A Chinese Marshall Plan in the Green Economy Era, Huang Yiping suggests
The Dean of the National School of Development at Peking University proposes a "Global South Green Development Plan" for China to help developing countries' low-carbon transition.
On May 27-28, 2024, “80 Years after Bretton Woods: Building an International Monetary and Financial System for All” & 2024 Tsinghua PBCSF Global Finance Forum were held in Hangzhou, Zhejiang Province, China.
PBCSF is short for People’s Bank of China School of Finance, the name of a School within Tsinghua University and a successor to the Graduate School of China’s central bank.
Every year, the Tsinghua PBCSF Global Finance Forum gathers the best minds of China’s financial world and platforms their insights. Also, between 2021 and 2023, I had the privilege of attending the Finance and Media Program of Tsinghua PBSCF, which annually gathers and trains journalists in China. That gives me extra incentive to help spread some interesting ideas made there.
In Pekingnology, a sister newsletter, I’ve already shared the observations of Huang Haizhou, a Tsinghua PBCSF professor and one of the two latest monetary policy advisors to China’s central bank.
Huang Yiping, Peking University Boya Distinguished Professor and Dean of PKU National School of Development made an interesting and novel proposal at the forum, in a discussion of the newly released China Financial Policy Report 2024.
Below is an excerpt from Huang’s speech, based on a Chinese-language transcript provided by Tsinghua PBSCF, which I’ve uploaded to Google Drive.
Regarding the international influence of a strong financial nation, is it possible to consider setting up a "Global South Green Development Plan"? What specific actions could be taken? My basic idea is to support developing countries in their green transition, especially in the field of new energy, through commercial and policy tools, or even aid.
Why did I think of this? It originally came to mind because of the overcapacity issue that has been a hot topic in our discussions. In February, American officials started talking about overcapacity, and in April, we hosted Secretary Janet Yellen at Peking University's National School of Development. She raised many issues, one of her key points being the impact of China's overcapacity on the U.S.
Objectively speaking, I don't think our "new three items" [new energy vehicles, lithium batteries, and solar products] have had that much impact on the U.S. economy. For example, they worry about the automobile industry being overwhelmed and employment being affected, but last year China only exported 10,000 electric vehicles to the U.S. How much impact could 10,000 vehicles have on the U.S. economy? It's self-evident. But there are other considerations, such as the election and politics.
But from a broader perspective, why do we have an overcapacity issue? By the way, the definition of overcapacity is also controversial. Domestically, there is overcapacity, but globally, there isn't. Some people say, as long as I can sell my products, how can you say I have overcapacity? I think this issue can be debated. Domestically, our macroeconomic imbalance has been a long-standing issue: high investment and low consumption. This is why we have seen overcapacity at every stage over the past 40 years. Many of the excess capacities were slowly absorbed through exports, and of course, we also took some measures domestically, preventing it from becoming a systemic issue.
Currently, the overcapacity issue in some areas may persist for a while and may not be quickly resolved in the short term. If it can't be resolved, we might have to find ways to absorb it into the international market. But in the short term, I think we will face difficulties in the European and American markets; the resistance is quite apparent. However, there is tremendous potential in developing countries. I have met many people from developing countries who say that the products China manufactures are excellent. They also face the challenge of green transition and achieving low-carbon growth, but they lack the technology and funds and can't find good products. They think the products made in China are crucial. I said that's great. If exporting these products to Europe and America is difficult, we can export them to developing countries. But developing countries have their issues, and lack of money is a major problem. They need China’s products but don't have the money to buy them.
The United Nations once estimated that developing countries would face a funding gap of about $1.75 trillion per year in their transition to new and green energy in the future. This reminds me of the Marshall Plan that the U.S. implemented after World War II, aiming to use its resources to support the economic revival of European countries, especially after the war. When World War II ended, many European economies were on the brink of collapse. Later, the U.S. and European countries helped them rebuild their economies, which was very successful.
I believe that the Marshall Plan achieved multiple objectives: first, it helped revive the European economy; second, it expanded America's international influence, including the dollar; third, as Europe's economy strengthened, it imposed certain constraints on the Soviet Union and Eastern Europe, which was strategically beneficial for the U.S., though this is something we can't verify now. Looking at it this way, we may encounter many difficulties in our current internationalization efforts. But internationally, there is indeed a need for mechanisms to help achieve common low-carbon growth. We have the technology and products, and whether we have the funds is debatable.
So, the idea I propose can, to some extent, be seen as a Chinese version of the Marshall Plan in the green economy era. We help these developing countries make a green transition. There are four specific reasons for this.
First, why should we do this? Historically, we have always had a surplus. For a small economy, having many surpluses is not a big problem, but for a large economy, these surplus issues will become increasingly prominent in the future. A European scholar once mentioned this issue, saying that China has a trade surplus against many countries, China’s future international relations, economic relations, and other relationships will become relatively difficult. We have a trade surplus with 170 countries, which will cause problems for our own economic balance in the future. The problem with a large economy is that whatever you sell becomes cheap, and whatever you buy becomes expensive. Any action impacts the equilibrium of the international market. Historically, if trade imbalances are not well managed, they can easily lead to major economic, political, and even military conflicts.
One solution is to leave some money in deficit-running countries and help them develop, forming a kind of economic community with a shared future. From this perspective, if we cannot quickly resolve our trade balance issue in the short term, sustainable growth requires considering coexistence and common prosperity with all deficit-running countries.
Secondly, since everyone needs to make a green transition, it is especially difficult for developing countries, but they all need this common path. China can't take on all the responsibilities, but if China takes on some responsibilities, China can help these developing countries achieve a green transition while also establishing China's global leadership and influence in green development.
Third, if done well, through certain mechanisms and tools, China can help developing countries make these transitions, encourage them to buy China’s products, introduce China’s technologies, and even encourage some of Chinese enterprises to go abroad. This could, to some extent, alleviate China’s overcapacity issues in these areas, which may persist for some time. At the same time, having a market can keep these Chinese industries at the forefront of international industrial development.
Fourth, this process can help our financial institutions and the internationalization of the RMB. Some experts even suggest that when China provides foreign aid or policy loans, can China use digital RMB? Other countries could use RMB to buy Chinese products, which is an important mechanism to circulate the RMB.
So, I think these possibilities exist, and perhaps we should consider this matter. It is a huge task, and I believe there will be countless reasons to counter my proposal. I am prepared, but if we follow this direction, I think we need to seriously consider some issues. For example, in the past, China has been criticized for causing some debt pressure on developing countries during China’s foreign financing efforts. Is it possible to be more prudent in future commercial financing? At the same time, China could reach some agreements with international organizations and other investors so that if debt difficulties arise in the future, China can jointly resolve these issues instead of staying out of it.
Another important issue is whether China can provide more policy-oriented financial tools, or even direct financing, based on sovereignty and credit. I think it is possible. I believe some experts will say that China’s fiscal situation is already very difficult. I think this can be discussed. Fiscal pressure certainly exists, but the ultimate goal of fiscal and monetary policies is overall economic stability, not just the stability of policy tools without doing more. That mindset is incorrect.