Henry Huiyao Wang joins Moody’s Global Economy Unwrapped: The Romance of the Three Kingdoms

Wang discusses China’s diplomatic efforts in the Middle East, China-U.S. relations, and China's investment ties with Europe.

In this podcast episode of Moody’s Global Economy Unwrapped, Henry Huiyao Wang, President of the Center for China and Globalization (CCG) in Beijing and a prominent member of several international think tanks, joins Gaurav Ganguly, Chief International Economist at Moody’s Analytics, Stefan Angrick, Head of Japan and Frontier Market Economics, and Denise Cheok, Head of Southeast Asia Economics at Moody’s Analytics for a wide‑ranging discussion on China and its evolving role on the global stage.

The conversation opens with China’s efforts to mediate an end to the current conflict in the Middle East, before turning to China-U.S. relations and what to expect from the forthcoming meeting between the leaders of the world’s two superpowers. Wang also reflects on China’s growth story, its current economic challenges, investment ties with Europe, and the role of the BRICS in shaping the global order.

This transcript is made from the podcast audio and has been edited for clarity. It has not been reviewed by any of the speakers.

Global Economy Unwrapped: The Romance of the Three Kingdoms

Gaurav Ganguly, Chief International Economist, Moody’s Analytics

Hello and welcome to GEU, the macro podcast that delivers key insights into the global economy. I’m joined today by Stefan Angrick and Denise Cheok, both with me in our virtual recording studio. But bigger news is that we have Henry Wang, the Center for China and Globalization joining us. Henry, it’s an absolute pleasure to have you with us. You’re joining us all the way from Beijing, which makes this even more special for us to have you come and talk to us. Why don’t you tell us a bit about yourself and the Center?

Henry Huiyao Wang, Founder & President, Center for China and Globalization (CCG)

Yes, thank you. Thank you, Gaurav, and all the rest of the team. It’s a great pleasure to join your well-known podcast.

As you said, my name is Henry Wang. I am the founder and president of the Center for China and Globalization. I am also a former counsellor to China’s State Council, advising the Chinese government. Our think tank was established 18 years ago, and we focus on global governance, globalisation, global trade, investment, and global migration. Those are a few of the areas in which we do a lot of work.

The Center for China and Globalization has been ranked by the University of Pennsylvania and several other global agencies among the top 100 think tanks in the world. We are also the only think tank in China that has been granted special consultative status by the United Nations. We work with many international partners and are frequent participants in the Munich Security Conference, the Paris Peace Forum, the Global Solutions Summit, and the Doha Forum, just to name a few.

We have maintained good relationships with nearly 100 international think tanks, agencies, and universities. As a matter of fact, I’m going to Washington tomorrow and then to New York next week for the World Bank and IMF Spring Meetings, and for quite a few Think Tank 20 (T20)-related meetings, as the G20 meetings will be held in the United States.

So, in a nutshell, we are one of the most active think tanks in China. One thing we are proud to say is that we maintain three English newsletters: Pekingnology, The East is Read, and CCG Update. Together, they have more than 40,000 subscribers worldwide, mainly from government, business, think tanks, and the media. So if you think about a hub, or a gateway to China and Chinese policy, CCG would be a very good contact point.

Just before I came here, we had our 22nd CCG monthly VIP luncheon, and we had seven ambassadors there, including the EU ambassador and the Spanish ambassador. We also had the president of the European Chamber of Commerce in China, several former Ministry of Commerce officials, and the president of the China Society for World Trade Organization Studies. We had an excellent lunch discussion on global governance and China-EU relations. Just to give you some more sense of what we do.

We also publish many books. We have a number of open online books under the China and Globalization series, published by Springer Nature. Most of them are open access and very easy to find, with several hundred participants, authors, and contributors to the China and Globalization series.

So I’m very pleased to talk to you. Moody’s and your company are very well known, and I’m very pleased to join you.

Gaurav Ganguly

Well, that’s hugely prolific, and we are truly delighted to have you with us today. And actually, that name of the Center itself—China and Globalization—is really what we want to talk to you about, because so much has been happening ever since President Trump came on board, the U.S. has been deglobalising rather aggressively. You also mentioned the EU, and I’d love to talk to you about Europe and China, so we’ll get there. But unfortunately, over the past several weeks, there has really been one topic that has been top of mind, and that has been the conflict in the Middle East and the war in Iran.

Over the last few days, after a few worrying moments, a certain amount of de-escalation seems to have been achieved, which is very welcome news for global oil markets, global financial markets, real-money investors, and consumers who find themselves paying increased energy costs at home, wherever they are in the world.

But in all of this, I’m very curious to hear China’s view of the region and of what has been going on, especially as China also buys a significant quantity of Iranian oil. How does China see this playing out, and what sort of role do you think China could play in helping to bring it to an end?

Henry Huiyao Wang

Yes, this is a very important and timely subject, as you mentioned. I think the war is really at a crossroads now.

I was at the Munich Security Conference in February this year, about two months ago, and the theme of the report this year was “Under Destruction”—basically the image of a big elephant coming into a china shop and smashing everything. That is probably the world we have been seeing since the beginning of the year.

