Recently, the 2022 Tsinghua PBC School of Finance Chief Economist Forum, hosted by Tsinghua University's PBC School of Finance and organized by the Center for International Finance and Economics Research (CIFER) of Tsinghua University's National Institute of Financial Research, was successfully held. The forum, themed "2022 in Turmoil: Global and Chinese Economic and Policy Outlook," featured in-depth discussions around four roundtable topics.Chief Economist of CICCPeng WenshengHostHe participated in the third roundtable discussion, "Innovation, Finance, and Technological Competition," and delivered a speech.
Peng Wensheng pointed out that in the past, the cooperation model between China and the United States involved the US investing and applying technology in China, leveraging the scale advantage of the Chinese market to maximize commercial benefits. China learned new technologies and promoted its own technological progress in this process, while the world also benefited from the low-cost new products resulting from this cooperation. This positive interaction and cooperation was based on mutual benefit and also benefited the global economy. However, this cooperation model is now facing challenges, with technological cooperation between the two sides facing decoupling and competition becoming increasingly intense.Peng Wensheng offered three suggestions on how my country should further promote its own scientific and technological innovation:First, we must continue to make full use of my country's economies of scale; second, we should maximize the benefits and minimize the risks of the digital economy; and third, we should separate industry and finance to enable financial services to support technological innovation and the real economy.
Peng Wensheng
The following is Peng WenshengTranscript of the speech:
Today's theme is innovation. CICC Research Institute and CICC Research Department have just published a new book called "The Unquenchable Torch of Innovation." This is because China had the Torch Program in the 1980s. This book actually sorts out the current state of China's scientific and technological innovation, some of the gaps and problems that exist now. It covers macro-level issues such as the innovation system, innovation mechanism, and the roles of government and market in research and development, as well as some industry-specific issues such as the digital economy, especially semiconductors, green technology, and biotechnology. It can be said that it combines our industry research with how to conduct research, and systematically sorts it out.I'd like to take a few minutes to share my learning experiences during the writing process of this book, drawing on what the previous teachers have mentioned.We are now facing a problem: technological innovation is related to the relationship between China and the United States. In the past, China and the United States cooperated in this field, especially with relatively positive interactions. Now, we are facing decoupling or increasing competition. What is our way out?The previous teachers have offered some very insightful ideas from different perspectives. I'd like to offer my perspective from another angle.First, what exactly has been the cooperation between China and the United States in terms of China's scientific and technological innovation and progress over the past 30 or 40 years?The US can cooperate with other countries, so why is cooperation with China so important? I think this might be related to China's economies of scale. With such a large consumer market and such a large manufacturing industry in China, we all know that any new invention needs scale to go from concept to commercial application. Without scale, unit costs cannot be reduced, and even the best invention cannot improve the lives of ordinary people. There is no commercial foundation, and without a commercial foundation and profit, it is difficult to carry out new innovations. My understanding is that the cooperation between China and the United States in the field of science and technology over the past few decades, in addition to the cooperation between Chinese and American scholars on papers that Dean Xue Lan just mentioned, also includes...An important aspect from an economic perspective. We can simplify it to cutting-edge, disruptive technological innovations from the United States. These innovative technologies, when applied to the Chinese market, leverage economies of scale to rapidly reduce costs and achieve commercialization.In this process, American companies profited and had more funds for innovation, while China learned new technologies, thus advancing its own technological innovation. The whole world benefited, enjoying the low-cost new products resulting from this Sino-US cooperation. However, this seemingly perfect model is now facing challenges, as the previous speakers have already discussed extensively.The key question is how do we address this challenge? I think we should discuss this issue from an economic and financial perspective. In this book, we propose a viewpoint that, simply put, is that we should make good use of China's economies of scale.This is our biggest competitive advantage. We have the world’s largest market right now. So how do we make good use of our scale? One important area related to innovation is the digital economy. The difference between the digital economy and the traditional economy is that the marginal or variable costs of digital products and services are often zero or close to zero. This allows us to see companies grow to a very large scale in completely unrelated fields. Traditional companies cannot do this.But digital platform companies can do it. Why? It's because of the so-called non-competitive zero marginal cost characteristic of the digital economy. The advantage of having this characteristic is that it allows for better leverage of economies of scale. The downsides are the so-called monopoly issues and unfair competition issues. In the past year or two, in Europe, the United States, and especially in China, as everyone has seen,The development of the digital economy faces a fundamental question: how to properly balance monopolies and competition, how to leverage the scale and scope effects of the digital economy while maximizing benefits and minimizing harms.Returning to finance, our viewpoint is as mentioned above.The Importance of Supporting Technological Innovation: How Can Finance Serve the Real Economy? Our view is that financial services should support technological innovation and the real economy.However, finance and the real economy should be separated at the enterprise level; this is called the separation of production and finance.As we all know, the integration of industry and finance has historically played a very negative role in my country, namely the "front shop, back factory" model. This model is problematic. The problem is that finance is a special industry, operating under a license and enjoying various explicit and implicit government guarantees. The integration of industry and finance introduces guarantees into a competitive field at the real economy level, allowing some enterprises with market advantages or monopolies to obtain undue and excessive profits.So how can we promote technological innovation and advance the development of the digital economy? Our book presents two viewpoints.One is the separation of production and finance.It's not that physical businesses and finance can't be together physically, but rather that finance must operate with licenses and be subject to strict regulation. The second one,How should we handle the relationship between monopoly and competition at the entity level? We prevent monopoliesThe main focus should be on how to promote innovation.Instead of focusing on traditional market share and prices, because the new model is quite different from the traditional economy, we can consider how to encourage platform companies to increase their R&D investment in technological innovation and even ensure minimum R&D investment through regulatory requirements.
(This article is based on the content of the speech and has not been confirmed by the speaker.)
