No One Can Stop the Tide. So Why Can We Still Be Optimistic? | Living With the Future ②

We asked more than 20 specialists in economics, law, sociology, and communications to answer our questions. This is the second installment. It is about how we see the stage we are living through, and why, with so many problems, we can still be optimistic.

"Sometimes what matters is not changing the world, but explaining it."

At a moment like this one, on how to explain the world and how to live with the future, we need to hear wise, independent voices.

We asked more than 20 specialists in economics, law, sociology, and communications to answer our questions.

How the rising middle class sees its own anxiety about scarce goods — wealth, education, medical care;

The fears about class mobility and class ossification set off by an interview with the top scorer in Beijing's liberal-arts college-entrance exam;

How to think about the conflict, in the course of urbanization, between low-end working populations and cities' high-end ambitions;

Forty years into reform and opening up, how we judge what has been achieved, and whether it can last;

Over a longer stretch of time, how we face history — the Cultural Revolution, for instance;

Whether the withering of the countryside and the loss of vitality in the Northeast foreshadow a future of stagnation;

What it really means that more and more people speak up after public incidents, and how we can build a space for rational public argument;

What the middle class really means for this society, and whether it will carry the hope of a modernizing transformation;

How to think about the hardening of nationalist feeling, and how, in the future, we will deal with the world wearing the label "China";

A strong government, an absent civil society — what crisis hides inside a society with no give in it……

The questions are many and tangled, but they are bound up with how the younger generation will live. The people we interviewed hope the world left to them runs well and stays civilized and decent; and that in a confusing world, we can hold on to independence and reason.

This is the second installment. It is about how we see the stage we are living through, and why, with so many problems, we can still be optimistic.

1. Why we needn't fear globalization's present retreat around the world

Trump, French populism, Brexit, and the rest of the anti-globalization turn are only "small eddies" in several centuries of globalization

Lei Yi

Researcher, Institute of Modern History, Chinese Academy of Social Sciences

On globalization, we usually treat Columbus's discovery of the New World as one of its starting points, and across these five or six hundred years the whole current has grown stronger and stronger. In every period there have been fierce anti-globalization forces. But with economic and technological development, on the large scale it can no longer be held back. Of course, a single small eddy can take up an entire human life — you may well spend your life inside that eddy.

Still, think about how far things have come. Take Brexit: a very big event. But put it in historical context — building the European Union was extremely hard, something once almost unimaginable. Look at what happened after the First World War broke out: dealings between countries, bound up with national interests, grew ever more tightly linked. That war, fought entirely over interests, was so large that people decided there had to be an international body to coordinate and manage things, so they set up an organization called the League of Nations. The League's authority was very limited — you could almost say it had none. The United States, which had proposed it, didn't even join, because Congress wouldn't approve it, never mind granting it any other kind of authority. When Japan invaded Northeast China, the League investigated and condemned Japan, and it made not the slightest difference. And once Japan got angry, it simply walked out of the League. You condemn me, I leave — and the result was the Second World War.

As the Second World War was ending, people decided there had to be a stronger international body: the United Nations. The UN has all kinds of problems, but compare it with the League of Nations of twenty-odd years earlier and its powers are far greater — it has peacekeeping forces, and a series of international financial institutions were set up alongside it. Now if a country prints too much money, it will even be reined in by international financial institutions such as the International Monetary Fund. Under the old way of thinking, how much money I print is entirely my own country's sovereign business. Now you cannot ignore that constraint.

(So you think cases like the United States, Britain, and France may all be small eddies?)

Of course. But this "small eddy" may take up ten or twenty years of a person's life, even several decades — half a lifetime. Seen as a trend, though, globalization is, I think, unstoppable. And so is the set of liberal democratic values underneath it.