We have seen what happened in Latin America, in Venezuela. We saw last year the U.S. express expansionist intentions toward Greenland and Canada, and now perhaps even Cuba is being discussed, and many other things besides. But to everybody’s surprise, in the last month or more, there has been a huge war involving Iran, and it was very unexpected. There was, I think, no imminent threat to the U.S. or to Israel from Iran in the sense that Iran was not really provoking war, and yet the Supreme Leader’s circle and many others were killed or assassinated. That was a huge shock to the world.

Basically, we are seeing the global system that the world has been familiar with for the last 80 years being disrupted and dismantled in some way, and we are entering a dangerous period and moving into uncharted waters. So what I am saying is that the global system is under huge tension and threat, and all the rest of the world—particularly China, the European Union, India, the Global South, and middle powers—should now work together to sustain it.

From what I can see this morning, there is some kind of ceasefire around what has happened in Iran, and the Strait of Hormuz has been open for at least two weeks during the talks, which is good, because there is so much pressure on the U.S., on both sides, and on the Arab world that this war cannot be sustained. The chokepoint effect of Hormuz on the global economy is devastating, and nobody really foresaw just how vulnerable this lynchpin of the world economy could be, given that Iran sits in a position of such strategic influence.

What I think comes next is that China is emerging as a very important player. Foreign Minister Wang Yi has been talking to a number of foreign ministers—from the European Union, Germany, France, Russia—and, in particular, we have seen Pakistan’s foreign minister emerge as a mediator between the U.S., Israel, and Iran. Pakistan has excellent relations with China, so China can exercise considerable influence in the mediation process.

So I think China has probably entered this mediating process. We are also going to see President Trump coming to Beijing in about mid-May, which leaves only about a month. So there are perhaps two weeks to reach a deal. I expect a deal could be reached with China participating, and that President Trump would certainly not be coming to Beijing with a war still intensifying, but rather after some kind of peace-making process has been achieved.

So I am cautiously optimistic that the Iran war may be stabilised by that time. More broadly, though, we are seeing a kind of failure in the U.S. approach to the Middle East. They built many military bases in the Gulf and have bombarded Iran heavily, moving aircraft carriers and all the rest. Yet a middle country like Iran has still been able to resist, and the fact that it can fight back has surprised the world. Iran has used relatively cheap missiles and drones in ways that create inventory shortages in extremely sophisticated weapons that took billions to design. So it is not sustainable for either the U.S. or Iran to continue this. We have to come to some kind of conclusion.

I think we are going to see a new Middle East. Iran may emerge even stronger, and we may see a diminishing of the interventionist and imperial power of the U.S.—that much seems visible from this war.

Gaurav Ganguly

You gave me so many insights there. I’m trying to sift through them and order my next set of questions. I think that’s what I’ll come back to, a couple of things you said. One very important point you made is that you linked the resolution of this conflict to President Trump’s impending visit to Beijing. Now that’s quite important, that if we do it that way, then that makes us think that, you said that we could get a resolution of this conflict in the next couple of weeks. That would be hugely positive for the global economy.

But what do you think that resolution looks like? Because right now we have the loss of around 20 million barrels a day of oil, crude and product, then there’s a loss of gas. And if we think about the reopening of the Strait of Hormuz, I’m struggling to see how that actually plays out in practice, and what the deal looks like that would allow the strait to reopen, at what base it could reopen. And even subtracting from the messiness, the logistical messiness of reopening, just focusing on the geopolitics of reopening, what do you think that looks like under such a deal?

Henry Huiyao Wang

I think it is quite doable and possible that we return to a peace-negotiation process in Pakistan. The U.S. is hoping that in two weeks’ time—perhaps with negotiators starting on the 10th, the day after tomorrow—it can move quickly. That would be well before President Trump’s visit to Beijing.

President Trump has already said they have a 10-point or 20-point framework, whatever it may be, and the U.S. claims that most of its aims have already been achieved. So I think it is quite face-saving for them to step down. They can say that the regime has changed in some sense because many of the old guards are gone. They can also say that the nuclear facilities were largely destroyed. Even last June, after attacks on Iran, the U.S. was already claiming that it had largely destroyed Iran’s nuclear capabilities. So after this round, I am sure they can again say most of that capability has probably been destroyed.

So I do think they can come down with some kind of self-declared victory. Trump can then say that he delayed his deadline and really pushed a peace-making process. The good thing is that Pakistan, and quite a number of other countries, really want to see a peace deal, and China has such a good relationship with Pakistan.

We saw Pakistan abstain in the UN Security Council vote just yesterday, whereas U.S. and some Gulf-country proposals did not go through in relation to Hormuz. So if China and other countries become involved, they may be able to say: please guarantee Iran’s security, please ensure there are no more invasion attempts or attacks on Iran. In that case, Iran could say: all right, we will open the Hormuz channel.

You need guarantors—just as with the earlier Iran deal, where you had guarantees not only from the U.S. but also from the European Union, China, and others. So I can envision that if a deal is struck this time, we could again have guarantors—China, Russia, perhaps the European Union and others—to ensure that Hormuz remains open. The UN Security Council could perhaps pass a new resolution, with France and the U.K. involved, to ensure there are no more attacks on Iran, no more invasions, and no more assassinations of its leaders. Under those conditions, Iran could reopen the channel as long as the agreement stands.

