgrading is very low. This explains why, starting with the UK, the world's leading countries have maintained an average annual per capita income growth rate of 2% over the past 100 years—very stable. Combined with a population growth of around 1%, the average growth rate is around 3%. The US, with its large immigrant population, has a growth rate slightly higher than 3%. European countries, with less immigration, generally have growth rates above 3, but not far from it. Of this, 2% is largely due to increased labor productivity leading to higher per capita income, and the remaining 1% is due to population factors.

Let's look at Japan's growth. In 1956, Japan's GDP per capita was between 22-23% of that of the United States, similar to ours in 2019. It then maintained a growth rate of 8-9% for over two decades, reaching 70% of the US level by 1995. However, we know that Japan's population is only half that of the United States. In fact, its GDP per capita was already higher than that of the United States in 1995.Japan's average labor productivity is higher than that of the United States, and its average industrial and technological levels are at the forefront of the world. When your average technological level reaches the forefront of the world, you must invent your own technologies and new industries to achieve further growth. Therefore, Japan's per capita GDP growth has been around 2% since 1995.

However, after 1995, Japan encountered a problem. Besides the issues brought about by the financial crisis, the most important factor was population aging; population growth had stagnated. While other developed countries, like the US, still had population growth, with per capita GDP growth at 2%, plus population growth, the total was over 3%, Japan's growth dropped to 2%. Furthermore, due to the ongoing adjustment process caused by the financial crisis, especially the incomplete structural reforms, per capita GDP growth should have naturally fallen below 2%. Combined with unresolved structural problems, it remained below 2%. My view here differs from the general consensus. The general consensus is that absolute income level matters. I believe that when per capita GDP, calculated using purchasing power parity, reaches $14,000, the growth rate slows down. However, when other countries like Japan, Germany, and South Korea reached $14,000 per capita GDP, their per capita GDP was already 75% of that of the US, 70% for Germany and Japan, and over 50% for South Korea. We are currently only at over 20%.

Therefore, we have much more room to catch up than they do, which I think is very important. It's also crucial to understand our potential growth capacity clearly. If you think that after reaching $14,000, the potential growth rate drops from 5% to 4%, then our current 6% is very concerning, as we might think we've exceeded the potential growth rate. But whether we've actually exceeded the potential growth rate is debatable. If we had exceeded it, it would have led to shortages of everything and overuse of production capacity—that would be overheating. However, in recent years, we've generally had a problem of insufficient demand. If you exceed your potential production capacity, demand will inevitably be overheated. We currently have a problem of insufficient demand, which means we're developing within our potential production capacity.

How can we avoid Japan's problems? It's crucial to understand this. Many people believe that countries with aging populations experience slow economic growth, which is true. However, so far, most countries with aging populations are high-income countries, already at the forefront of global development. You can see that because population aging means no population growth, economic growth drops from around 3% to around 2%, leading to poor economic performance. While we are also experiencing population aging, we are still in the catch-up phase. Therefore, we cannot simply use the experiences of other countries with aging populations as a benchmark for our analysis. The key question is: with an aging population, if there's no population growth and no labor force growth, what will drive growth?

Increased labor productivity equates to improved technological innovation. As a country still catching up, we have significant room for technological innovation and industrial upgrading. Under these circumstances, our potential growth is much higher than that of other countries with aging populations. We cannot simply use other aging population countries as our benchmark. Of course, potential growth only refers to growth space from a technological perspective. Just like when you buy a car, you need to check its top speed. If you operate within that speed range, the car will remain stable. If you exceed the top speed, the engine will overheat quickly and the car will break down.

Understanding the potential growth potential is important, but the actual number of businesses you open depends on other factors. Currently, our top priority is to maintain [our operations/operations].We must remain calm, understand our potential, do our job well, and maintain a relatively high growth rate. As I mentioned earlier, what we need most now is to maintain a reasonable high growth rate while remaining open. This includes maintaining a healthy supply chain and opening up to the outside world. China's growth is not only necessary for our national rejuvenation, but it will also remove American hegemony. Other countries do not have this need; their primary concern is their own domestic employment and growth. As long as China can maintain reasonable growth and continue to open up, I believe the US's attempt to decouple other countries from China will not be easy to achieve. The most important thing is to do our own job well and understand the current situation.

Ju Jiandong:Thank you. The most important thing is still economic growth; that's indeed very important. Professor Shijin, an audience member has a question. You mentioned leveraging the structural potential of green transformation. Another audience member has a question about energy security. Since the Russia-Ukraine conflict, Russia's actions have raised significant concerns about European energy security. Under the current circumstances, besides our green transformation, we also need to consider energy security, at least in the short term.

The problem isHow do we balance short-term energy security? If there are problems with our energy imports, such as oil and natural gas imports, our country must pay attention to coal use in the short term and pursue a green transformation in the medium and long term. How do we balance these two different goals? I would like to ask you this question.