Europe's and America's constitutional systems are broadly healthy — don't over-read the swings along the way

Zhang Qianfan

Professor, Peking University Law School

Globalization has pulled back somewhat. Trump's election is only one symptom, and it points to deeper causes. In Europe the main one is hostility to immigration. Ask why Alternative for Germany (AfD) suddenly took 13% of the vote: those voters were tired of the mainstream options offered by the Christian Democratic Union and the Social Democratic Party and wanted a different road. That "different road" is basically a return to xenophobia and racism. In the election late last year, you could say it won big. Austria now has a conservative party forming the government too, and their kind of "conservative" looks a little like a step back toward the Nazi road. But this is only a hint of something, still a long way from Nazism, and there isn't much chance of it. It was mostly set off by particular events — immigration suddenly ran too high, and Merkel may have pushed too hard. That produced social problems, which stirred up social feeling. Once things settle down, it will go back to normal. After all, Germany's AfD took just over 13%, still far from the forty-odd percent the Nazis once won. It's like the human body: all sorts of viruses and bacteria are present, even cancer cells are present, and everything depends on how much immunity you have inside. How many healthy cells? How much vitality?

It should be said that Europe's and America's constitutional systems remain broadly healthy — the institutional constraints and oversight Trump faces are good proof of that. Any country will swing left and right as it develops, China included. It may get a little better this year and a little worse next year, but that won't change the larger trend toward constitutional democracy, so we shouldn't over-read a temporary phenomenon.

Why has the world entered a conservative period?

Hong Tao

Professor, School of International Relations and Public Affairs, Fudan University

The 20th century was a century of revolution and of idealism — and, of course, a century that brought enormous catastrophe to humankind. By the 1970s things began to change. The West started turning conservative around the late 1970s and early 1980s. China was later; it was close to the 21st century before everyone began bidding farewell to revolution.

I haven't studied the reasons for that shift in full. My guess is that the economy is the most important factor. Capitalism's whole economic machinery has not only spread everywhere, it has hardened in place. Whatever ideology you claim, whatever culture you proclaim, you have no choice but to join it, because only then do you gain anything, and only then can a country grow rich and strong. This force is enormous. The consequences that follow from it — industrial technology, rational bureaucracy, consumerism and the rest — tend to leave every individual with nothing to do but fall into line. You could put it this way: the decline of idealism and the rise of conservatism are what happens when capitalism's hard shell closes over humankind.

Of course, "conservatism" itself is a complicated matter, and from different angles there are different kinds. Seen from the side of power, "conservative" means a belief in order and in obedience. Those who hold power always want ordinary people to do as they are told, and we constantly hear officials of every stripe complain that ordinary people are not obedient enough. What they want, ideally, is that when they tell you to do something, you do it. And not only that: when they tell you to do something you do it, and even when they don't tell you, you do it anyway. That is what power is like — what can you do about it? That is one kind of "conservatism." Every regime in history, every ruler in China or abroad, past or present, is a "conservative" in this sense; naturally they don't like radicals.

There is another kind of "conservatism," which grows out of a reflection on modernity — a cultural conservatism. It takes a different view of many central features of modern life, such as the ideology of technological control, secularism, and statism, and argues that they should be thought over again.

These two kinds of "conservatism" are very different. The first accepts the modern order, and indeed all order; the second is not satisfied with the modern order and wants it re-examined. The first is political, the second cultural, and the two should be kept apart.

Drifting toward political conservatism fits the logic of modernity. The core idea of modernity is control. The political form that control over people takes is the modern bureaucracy. Bureaucracy sets people's lives, work, and behavior on strict fixed tracks, and its extreme form is the bureaucratization of the whole society. People long used to living on such tracks naturally tend to become "political conservatives." This holds in economic life and in social life alike.

2. Why is urbanization irreversible?

Because urbanization carries enormous room for growth inside it, and no one can ignore that

He Fan

Professor, Peking University HSBC Business School

If you're asking about the grandest influence, in 2017 it was certainly the 19th Party Congress. But I think you have to look at history over a long stretch. Take the long view, set the 19th Party Congress inside a large historical frame, and what it's really about is the next two years and the next 20 years.

The next two years are about policy. From now until the 20th Party Congress, the most important year is 2020. In 2020 China is supposed to finish building a moderately prosperous society in all respects, so you can imagine that from now until then the keynote of the work will still be seeking progress while maintaining stability. Put plainly: the good news is that nothing much will change, and the bad news is that nothing much will change. It's basically about holding steady growth.