So I see a way out of this. As Iran has said, it needs international guarantees, international promises, and U.S. commitments. And the U.S. has already said it has achieved most of its goals, with maybe only one or two points left. So I can see things being done and handled as we would hope.

Gaurav Ganguly

And Iran has long called for these guarantees, hasn’t it? From day one, it has made clear that it could pull back, but only if it is really convinced that it will never be attacked again.

Over the course of the past few weeks, we have also been hearing a lot about a potential solution in which Iran continues to control the Strait of Hormuz post ceasefire and post conflict, and Iran then benefits from fee income from the Strait. How do you see that working out? Do you think that will be part of any peace deal? Or is it really just about security guarantees, provided that if Iran is convinced it will not be attacked again, and it has ironclad guarantees, it will simply pull back and allow shipping to resume and will try to regulate passage or collect fees from vessels transiting the Strait?

Henry Huiyao Wang

I think Pakistan has really emerged as an important peace-maker, and China and Pakistan enjoy a very good relationship. Furthermore, around 78% of Iranian petroleum goes to China, so China holds a great deal of weight when it comes to persuading Iran. China is also the largest trading partner of all the Gulf states, so it has significant influence on the other side as well. And then, right after this, you could have a U.S.-China summit.

So I think China will have considerable leverage in promoting peace. China’s envoy, Ambassador Zhai, has been shuttling back and forth across the Middle East, and China is also talking to Israel. I think in this war, China may be able to play a much more active role than it has in the Russia-Ukraine war. Even there, President Trump is still stuck and has not really made progress in negotiations. That may be another reason for President Trump to come to China—to seek Chinese support in finishing that war as well.

After this whole experience under the new Trump administration, you really see China emerging, in my view, as a credible superpower with a high moral standard—one that is not abusing its power, not invading countries, and not sending soldiers abroad, but which has gained huge respect around the world. I was even attending ASEAN discussions yesterday, where they released a major annual regional survey. In many areas, China gained many more points than last year, which suggests its international reputation and influence are both rising.

Gaurav Ganguly

You made a really interesting observation about China being such an important trading partner for various GCC countries. I have been thinking about the economic outlook for the GCC countries, pretty much nonstop, for the past several weeks. We have many clients there. I speak to them very frequently.

And there’s, of course, a lot of concern, understandably, about what is going on right now. But I’m also starting to think about the longer term, and you made me think about China’s investment in the region. Do you see the scope? Obviously, there’s been quite a change in geopolitics, and coming out of all this, the GCC countries will want to repair their reputation. They want to show that they are open for business, that they haven’t lost their international allure. They’ve enjoyed a remarkable haven status over the last few years. When things have gone wrong in other parts of the world, capital has flowed into the region. They’re seen as very attractive countries in which to invest, to go and live, to work. Do you see the potential here for China to ramp up its investments into the Middle East coming out of this conflict?

Henry Huiyao Wang

I think there are still many opportunities there. Of course, if the war ends, there will be enormous reconstruction needs—not only in Iran, but across the Gulf states, and even in Gaza and other places. China’s infrastructure capability is number one in the world. Together with the Asian Infrastructure Investment Bank, China can do a great deal in that part of the world. China has already done a lot there.

At the same time, we have also seen a recent rush of global investors—Asian investors and many others—into the Gulf, because they believed the U.S. military presence made it a safe haven not only for security but also for investment. But that perception has been heavily disrupted. Many people have evacuated. Flights have been stopped, airports have been under threat, and the broader business environment has been shaken. I was recently in Hong Kong, and there is now a great deal of interest shifting back there. We are seeing some Middle Eastern money flowing back.

So what I think is that this kind of huge offset and setback will probably take a number of years to restore and recover from. If Israel still, like today, Netanyahu will say, “Okay, the deal is only with Iran, not with Lebanon,” he is still keeping one loophole open there, threatening that part of the world. So I would think this kind of confidence-building takes years to build, but confidence collapsing takes days. So it is going to take another few years at least to regain this kind of confidence. We will see.

The Middle East has always been a troubled spot. If the two-state solution remains unresolved, then this kind of regional problem will continue to linger and remain a time bomb. Asia is emerging as more of an oasis for investment and stability. There is no war happening in Asia. There was a small conflict going on between Thailand and Cambodia, and immediately, China and other countries calmed it down already; ASEAN also helped calm it down.

So when it comes to the recovery of the Middle East, I think it will take years to come back. But still, they have a good foundation, good infrastructure, and a good basis. It depends on how this new peace agreement stands, and it depends on how those big players—China, the U.S., the EU, India, and many other countries working there—respond. We will see whether that stability and prosperity can return to normal, as we experienced in the past.

Gaurav Ganguly

That is also, I guess, what people are worried about: that some of these countries might lose their allure, and that it will take longer for them to rebuild their brand and image. I mean, I personally think that they can do it. They have very strong leadership. They have, as you said, developed huge amounts of infrastructure and very deep sectors. And if you look at Dubai’s financial sector, for instance, I am personally confident that they will rebuild.

But I agree with you: this is not an easy thing to overcome. This has been a very difficult period for countries in the region. They have done a huge amount of work to support their economies, and once they come out of this conflict, depending on the shape of the peace proposal, these countries will then have to work quite hard to restore their image and bring money back.