Liu Shijin:This is a very big issue, and I'm not an expert in this field. Energy issues are actually quite specialized, so I'll just give a simple example. Recently, China did experience some degree of energy security, such as power rationing. Some people believe that to reduce carbon emissions and achieve a certain target in the short term, there aren't any green technologies to replace them, as I just mentioned. The simplest solution is to reduce or even stop production. Is that possible? You still need to eat and consume; people come first. That's not feasible.

Therefore, carbon reduction is actually a long-term goal. We aim to achieve carbon neutrality by 2060. I think we must handle the short-term and medium-to-long-term issues well. The matter itself is not complicated, but the situation can be somewhat complex. As I mentioned earlier, there are three types of responses to climate change. For example, some traditional energy companies—I often communicate with them and understand them—have been in this industry for so many years, employing so many people. If they were to stop or exit the market, they wouldn't want to take that step unless there was strong pressure.

However, we need to look further ahead. The dual carbon targets have been set, and global climate change is a global consensus. Therefore, we need to combine short-term and long-term perspectives. When I visit some high-carbon regions, I discuss this with leaders. We're currently enjoying a relatively comfortable life; for example, after carbon reduction efforts, coal prices have risen even higher than before, and we're doing quite well. But I ask, while we're having a good time, can we plan ahead and think about the future? Because energy transition is an inevitable trend, can we start preparing now, including industrial transformation and restructuring, personnel resettlement, and the introduction of new industries? Can we consider these aspects and make long-term arrangements, including planning? This is an issue that needs our attention.

Of course, the most important issue, as I just mentioned, is that solving this problem requires both transformation and energy security, and accelerating the transformation to green technologies. Once clean energy develops, it won't hinder growth. And once energy security is addressed—for example, Germany faces difficulties with its access to Russian natural gas and oil—Germany's pace of new energy development will certainly accelerate.

The recent situation has heightened concerns about energy security. At least from a long-term perspective, we should focus on the practical aspects of the green energy transition. I think both sides have their reasons, and there are opportunities within each. If there's no electricity tonight, can the meeting still be held? The logic is simple: we can't maintain the status quo because of this; we must maintain a balance, and it's possible that achieving this balance can bring new momentum to economic growth.

Ju Jiandong:Thank you, Director Shijin. I am very grateful for your perspective, both technically and from a long-term standpoint. Today's discussion has focused on dilemmas.Professor Yu, I have a dilemma for you. According to Dalio's theory, for China to achieve healthy economic growth in great power competition, the RMB needs to become an international reserve currency. For the RMB to become an international currency, it needs to be convertible, and the capital account needs to be open. Based on what you've said about the Russia-Ukraine conflict and similar financial sanctions against Russia, Putin has been preparing for today's war for eight years. At our current stage, do you believe that the need for capital account opening is unavoidable? Is it simply a matter of timing, but is taking that step always necessary?

Yu Yongding:I think there's a lack of consensus among different international organizations and economists from different schools of thought regarding the opening of the capital account. What exactly constitutes capital account liberalization? To what extent can it be considered open? These are all debatable questions. I believe we should primarily analyze specific issues on a case-by-case basis. For a considerable period, I've advocated for a cautious approach to capital account liberalization, with the most crucial issue being internal reforms. What would happen in the next two years without any restrictions? Everyone knows the answer. Moreover, the geopolitical environment has changed, making the situation even more complex.

In principle, the capital account should be opened gradually, but it's still difficult for us to formulate a schedule for opening up, specifying when and to what extent. A few years ago, there were rumors that we would achieve capital account convertibility by 2015 and full convertibility by 2020. Looking back now, that prediction was highly unrealistic, and those who acted then might regret it now. We need to carefully consider the actual situation and adjust the timeline according to the specific circumstances. Even Professor Ray Dalio has pointed out that we should slow down under the current circumstances; if he makes such a suggestion, how much more should we?

Ju Jiandong:Professor Daokui's calculations were very interesting. Two years of pandemic control measures protected the average lifespan of everyone in the country by ten days; a 1% decrease in consumption also represents ten days of life. Our question is...On the one hand, we ask what measures can be taken to ensure that people are put first, neither reducing lives in the fight against the epidemic nor reducing lives in terms of consumption. On the other hand, as economists, do you have any further thoughts on this?

Li Daokui:After thoroughly understanding the leadership's instructions, I realized there's something called systems thinking. This means that all goals must be balanced; we can't focus on just one thing. The central leadership has repeatedly emphasized systems thinking, so I think we should also apply it to the people-centered, life-first approach in this issue. We must both effectively combat the current spread of the epidemic and stabilize our...Regarding the economy, my view is very simple. I will explain the calculations to everyone. As for the specifics of how to proceed, I cannot help you with the pop-up message from Teacher Yongding. I can only express my deepest sympathy. You should make some sacrifices for others who may potentially contract COVID-19 or unfortunately become seriously ill. Everyone should do the same. My abilities are limited, and I can only say this much.

Ju Jiandong:Thank you very much, Professor Li Daokui. We have many questions, but time is limited. On behalf of all the friends watching the video, we would like to thank Professor Lin, Director Shijin, Professor Liu, and Professor Daokui again. This concludes the discussion at Roundtable One this morning. See you at 1:30 PM. Thank you everyone!