Then look at the three major tasks — guarding against risk, targeted poverty relief, environmental problems. All of them are about cleaning up problems left by the old development model. For now it isn't yet clear where the new drivers and new momentum will come from. We may have to wait for bigger reforms.

Look further out, at the next 20 years, and I think China has already entered what I'd call an "open it once and you can't go back" trend: industrialization, urbanization, and innovation. Say it out loud and it sounds unremarkable — these things have been going on for at least a decade or more.

So thought about that way, there's really no need to worry about China's economic future, because several trends are running. Industrialization: Chinese manufacturing will certainly upgrade further. Urbanization: even with some anti-urbanization policies — expelling the XX working population and so on — overall, urbanization will keep going. Second-tier cities are growing faster than first-tier ones, and along the coast, bay areas, city belts, and metropolitan clusters have appeared. If policy loosens in the future, the countryside may change a great deal and split into different paths. Innovation is the same: China's market size, the infrastructure already built, and the demographic dividend of an "over"-educated population — the sheer numbers of scientists, engineers, and returnees from abroad, in whom families have sunk enormous costs, with the eventual returns (which carry positive externalities) harvested by companies. None of this can be stopped.

So I'm not worried about the economy. The risk may lie elsewhere: we have moved from a one-dimensional society to a multi-dimensional one. In the past you only had to watch economic growth; the government's legitimacy followed, and people's lives got better. Now there is much more. Besides economic growth you have to care about livelihoods and about the environment. And these goals easily collide. Take the coal-to-gas conversion — there is a real conflict there among environmental protection, people's livelihoods, and economic growth.

3. Why can't the tide of "internationalization" be stopped?

China's modern road has been a process of "internationalization" — the successes of recent decades prove the tide right, not wrong

Ma Yong

Researcher, Institute of Modern History, Chinese Academy of Social Sciences

Our greatest hope is that there is no major setback, no war or armed conflict, no large-scale upheaval or conflict at home. We say that out of goodwill, of course — but if it really did happen, perhaps that is how the deadlock would break.

As for why it shouldn't happen, let me put it as a law of nature. For a natural person, existence is a process. It will always pass to your generation; generation after generation, that is how it goes. And when you run into one of history's turning points, what then? There is nothing to be done. So this point of mine may be hard to state clearly, but at the very least I can feel that there is nothing especially cheering in it — the change is all quiet. In a process like this, everyone learns to protect themselves; everyone learns not to hurt themselves or others.

For intellectuals, then, what matters more may be recognizing the direction. And what is that direction? I think there's a question we need to see clearly: since modern times began, has the current of human development ever reversed? Has the path the Industrial Revolution has followed for 500 years been reversed by our economic growth of these past few decades? After thinking about it for years, I don't believe it has. It has not reversed the direction humanity took after the Industrial Revolution, and it has not reversed China's modern road either.

China's modern road has been one of "internationalization." Hu Shi long ago spoke of "Westernization," which people perhaps found harder to accept, but I think "internationalization" is the direction and the tide of China's past hundred-odd years. We can't let today's economic growth — which, after all, is only what we say about ourselves — obscure the fact that if ordinary people go outside Beijing, not even a hundred kilometers, just a hundred li, that is the real China.

4. Why can't the tide of civic consciousness be stopped?

Control cannot control it

Wu Fei

Professor, School of Media and International Culture, Zhejiang University

People used to think a reasonably good society is shaped like a spindle: a fairly large middle, with the very top and the very bottom both small. Spinning fast, that shape is stable. But China today is still a pyramid — a tiny number of people hold most of society's opportunities and wealth, while the middle class has become a shrinking share instead. It swelled for a while, and now it's shrinking again.

Honestly, I can't explain this well either. How to put it? Personally I still lean toward the traditional model. I keep feeling there needs to be a fairly large middle layer to cushion the conflict between top and bottom. In a certain sense there is bound to be conflict, and a large middle class can absorb and release a lot of that energy — it's also a good transitional buffer. I don't know why current policy design has produced this shape. What we seem to be seeing is power and wealth concentrating in fewer and fewer hands at the top, the bottom getting larger, and the middle class shrinking.