But I want to move this conversation along, because I am sure we could spend the whole hour talking about China and the Middle East. And the problem with having you on the show, Henry, is that I just do not know which questions to ask, because I have got so many. But let me move on, perhaps, to one of the key points that you made earlier, which is this marker in the diary of President Trump visiting Beijing. What do you think will come of that? It has been such a complicated relationship between Beijing and Washington for many years. This predates the first Trump administration, even.

But looking at things now, I am not going to go over the events of the last couple of years; they are all still fresh in people’s minds, even though we tend to forget these things as we jump from one event to the next. But coming back to trade, China’s relationship with the U.S., and the Middle East, what do you think will come out of the meeting between Xi and Trump?

Henry Huiyao Wang

I think this is a long-expected meeting. President Trump has been saying from day one that he wanted President Xi to attend his inauguration on Capitol Hill, and the U.S. side has geared up toward a summit.

I think President Trump is taking a more realistic approach in his second term. Even during the summit last year between President Trump and President Xi in Busan, South Korea, President Trump said this was a G2. I think the Chinese government may not recognise it as a G2, but in reality, it could be a G2 in many ways. The new U.S. national security strategy has also put China as a near-peer competitor without the same stress on strategic rivalry that we saw in the 2017 report from Trump’s first term.

So I think President Trump has become more pragmatic and more realistic, while China has become more resilient and more experienced in dealing with the U.S. Both sides probably recognise that trade wars, trade restrictions, and sanctions do not really work. In Trump’s first term, the U.S. launched tariff wars and sanctions against Huawei and many other things. But when those tactics were tried again in the second term, China had developed the capacity to push back. If the U.S. weaponises chip sales and other restrictions, China can weaponise rare earths and other strengths it has.

So people suddenly realise that the two countries are deeply intertwined and depend heavily on one another. We cannot simply live without each other. What is the point of fighting one another to the point of mutual self-destruction?

I think that is the broader consensus, not only between China and the U.S. but in many countries. Even though people talk about deglobalisation, global trade is still growing. At the VIP luncheon today, the president of the European Union Chamber in China said that global trade rose by 7% last year and accounted for more than half of GDP growth. So trade is continuing despite all the setbacks, trade wars, and restrictions.

That means that, like it or not, China and the U.S. have to trade with each other—if not directly, then indirectly. The same is true of Europe, Japan, and many other countries.

So I think when President Trump comes this time, they may continue whatever trade agreement they have and perhaps revisit certain tariffs. I hope, for example, that the U.S. could drop the additional 10% tariff linked to fentanyl, especially since the U.S. has been striking drug cartels in Latin America, in Venezuela, in Colombia, and in Mexico. And China has recently arrested and sentenced a number of precursor producers at home. So I hope that they can at least get some low-hanging fruit. It would be good news if that tariff could be removed.

Furthermore, President Trump has said he wants to be a president of peace and a president of unity. If he wants to be a president of peace, then the biggest thing he wants to do is end the Russia-Ukraine war. And to do that, he needs China, just as he needs Pakistan and China to help bring the Iran war to an end.

So I think there are bigger issues on the table. In the last phone call between President Xi and President Trump, they said the U.S. and China are steering a giant ship in the world. Together they can achieve bigger things—not only for the benefit of China and the U.S. but for the whole world. I think President Trump has a bigger agenda and bigger aspirations. He wants a Nobel Peace Prize, and if he is serious about that, then he has to work with China.

Finally, I think Taiwan remains the core of the core issues for China. Yesterday, the new leader of the KMT opposition in Taiwan landed in Shanghai and began a several-day visit at the invitation of President Xi. I think cross-Strait relations are warming up, and there is a huge interest in peaceful negotiation and peaceful unification.

The U.S. recognises the one-China policy and says it does not support Taiwan independence. Why can’t the U.S. go further and say, “Okay, we support the peaceful unification of the mainland and Taiwan?” That would be great. On this Taiwan issue, it’s what China hopes for the most—that the U.S. can really calm down.

On the other hand, the U.S. is so busy with its focus on Greenland, Latin American countries, and even Canada. Why should they worry about China unifying with one of its provinces? I believe there is a lot for them to talk about and plenty of consensus to be reached. The world is really hoping for the two leaders to reach a lot of tranquillity and agreements—something the world badly needs. So, I believe this visit holds significant importance, not only for China and the U.S. but for the whole world.

Gaurav Ganguly

It sounds like you’re not too concerned about the current Section 301 investigations, which seem to be mainly directed at China, focusing on overcapacity. Overcapacity and the involution problem are indeed concerns for China from a domestic perspective, but the world—Europe included—is quite worried about cheap Chinese goods flooding their markets and the overcapacity of Chinese producers. The U.S. investigations into this aspect of Chinese trade are certainly alarming on paper, as they could open the door to more tariffs on China. But it doesn’t seem like you’re particularly concerned about this. It feels like you think tariffs might even be lowered after the meeting between Trump and Xi.

