Wei Li │ The most dangerous gray rhino in the world is populism

Wei Li is the Chief Economist of Hengchang Securities. He previously served as Managing Director of CITIC Securities International, Director of Global Markets at Deutsche Bank and Citigroup, Senior Executive and Managing Director at the New York Stock Exchange, Tenured Assistant Professor of Finance at Iowa State University, the first Senior Financial Expert at the Shanghai Stock Exchange, and a Senior Expert at the Tel Aviv Stock Exchange in Israel. His research areas include financial market efficiency, pricing and liquidity of financial substitutes, trading mechanisms, debt-driven investment, and corporate governance. He has been involved in and dedicated to various social welfare undertakings for many years, and served as the Chairman of the Board of Directors of the Chinese American Finance Association. He is currently a Director of the Hong Kong Zhixing Education Foundation. He holds a Ph.D. in Finance from the University of Utah, a Master of Management from Tsinghua University, and a Bachelor of Management Information Systems from Tsinghua University.

The following is the full text of Dr. Wei Li's speech:

It is a great honor to be here at Tsinghua Wudaokou today. I am a native of Tsinghua University and a female science and engineering student. In today's speech, I will talk to you about some thoughts beyond economics and report on our past research.

Today I'll discuss some aspects of populism within a broader political and ideological framework. Populism is essentially a shadow over democracy, a system that concentrates the wisdom of the people and should ideally lead to optimal policy outcomes. However, we now find...The rise of populism in recent years has deviated the optimal policy toward suboptimal, manipulating some democratic institutions while promoting personality cults, authoritarianism, and hatred.Such policies can easily lead to extreme left and extreme right. I will give you a few examples to see how such "gray rhinos" will affect China's long-term economic policy development.

As everyone knows, what shocked the world after Brexit was that on June 23, the referendum ended, and on June 24, many people began searching for information about what Brexit was, having voted against it without understanding its true meaning.

At the same time, we also see a dangerous form of populism. When Trump visited Europe on June 24th, he said, "We're going to take our country back," a clear indication of conservative tendencies. Populism tends to promise benefits to ordinary people; for example, during Trump's campaign, he promised tax cuts and wage increases. These promises make many people easily swayed and influenced, thus gaining him support. Trump won the election in early November, after not leading in August. Then, a figure emerged: Steve Bannon. In the final two months, he turned the tide, ultimately defeating Hillary Clinton. Many of the policy leanings that enabled Trump to defeat Clinton in the last two months stemmed from Bannon. Bannon is a far-right populist.

Meanwhile, we can see this in France's National Front alliance. During her election campaign with Macron, Marine Le Pen stated that if she defeated Macron, she would advocate for direct Brexit, a statement that had a significant impact in Europe. In Italy, the Five Star Movement is another rising populist alliance. From 2013 to 2018, its approval rating steadily increased. It essentially promotes conservatism and anti-globalization, and following Brexit, it also advocates for leaving the EU. In Germany, in the post-Merkel era, the Alternative for Germany (AfD) party emerged, also a populist party with relatively extreme views.

The past 5 to 10 years have been a period of new populism.Bridgewater conducted a very in-depth study of populism in 2017, concluding that populist tendencies reached their second highest level in a century in 2017. The first peak was around 1930, before World War II.

Pre-World War II Germany was dominated by Hitler, a radical populist who promoted extreme self-preservation and aggression. This is what we call right-wing populism, which advocates anti-globalization, anti-immigrant, and anti-elitism—all potentially dangerous. The US government shutdown and the conflict between the Trump administration and Congress stem from differing policies on immigration.

Next, we'll discuss left-wing populism. The 29-year-old newly elected New York State Representative, now internationally known as AOC Cassio Cortez, advocates for additional taxes on the ultra-high-income earners. Another Massachusetts senator also exhibits a shockingly strong left-wing populist tendency; she has stated her intention to impose a wealth tax on assets exceeding $50 million and $100 million, and she has also proposed breaking up the consortium of American technology companies like Facebook, Apple, Google, and Amazon if she takes office.

Why does this happen?Populist tendencies arise during times of extreme wealth inequality, economic stagnation, and declining living standards. People are easily incited when they are confused and dissatisfied with the government.

Once populism emerges, we see Trump's trade frictions, the US-China trade frictions mentioned by our chief economists, and then the US-EU trade frictions. This will have a significant impact on economic recovery and global trade. Meanwhile, we see that China's entry into the WTO was a victory, but this格局 (structure/pattern) will change in the future. At the same time, we see a sharp decline in China's trade surplus, which will have a significant impact on our future economy. If the euro experiences fluctuations, given its large share of the dollar index, will this lead to significant dollar volatility and consequently affect our long-term exchange rate stability?

As the chief economists just mentioned, China's future development requires structural adjustment and stable leverage, and they also discussed issues such as the demographic dividend and liquidity. These factors will necessitate consideration of potential constraints on the economic framework in the formulation of China's long-term macroeconomic policies, including the three rounds of leverage and some of the topics we've discussed today.

So, whether such a potential gray rhino will affect the long-term internationalization of the RMB, the Belt and Road Initiative, the economy's return to a decade of prosperity and strength, the transformation of old and new growth drivers, and the "six stabilities" proposed at this year's Two Sessions are all very important.

Thank you everyone!