But the real situation may not be quite like that. Here is what I mean. The kind of discussion we are having right now would have been impossible under the truly heavy-handed control of the past. Yet today we still have that possibility, don't we? We have study groups, reading clubs, civic actions of all kinds, restricted though they may be. Recently the "reading clubs" people were rounded up, but even so, if one door closes another opens, and something else is always there. It has already become a kind of civic consciousness, and if you really try to control it, you can't. This time you shut down Weibo and WeChat appears. Next time you shut down WeChat, some other circle will show up.

So once citizens have woken up, going back to the old centralized methods of control isn't really possible. From that angle I'm fairly optimistic — perhaps too optimistic.

(A bit like what Sun Yat-sen once said: "The tide of the world rolls on, vast and mighty; those who follow it prosper, those who resist it perish." This is a great trend, and it can't be blocked.)

Right.

5. So what about economic growth?

The old is dying, the new is being born — economic laws will keep new manufacturing growing

Zhang Bin

Researcher, Institute of World Economics and Politics, Chinese Academy of Social Sciences

In macroeconomics, through 2016 and 2017 I paid a lot of attention to supply-side structural reform. One of its important tasks is the "three cuts, one reduction, one shore-up," and that is closely tied to how the macroeconomic picture changes in 2018. This is probably what everyone cares about, because it isn't just about now — supply-side structural reform will likely be pushed further; it isn't a matter of one or two years.

(So,) what problems does our economic development actually face right now? And roughly how is policy answering them?

Macroeconomic problems fall into two rough types. The first is problems of stability. Are your resources fully used? That can be seen along two dimensions: either they are not fully used, or they are over-used. Under-use is a problem of insufficient demand, where some resources — human resources, physical capital — sit idle. Over-use means demand is too strong, which sets off inflation. How do you judge? People generally use prices: if prices are relatively stable and employment is relatively full, the macroeconomic situation is basically considered stable. The main tools for this kind of stability problem are monetary policy, fiscal policy, or demand management.

Then there is a second type: structural problems. As I said, keeping growth going requires resources to be fully used; structural problems are about raising the efficiency with which they are used, by improving structure. Higher efficiency of resource use raises your potential growth rate.

The way economists look at macroeconomic problems is much like the way a doctor diagnoses illness. First you make a diagnosis: what kind of problem is this? We have to look along those two dimensions.

Start with the first, stability. How were things in 2017? People say 2017 was a substantial improvement over 2014–2016. In 2014–2016 China faced insufficient demand, which showed up specifically in our PPI (Producer Price Index) staying negative month after month, with the GDP deflator close to zero — very low. A long stretch of negative PPI means the prices of manufactured goods keep falling and corporate profits take a heavy hit. And not just profits: government tax revenue, investor confidence, and the labor market all run into serious trouble, because when companies don't want to invest there naturally won't be jobs either. In 2014–2016 that pattern was very pronounced. After 2017 the PPI turned sharply, from negative to positive, and industrial goods prices kept climbing back. As a result corporate profits, tax revenue, the labor market, and investor confidence all improved a great deal, and 2017 was much easier than 2014–2016.

Why such a big change? Several reasons, I think. First, the market's own cycle. In 2014–2016 real estate sat at the bottom of its cycle, and even with no regulatory measures at all, by the second half of 2016 and into 2017 the market had an upward force of its own. On top of that came another force: the government's supply-side reform. The first item in supply-side structural reform was "cutting overcapacity." After some backward capacity was eliminated — though it wasn't necessarily backward — once part of the capacity was gone and supply came down, prices naturally went up, and the whole industry improved a great deal. As long as prices are positive, that is a big improvement for corporate investment and operations. In 2014–2016 monetary policy also seemed to be loosening gradually. That policy effect, plus the market's own cyclical rebound, together produced the price recovery of 2017.

Then there are the structural problems. Those are more worth talking about. Why? Because structural problems are the real difficulty. Why the real difficulty? Because our growth rate has fallen steadily since 2012, and behind that steady decline in the headline numbers, China's economic structure has changed enormously. Summed up at the broadest level, the change is this: the Chinese economy has passed its industrialization peak and is shifting from manufacturing toward services. Economic activity as a whole is gradually leaving the manufacturing sector and moving into services.