Henry Huiyao Wang

I think this is fundamentally a matter of market supply and demand. China is not forcing anyone to buy its products. If China can produce cheap, good, high-quality products, then that is healthy competition. It also stimulates competition in other countries. Multinationals compete in China as well—Tesla exports large numbers of electric vehicles from China, and around 40% of EVs made in China by multinationals are exported globally. So China has become an incubator or battleground for producing the best products. If you can compete successfully in China, you can probably compete globally as well.

In that sense, China provides healthy competition. I remember at the Munich Security Conference two years ago, a German think-tanker told me: If China can produce high-quality, low-cost solar panels, let it be. Even if China is subsidising that, the whole world benefits, because we are fighting climate change. If China is indirectly helping the Global South obtain affordable green products, why not?"

More fundamentally, China is willing to address trade imbalances and is also willing to invest abroad, like Japan did in the 1980s and 1990s. After the Plaza Accord, Japan felt that one way to adjust was by investing around the world, and that huge wave of Japanese investment in autos and other industries across the U.S. and Europe helped change the situation. China can do the same. China is now the largest automobile producer in the world.

But when it comes to overcapacity, I think it’s sometimes not a real issue. For example, Japan produces 8 million cars, and domestically, they only consume maybe less than 1 million, while the remaining 7 million are exported. The same goes for Germany—Germans consume less than 20% of their production, with 80% being exported. In China, they produce 60 million EV cars, but they only export around 3 to 4 million. Percentage-wise, that’s much lower than Japan and Europe. So, I don’t think overcapacity is truly an issue.

Even if it were, China is willing to invest in setting up EV car manufacturing in Europe, the U.S., or anywhere there is an imbalance. The problem, however, lies in the geopolitical lack of trust and containment measures that are threatening many Chinese companies. Over 1,000 Chinese companies are on the U.S. Entity List, including Huawei, and even TikTok, which has been under threat for many years but has recently been calmed down. The same thing is happening in Europe. For example, 40% of Chinese investment in Europe goes to Hungary because of its strong relationship with China. Recently, there has also been a significant surge in Chinese investment in Spain, largely due to the Spanish Prime Minister’s frequent visits to China, as well as the recent visit by the Spanish King.

So, I think if we can maintain good relations, as President Trump has said—welcome Chinese investment—then we should put aside the bipartisan hawkish attitudes in Congress and say, “Welcome Chinese investment.” I’m sure that would lead to massive Chinese investment flowing into these places, which would solve employment issues, provide local taxes, and transfer technology, just like multinational companies did in the 80s and 90s—transferring technology in exchange for access to markets. Chinese companies can do the same.

I think fundamentally, the issue of so-called overcapacity or subsidies is caused by the lack of trust and the geopolitical containment between countries, and that’s the root of the problem. That’s why we really need more high-level visits. I think what President Trump did was right, and he’s very eager to visit China to seek better relations. That’s exactly what we need.

Stefan Angrick, Head of Japan and Frontier Market Economics, Moody’s Analytics

Now, briefly, I want to follow up on your point about China’s economic model, Henry. I hear what you’re saying with regard to the criticism of China, perhaps being unfair. It’s a view that I share, because in many ways, it feels to me that businesses and governments in the West have grown a bit too comfortable in their position. They don’t try hard enough when it comes to things like pushing into green industries, for example, the way China does, right? The Chinese model illustrates that it is possible to do big things. But I would perhaps push back a little and say that it is also true that this approach Beijing has taken leaves it very dependent on global demand.

I find that very interesting, because, in many ways, that’s always been true ever since Deng Xiaoping started the process of opening up China. The idea was always that China would grow through exports. Along the way, investment also played a bigger role. But the point is, domestic demand was always sort of de-emphasized. And that’s something I would be curious to hear your take on. At the recent Two Sessions meetings in Beijing, policymakers talked more about the importance of elevating domestic demand. But it doesn’t really look like much has shifted yet in terms of actual policy-making.

It does feel a little bit puzzling looking from abroad, because you could argue that it’s also China’s interest to have a stronger demand at home, to get on top of the involution problem, right? So, can you share with us how Beijing is really thinking about domestic consumption, where it ranks in terms of economic importance and policy making, and what it is looking to achieve?

Henry Huiyao Wang

Yes, that is one of the most frequent complaints we hear: that China does not generate enough domestic consumption. I think the Chinese government recognises that this is a problem, and it is really pushing for change. The new 15th Five-Year Plan has put that as a priority, and you can also see it in the Premier’s work report from the Two Sessions.

China has just come through a spring break. In the past, it was only three days, but now schools have had a six-day spring break. One of the reasons for doing that is to stimulate domestic consumption, tourism, and spending. I think things are getting better.

One reason consumption was flat for a few years after COVID is that real estate came down. When real estate falls, people think, “Okay, I don’t have as much wealth now in my pocket, so I have to keep my wallet tight and save for when I get old, so I have enough savings.” So, there’s a bit of that. But now, real estate has stabilised, and confidence is coming back. So, we would expect more consumption.

The Chinese government has been very eager, and they’ve been practising this trade-in policy for two or three years now. If you trade in your old automobile, refrigerator, TV, or computer, you get a big subsidy to buy a new one. That’s been working quite well. Furthermore, they are also stimulating the service industry, and that’s also working.

