Chinese and Asian supply chain and funding in an era of geopolitical tensions
The China Forum seminar on Monday 27 November 2023 was delivered by Andrew Sheng (Distinguished Fellow, Asia Global Institute, The University of Hong Kong, Pro-Chancellor, University of Bristol, and Chief Adviser, China Banking Regulatory Commission).
The central theme of Andrew Sheng’s seminar was the relationship between finance and the real economy. Sheng emphasised the role that finance plays within global value chains (GVCs). He argued that during the era of globalisation a huge shift has taken place within GVCs. China has replaced the USA as the world’s most powerful manufacturing country. In the 1970s the USA produced 35% of global manufacturing output compared with 4% in China. Today, the USA’s share has fallen to 16%, while China’s has risen to 32%. Moreover, China is moving steadily up the value chain into increasingly high value-added activities. Andrew Sheng noted that there are several other large (‘one trillion dollar-plus’) developing economies following in China’s wake. The world economy has witnessed a dramatic shift from the West to the Global South. Sheng emphasised that GVCs involve huge numbers of people: they are ‘networks of people’. The USA’s drive to achieve ‘re-shoring’ of manufacturing is driving a wedge into the GCV structure that was built up peacefully during the preceding forty years. This policy shift is taking place in the context of ‘a tsunami of poly-crises’, including covid, climate change, financial instability and major wars. A key issue for GVCs is the way in which the shift to sustainable development goals (SDGs) will be financed. Andrew Sheng noted the wide gap between the investment needs for an environmentally sustainable future and the availability of investment funds. He argued that achieving ‘net zero’ globally requires US$9 trillion per annum. The gap between available finance and investment requirements for meeting SDGs is especially acute in developing economies. Despite the USA’s decline as a manufacturing power, it remains centrally important within the global financial system. Sheng noted that the USA has just 5% of the world’s population, but it absorbs 40% of the world’s savings through its capital markets. Channelling investment funds into meeting SDGs across global value chains is a central task for ensuring that ‘finance serves the real economy’. Above all it requires global cooperation.
Issues discussed in Q&A included: how China has been able to mobilise far more finance than the US and EU combined to promote the real economy including electric vehicles, clean energy and high speed rail; the concrete meaning of the phrase ‘finance to serve the real economy’; the reasons that the financial sector in the high-income economies since the 1980s has grown faster than the real economy; the extent to which the Western banking system has become increasingly inward looking while Chinese banks have moved in the opposite direction; the relevance to China of Japan’s experience with ‘balance sheet recession’; the extent to which Hong Kong can play a bridging role between mainland China and the global funding needs for meeting SDGs; the role that the Chinese central government plays in resolving the problems with local government financing platforms; potential sources of funding globally to meet SDGs; the feasibility of a detailed action plan for global cooperation to channel funding into meeting SDGs; the likelihood of a 1930s-type global recession; the institutional structure necessary to meet the investment needs for achieving SDGs; the extent to which ‘natural capital’ can and should be integrated into the policy framework for meeting global SDGs; China’s decision in the early 2000s to reform the five big state-owned banks as ‘single entities’ rather than break them up into smaller entities and privatise them; the relevance of the concepts ‘return on social equity’ (ROSE) and ‘return on private equity’ (ROPE) to achieving SDGs; and the prospects for RMB internationalisation.
Mr Andrew Sheng is a former central banker and financial regulator in Asia and a commentator on global finance. He is Pro-Chancellor of Bristol University and Distinguished Fellow, Asia Global Institute, University of Hong Kong, as well as Chairman, George Town Institute of Open and Advanced Studies, Wawasan Open University, Malaysia.
He is the Chief Adviser to the China Banking and Insurance Regulatory Commission, a member of the international advisory council of the China Investment Corporation, the China Development Bank, and China Securities Regulatory Commission. He was recently appointed one of the Chief Executive's Council of Advisers, The Government of Hong Kong Special Administrative Region.
Mr Sheng sits in the Advisory Board of Bank Indonesia Institute. He is a member to Commission on Global Economic Transformation, chaired by Nobel Laureates Stiglitz and Spence. He is an International Advisory Board Member of Thailand Development Research Institute. He sits in the Malaysia International Islamic Financial Centre (MIFC) Leadership Council and as a Distinguished Fellow, Institute for Capital Market Research, Malaysia.
He served as Chairman of the Securities and Futures Commission of Hong Kong from 1998 to 2005, having previously been a central banker with the Hong Kong Monetary Authority and Bank Negara Malaysia. He also worked with the World Bank from 1989 to 1993. From 2003 to 2005, he chaired the Technical Committee of the International Organisation of Securities Commissions (IOSCO). He was a Board Member of Khazanah Nasional Berhad, the sovereign wealth fund of Malaysia.
Mr Sheng has a First Class Honours in Economics from Bristol University, and Honorary Doctorates from University of Bristol and University of Malaya. He is an Adjunct Professor at the Graduate School of Economics and Management, Tsinghua University, Beijing and Faculty of Economics, University of Malaya. He is a Professor by Practice at School of Business and Administration, Wawasan Open University, Malaysia.
He is author of From Asian to Global Financial Crisis: An Asian Regulator’s View of Unfettered Finance in the 1990s and 2000s (2009), and co-editor (with Ng Chow Soon) of the book, Bringing Shadow Banking into the Light: Opportunity for Financial Reform in China (2015). He writes regularly on international finance and monetary economics, financial regulation and global governance for Project Syndicate, AsiaNewsNet and leading economic magazines and newspapers in China and Asia. In April 2013, Andrew was named by Time magazine as one of the 100 most influential people in the world. He also appeared in the Oscar-winning film Inside Job in 2011.