Happening alongside this — really the same phenomenon seen from another side — is that consumption's share is rising while investment's share has hit a high point and stopped rising, and has even begun to fall. On the industry side, the shift from manufacturing to services: at the same time, large numbers of low-end businesses, labor-intensive ones especially, have been eliminated, while some new manufacturing industries are in fact making decent progress up the ladder. There are roughly three ways to see it: 1) by share of R&D spending — China's R&D as a share of GDP has already passed the OECD average; 2) by the quantity and quality of patents, which have clearly improved; 3) by industrial concentration and the complexity of the products being made, which also show where industrial upgrading stands. But in daily life the clearest sign is the rising market share of domestic manufacturing brands, and the most telling examples are phones and cars. Neither is something a single phone maker or automaker can pull off alone; there is an enormous web of suppliers behind each. It is a system, and the rise in market share reflects the upgrading capability of that whole industry.

So you can see: the old is dying and the new is being born, and industrial upgrading is going reasonably well. But if that part is going well, why does overall growth keep falling? Why do so many companies still feel so much pressure? Because once the industrialization peak is past, growth slows — most high-income countries went through this at a similar stage. The industrial sector is, generally speaking, one where productivity rises relatively fast; but with the industrialization peak behind us, the part of the economy where productivity is rising fast is comparatively small. Some pieces are growing nicely, but in sheer size they aren't that big. In the shift from manufacturing to services, you can see that services hold the most growth potential. But services have limits: only human-capital-intensive services will grow faster, while labor-intensive services won't grow much. That is other countries' experience too — Europe, the United States, Japan, and South Korea all looked like this at this stage. China is the same. Over the past five or six years services overall have grown faster than manufacturing, but services are splitting internally: human-capital-intensive services have grown fast, labor-intensive services have not.

6. In a post-industrial society, how much growth is normal?

China's slowdown is a natural thing

Wei Sen

Professor, School of Economics, Fudan University

Since reform and opening up began in 1978, China's economy has grown fast for more than 30 years. In fact, by now it has essentially finished the industrialization belonging to this round of the technological revolution, so the slowdown in its growth rate is a natural thing. Behind that slowdown, a quiet de-industrialization has been under way since 2012, and its direct sign is that industrial value-added as a share of GDP has begun to fall. The "three cuts and one shore-up" of the past two or three years — cutting overcapacity, reducing inventory, deleveraging — also carries China's de-industrialization inside it. In the history of any country or region, an economy grows fast during industrialization; once it enters de-industrialization, there is no country whose growth doesn't slow. An economy is like a human body: it has a period of rapid growth. Between 15 and 20 you might grow several centimeters a year. But nobody grows that fast forever. Once an economy has finished industrializing and reached the stage of a "mature economy," its growth rate comes down. Nothing strange about that, and there are no exceptions.

China's economy has now reached $13 trillion, already the second largest in the world. A somewhat slower growth rate doesn't mean the amount of growth is shrinking. In recent years the National Bureau of Statistics has reported annual GDP growth of 6.5% to 6.9%, and multiplied by the existing GDP total, that is still a bigger number every year. Inside this is the fact that the growth rate of fixed-asset investment across Chinese society is falling while the total volume of investment is still rising. Investment grows year after year, but its efficiency keeps dropping, so I even feel China's potential growth rate is no longer this high — right now it is a bit like an athlete swallowing more and more stimulants to keep hold of the world record. In that sense I have spent the past few years urging people not to pay so much attention to the GDP growth rate, and to make sure instead that there is no financial blow-up and no major downturn. I have even argued that the government should drop its annual GDP growth targets, let the economy grow naturally, and simply report the previous year's actual growth rate each year. The top decision-makers have come to see this too. The Report to the 19th National Congress of the Communist Party of China did not mention the GDP growth rate once, and put forward a major judgment instead: "China's economy has shifted from a stage of rapid growth to a stage of high-quality development." That is a major change in economic policy. The Central Economic Work Conference held in Beijing on December 18–20, 2017 further defined that judgment as "the basic feature of China's economic development in the new era." And since 2017, over these two years, government macro policy has consistently put guarding against financial risk at the center of economic management. Personally I feel this is entirely rational and right, and it truly fits the state of China's economy today.