I do think the government has a lot of tools in their box. For example, China has 300 million migrant workers who don’t have city resident status. They don’t have a hukou that allows them to enjoy local resident rights. They rent very shabby apartments in urban centres and suburbs, yet the money they make, they send back to rural areas. There, on their household land, they build huge houses and apartments, which remain empty, only left for the seniors and juniors. That’s why you see the Chinese New Year traffic of people returning home reached 9.5 billion in this past February.

So, one policy they could have is to allow those 300 million migrant workers to lease out or even sell their homes in the rural areas, and allow city residents to go and buy this household land to build their retirement homes. If that barrier is knocked down, you’ll see a huge Chinese liberalisation. They could produce another 100 million middle-class people, because 300 million migrant workers have worked in the city for 10, 20, or 30 years, but they don’t have local resident status. They worry about the future and don’t want to buy or consume in the cities. But if they can sell their rural homes, then the urbanisation rate will be accelerated.

For example, China’s urbanisation rate, if you look at Japan, you know, they have 100 million, but the percentage of the population living in big cities is much higher than in China. So, I think the government can do many things to stimulate domestic consumption. That’s really the issue China is facing.

But of course, China has developed technology now. They’ve developed AI, they’ve developed a lot of manufacturing capabilities, and they’re absorbing a lot of new college graduates every year as well. So, I’m not overly concerned because, even though real estate has come down and has been flat, China has other synergies. For example, China has 70% of the global high-speed railway. Their stations reach almost 6,000, ten times more than in the U.S. and Europe. Also, their power generation is 2.5 times that of the U.S., and three times that of Europe. So, they’ll have a lot of computing power for AI.

Also, out of the 10 largest container ports in the world, seven of them are in China. And with 1.2 billion smartphone users, everyone has WeChat, which is highly effective for communication. There are also new jobs being created, like the 50 million delivery workers on the streets every day, delivering all kinds of products.

According to developed country standards, one doctor needs four nurses to accompany them. If that ratio is applied to China, China would need 50 million extra nurses in the healthcare industry. So, I think there’s a lot of room for China to grow, and domestic consumption will gradually pick up. Now, domestic consumption accounts for around 50%, maybe not 60%, but in developed countries, it’s 70-80%, and I think China is getting there.

Also, now they are more confident. They see there’s no war going on in China or Asia, and they can travel. I was talking to seven European ambassadors at my lunch, and I said, “China has opened free visas to over 20 European countries. Why can’t European countries open free visas for Chinese tourists?” Talking about imbalance, let those tourists travel to your country without a visa. Thailand opened a visa for China, and 8 million Chinese travelled to Thailand. Central Asia opened their visa policy, and Russia opened theirs. There’s been a flood of Chinese tourists. I see the European Union could do the same, and that would help correct those imbalances and create more opportunities in the service sector.

Gaurav Ganguly

Let me ask you one more question about China’s domestic economy, which also ties into China and globalisation. Before we move on to Europe, Latin America, and Asia—topics I’d like to discuss later—let’s talk about China and AI.

You briefly mentioned AI and data centres. We hear a lot about American-led AI, and we hear a lot about China-led AI. These are the two superpowers leading the world in AI, yet Europe is really nowhere to be seen in all of this.

In all of this, we also hear a lot about investments being made in data centres in the U.S., but we don’t hear much about investments in data centres in China. Of course, we don’t have the data on that. So, I’m just trying to understand China’s roadmap for AI development. We know that China is a hugely innovative country when it comes to industrial applications for technology, robotics, and so on. China is really world-class in how it deploys technology in manufacturing. But then, thinking about consumer technology and the way AI is being used by companies like Alibaba, China is, once again, at the forefront.

Do you have a sense for how much productivity gains will come from AI for China, because it seems like another huge growth area?

Henry Huiyao Wang

Absolutely, you know, that area is enormous. China is the largest drone producer in the world, and the largest producer of autonomous driving vehicles. It’s also a leader in green power, green EV car production, and AI-aided manufacturing. I was surprised to see how many industries have incorporated AI elements. AI education is also taking shape; for example, Beijing high schools now mandate that students spend eight hours per semester learning AI.

The essence of AI is computing power, and computing power relies on electricity. China’s power generation is 2.5 times that of the U.S. and three times that of Europe. I’m sure there are many data computing centres being established in China. Big players like Alibaba, Tencent, and Baidu all have them. And China can afford it, thanks to its massive electric power resources. The Three Gorges Dam is the largest hydroelectric power project in the world, and China is currently building three or four more similar projects, adding significant hydroelectric capacity to optimise solar and wind power. China also has high-voltage transmission lines, ranging from 800 to 1000 kilovolts, spread everywhere—it’s enormous.

If you look at data, China is now the largest producer of AI data tokens in the world. When you talk about application scenes, with 1.4 billion smartphone users, data is being generated every day. This data goldmine can be utilised for various sectors, like healthcare, disease diagnosis, industry, and innovation. AI-driven technology, AI-driven manufacturing, and AI-driven production make China a world leader in these areas.

Finally, I think China has an open system. Companies like DeepMind and others use AI at a fraction of the cost compared to the U.S., and they make this AI accessible to the Global South, as well as to other countries and companies. This makes AI an affordable tool for hospitals, manufacturing, travel, hotel management, problem-solving, and academic research.