I have also kept saying, over these years, that although I judge China's growth rate to be falling, I am not pessimistic about the economy. Our GDP has already passed $13 trillion, and GDP per head has passed $9,000; at that point a growth rate of 5% or 6% is high. By the historical estimates of the Dutch economist Angus Maddison in The World Economy: A Millennial Perspective, during Britain's rise, in the 50 years from 1820 to 1870, average growth was only 2.05%. France was lower still: 1.07% over those 50 years. After German unification, in the 40-odd years from 1871 to 1913, its economy counted as fast-growing, but that still meant only 2.85%, and then came the First World War. Leave out the 1980s and count only from the 1990s, and our own rapid growth has already lasted more than 30 years. Now that we have an economy of more than 82 trillion yuan, more than $13 trillion, there is nothing wrong with growth easing a little; even down to around 5%, that still counts as rapid growth by the standards of human history. As long as employment in China holds up, whether growth is a bit higher or a bit lower matters little. That is my overall judgment. So we should look at China's slowdown with an ordinary mind.

Second point: China's economy is this large, and it has reached the middle-to-late stage of industrialization for this round of the technological revolution, so propping up high growth with sheer volume of investment is plainly no longer possible, and will get more and more dangerous. China's investment now runs between 60 and 70 trillion yuan a year. But the GDP increment that 1.38 billion Chinese create in a year is only a little over 5 trillion yuan. Experts have calculated that China's incremental capital-output ratio (ICOR) has reached nearly 6 — it now takes 6 yuan of new investment to produce 1 yuan of GDP. This clearly cannot be sustained. So to guard against financial risk, investment has to be controlled. But the moment you control investment, the GDP growth rate comes down. If you can't control investment, you can't control lending; if you can't control lending, you will only add leverage instead of cutting it. And when the marginal output of capital is this low across society as a whole, most of the leverage added is bound to be bad leverage — bad debt on bank balance sheets, junk paper in the bond market. On the other hand, if you can't control investment or the scale of lending, then as long as the banks haven't collapsed en masse, loans will keep creating deposits and in the end the broad money supply grows. So within China's macro structure, if we want to guard against risk and deleverage, we have to control investment and lending first. But once investment comes down, lending comes down, broad money growth comes down, and the GDP growth rate comes down too. That is the logic of China's economic growth, and it is very hard to change.

Another problem: in recent years, as localities kept expanding infrastructure investment to protect their GDP growth rates, local government debt has climbed and piled up. The poorer the province or region, the higher its government debt ratio tends to be. The higher a province's debt ratio, the less fiscal room it has to expand investment. Once local governments run out of money and their debts grow larger, investment naturally falls. A couple of years ago the Ministry of Finance came up with an idea: have the Ministry of Finance, the National Development and Reform Commission, and the All-China Federation of Industry and Commerce together use PPP (public-private partnership) to build infrastructure. But it turned out that some projects financed through PPP were themselves unlikely to be profitable. Private companies wouldn't invest, so it ended up being mostly state-owned enterprises taking part in the government's PPP projects. But state enterprises had already borrowed heavily — high debt, high leverage — and had no money to invest either. So it became state enterprises joining with the government to borrow from banks to fund PPP, and the risks turned out to be greater still.

Because this had become fairly widespread, on November 10, 2017 the Ministry of Finance issued the "Notice on Regulating the Management of the Project Library on the Comprehensive Information Platform for Public-Private Partnerships (PPP)" (known as "Circular 92"), requiring a centralized clean-up, by March 31, 2018, of projects already in the library. PPP projects already entered that were unsuitable for continued implementation under the PPP model, that failed to meet standardized operating requirements, or that might amount to illegal or irregular debt guarantees would be cleared out. Then, on November 29, 2017, the State-owned Assets Supervision and Administration Commission issued Circular 192, tightly restricting central state enterprises from taking part in PPP projects. And so local governments, already deep in debt with no money to invest, saw their recent PPP projects halted as well, and many infrastructure projects they had just started came to a stop. So after 2018, China's investment growth rate will certainly come down too.