I believe AI has significantly empowered China, and with its abundant computing and electric power resources, China is well-prepared. Additionally, the data required to train AI models is in China’s hands, likely making China one of the world’s best-positioned countries for AI development. So, I’m not worried about China’s AI future. I’m confident it will at least remain on par with the U.S. in this field.

Denise Cheok, Head of Southeast Asia Economics, Moody’s Analytics

I just wanted to stay on the topic of China’s domestic economy and sort of build on what you were talking about with AI. One of the main things that came out of the Two Sessions in March was the growth target. It was set in a range of 4.5% to 5%.

So, one of the theories is that the 4.5% target might be giving some allowance for the productivity gains that AI could bring in later on. Maybe this won’t be realised this year, but it could come in the future. Another theory is that Beijing is allowing the economy to slowly shift towards more domestically led consumption. The final theory is that this might reflect the external volatility happening right now—it’s not necessarily China’s fault, but factors like the conflict in the Middle East, tariffs, and other issues that could affect the growth target. So, I’m just wondering, what’s your take on this?

Henry Huiyao Wang

Yes, the 4.5% to 5% target—I think when they had this meeting, the Iranian war had already broken out. I mean, that’s exactly why China put this cushion in place. Originally, they may have planned for 5%, but then they said, “Look, we have this chokepoint at the Hormuz Strait, there’s a war going on, there are supply chain issues, and there’s a global recession.” So, they built in a 0.5% cushion, allowing for a range of 4.5% to 5%. That’s really important. Think about 5%—it’s enormous. Every year, China adds 5%, which is almost over 1 trillion U.S. dollars—essentially the GDP of Indonesia or the Netherlands. You’re adding the GDP of a mid-sized country to China’s economy.

I think the reason China can do this is because of the high efficiency and effectiveness with which everything works together. Another success factor for China is one five-year plan after another five-year plan. There’s no waste in policy debates. We don’t see new presidents coming in and vetoing the policies of previous leaders. In some democratic systems, you see endless cycles of policy back and forth. That’s a huge waste.

So, when it comes down to the competition—whether it’s subsidies, SOEs, or overcapacity—it’s not really the issue. The real issue is that China has invented a new model of meritocracy. Every year, 15 million people take the college entrance exam, 30 million get into universities, and out of those, 200,000 enter government. There’s fierce competition to get those positions and university degrees. The officials are not promoted based on public speaking skills but by what they can deliver at the grassroots level, from the village to the county, municipality, province, and ultimately the central government. So, there’s a performance-driven culture.

China has 31 provinces and cities, and 2,800 counties. Every mayor, every party secretary is essentially the CEO of their own region, competing with each other. China has invested massively in infrastructure, and its infrastructure is the best in the world. This synergy produces a lot of high-quality and high-speed products. So, I think by maintaining this model and maintaining stability, that’s why people are starting to realise why China always stresses stability above everything else. Because stability enables continuous progress and avoids the ups and downs, back-and-forth debates, and indecisiveness.

The meritocratic and performance-based culture, along with China’s unique model, is a mixed hybrid economy. You don’t see this anywhere else in the world. China’s private sector accounts for 60% of innovation, 70-80% of all enterprises, and 90% of employment, yet SOEs handle all the strategic and critical jobs—like maintaining communication networks, high-speed rail, etc. Meanwhile, multinationals account for 40% of China’s imports, exports, and employ 40 million people. The trilateral structure of China’s economy is unique and drives stability and continuous growth.

Finally, people often say China doesn’t have a democracy, but that’s not true. China has the world’s largest opposition party—the U.S. could be another, and Europe could be another. The leaders constantly adapt and change, and global media, especially Western media, criticise China—but China is able to adapt. I’ll give you an example: in 2015, when Paris called on China to join the climate agreements, there was heavy smog in China. Some officials said, “We’re just about to develop, and now you want to stop us from polluting? Why can’t we pollute now?” But they eventually realised that not polluting was better for China. International monitoring, like the U.S. embassy in Beijing putting up PM2.5 readings every day, helped China recognise the need for change. They studied the issue and found that 60% of Beijing’s pollution came from automobiles. They then started promoting green EVs, and now 60% of the cars in Beijing are electric. China even had a record number of clear skies in Beijing last year.

This shows how China can adapt to international criticism and change. China’s “way of doing things”—what they call their modernisation drive—is a path that fits their own needs. That’s why China is becoming more appealing, and more tourists are coming to China, realising it’s totally different from what they’ve heard in the Western press. This shift in perspective offers a convincing explanation of the progress China has made.

Gaurav Ganguly

You talked about green energy, and it’s a bit of a favourite topic of mine, combining green energy, Europe, and China into one question. It feels like Europe is quite hesitant to allow in more Chinese investment, but it could clearly benefit from more Chinese investment. You mentioned Hungary and Spain, but Europe could also benefit from much more investment in green energy and Chinese green tech, which it seems reluctant to do so. In fact, it seems that Europe could have more investment in this area, and you would think that this would be even more necessary after the latest energy shock.