Within this macroeconomic structure, with investment, consumption, and net exports all facing problems, China's future growth will have to rely on technological innovation. Technological innovation is one of the three drivers of economic growth. What people usually call the "three carriages" — investment, consumption, and net exports — are not drivers of growth at all, but statistical results of it. The three drivers that push growth are fixed-capital investment, human-capital investment, and rising labor productivity. Fixed-capital investment is already very large for us, and it will fall. As for human-capital investment, our demographic dividend reached its inflection point by 2015, and labor supply is falling too. Both are declining. Looking ahead, there is only one road for China's economy to grow on: raising labor productivity. How do you raise it? Through industrial upgrading, technological innovation, and reworking companies themselves. That is the only road that can sustain growth.

So this is what I've been talking about most lately, but it isn't a simple matter. Innovation is hard too. Innovate what? Right now everyone talks about artificial intelligence, about Industry 4.0, but AI hasn't actually changed the physical products being made. You produce a phone, a computer, a car; apply AI now and all it has really changed is some customized production procedures. The end product is still basically the same thing. It has just become more varied, and more advanced in some respects. When will the next industrial revolution come, the kind that can change how humans live? We don't know. So as things stand, I think what new energy, biomedicine, nanotechnology, and artificial intelligence are contributing to the growth of the human economy is still very limited. It doesn't yet amount to a technological revolution capable of changing how humans live, so it can't yet drive a powerful new wave of growth for human society.

On that basis I have kept saying, these past years, that the decline in China's growth rate is a trend that can't be changed, and it may well keep falling in the years ahead — just as a person stops growing taller after 30. Bound up in this is that if the current growth model doesn't change, we will certainly keep piling on leverage, keep piling on investment, and keep piling up bad debt. When loans and debts can no longer be repaid, that is a financial crisis.

7. How to understand that once certain trends are opened up, no one can stop them

Innovation may be where you'd never think to look

He Fan

Professor, Peking University HSBC Business School

My strongest impression from 2017 is that the things we think are fresh are not fresh, and the things we think are novel are quite ordinary. We take something like the sharing economy to be new, but look closely and it's ordinary — far more ordinary than we imagine. Meanwhile the things we think of as very plain, even things we consider dull, are precisely what represent innovation.

So I think we may be thinking about it wrong when we chase hot sectors and fads. A more basic trend than any fad is the ocean current. You can barely feel that current, but its force is far greater. Last year I saw a piece of news: in the African market, a Chinese phone maker has become the number one seller. The company is little known — it's called Transsion, and it doesn't even sell in China. Look it up and it gets interesting, because Transsion's team originally came out of Bird (Ningbo Bird), one of the earliest Chinese phone makers, back when it plastered the country with ads calling itself "the fighter jet among phones." Bird never really made it in the end. So this company isn't especially outstanding — it isn't technologically formidable — and yet it sells close to a hundred million phones a year in Africa. Think about it: there is a lot of Chinese manufacturing, Chinese construction, and the whole process of urban development going on right now. This ocean current can't be blocked.

Look at history. There is an economics professor at Northwestern University named Robert J. Gordon who wrote a book, The Rise and Fall of American Growth. In it he says that roughly from 1870 to 1970 the American economy made a great leap. Worldwide, the modern life we now enjoy doesn't go back far — it really happened over the past 100 years or so. He also says American growth was fastest from 1920 to 1970. Look at that stretch: the crash of 1929, the Great Depression of the 1930s, then by the late 1930s and early 1940s being dragged into the Second World War; in the 1950s the United States ran a controlled economy with a great deal of government regulation. Through all those upheavals, it turns out the American economy still grew fastest in that period.

So what does that mean? It means that once these trends are opened up, there is no way to close them again. Take the auto industry: through the 1930s the American economy stayed depressed, but the Ford Model T kept being updated. At first the car didn't even have a roof, and then, one after another, came the canopy, the windshield, the wipers, the headlights, the dashboard, and everything else.

(More reporting to follow, updated continuously)

People interviewed for this report:

Graphics: Feng Xiuxia

Cover image: a still from the film The King's Speech, via Douban.