Europe experienced an energy shock in 2022 when gas prices soared, and as a result, it actually tightened its climate targets. More recently, however, some of those targets were relaxed, which probably needs to be revisited given the latest oil price shock. So, what do you think Europe needs to do to attract more Chinese investment in EVs and other areas of clean tech?

Henry Huiyao Wang

Yeah, that’s a good question. I’ve been talking to a lot of people about this. For example, I had Pascal Lamy, the former WTO Director-General, come to my office two weeks ago. We were discussing how many European companies, such as Volkswagen, Mercedes-Benz, BMW, Bosch, and other German companies, have huge joint ventures in China. That’s how they came into China, and they know how to work with Chinese companies. So, I suggested, why can’t we do joint ventures in green tech? They could partner with Chinese EV manufacturers or work in the upstream and downstream sectors, and invest back into Europe.

The problem is the unhealthy bilateral relations between China and Europe. China is often blamed for its involvement with Russia in the war in Ukraine. China has not been involved in or conspired in the war with Russia. It takes time for that to be understood. So, I think joint ventures could be one way to invest in Europe.

On the technology front, China is now completely new in this area. You’re talking about old combustion engine models of automobiles versus the production of EVs, which is a completely different process, both in terms of production and design, as well as the software behind it. I visited a Huawei factory, where they power up the most advanced EVs in China, and they have great features. You get into the car, there’s music and movies, you wave your hand, and the door opens, just like an AI-driven machine. It’s so advanced.

This new software design for automobiles is different from the old manufacturing model, where production, design, and software were separate and vertical. Now, everything is integrated horizontally, and you can play with the computer to adjust features. This new model is something China could transfer to Europe. Just as European countries came to China through joint ventures to transfer technology in exchange for access to the Chinese market, Europe could do the same with Chinese technology and Chinese investors. There’s huge potential for collaboration in this area.

Another thing is that Europe should have more institutional arrangements. For example, the Comprehensive Investment Agreement between China and Europe, which was reached seven years ago, is basically sitting on a shelf and hasn’t been fully implemented. Why can’t we upgrade and improve that? There’s a huge European services industry that hasn’t fully penetrated the Chinese market, and China wants to join the WTO’s Government Procurement Agreement, but hasn’t been able to yet. If China could join, it could open up more opportunities for European companies to operate in China.

Finally, I think the European service industry is very strong, and it could come to China more freely. Even if the European Union has a free trade agreement with India, why can’t they have a free trade agreement with China? I think Europe and China have no real conflicts. They have a long history, culture, and diversity, and they can get along very well. Now, more than ever, Europe must become more autonomous and independent. As the second or third-largest economy, Europe can mediate U.S.-China relations and benefit from both sides, rather than seeing it as a competition between China and the West. We could create a “Romance of the Three Kingdoms.”

So, I think it’s really important for Europe to maintain good relations with China, especially as the U.S. seems increasingly unreliable, given recent events in Greenland, Denmark, and particularly the situation in Iran, where no European country or NATO supported the U.S. invasion. The world is becoming more diversified, and the old “China vs. the West” or “democracy vs. autocracy” narrative is fading. We need to ask, “What are the best interests for us?” and stop picking sides. There are many ways to collaborate. I believe China and Europe have huge potential to work together.

Gaurav Ganguly

You know what, Henry? Whenever I record an episode, one of the things constantly on my mind is the search for a title. And you have just given me one. I think we may have to name this episode The Romance of the Three Kingdoms.

Some people might think we are suddenly pulling a Chinese classic off the shelf and turning this into a romance novel, but it is actually a very fitting way to think about a possible new world order, with Europe potentially playing a mediating role between different powers.

That brings me perhaps to my last question. Back in 2001, we had the term BRICS, and that just seems like not relevant anymore. How do you see that? Do you see a future for the BRICS? Do you see these particular countries, particularly India, China, Brazil, working together? Or do you see it more it’s a more fragmented world order?

China has its economic interests and its view of the global order. Various other countries will have their own. And so the term BRICS is perhaps less useful now. It’s much more about different countries trying to find their own economic feat and work with other small countries, large countries, middle countries, in order to find a new economic equilibrium for globalisation. How do you see that working out?

Henry Huiyao Wang

Yes, thank you. That’s a good question. Actually, when I think about BRICS, I remember talking to Jim O’Neill, who coined the term. We had a dialogue a few years ago, and I think the emergence of the BRICS countries is really a trend that continued with the 70s, and it represents the global south countries. These countries were fed up with the North, having to deal with a lot of strings attached, conditions, and demands for regime changes. So, even though they have different systems, they came together because they share common grievances and have a lot to face from the north.

Now, the world is getting more diversified, and middle powers have emerged as well. So, I would say that BRICS, as a big block of developing countries, has gained appeal because China and India have gone through the developing stage themselves, with a lot of shared experience, having both been colonial subjects and oppressed by foreign powers historically. Many countries in the global south share this legacy, so these common denominators likely pushed them together.

Furthermore, they all want development. If I were to sum up BRICS in one term, it would be development. Development is really the key for all of these countries, whether it’s China, India, Brazil, South Africa, or Turkey. It’s the buzzword they all want to focus on. So, I think BRICS will become more important, particularly in the future. For example, in the Russia-Ukraine conflict, NATO, the EU, or the U.S. guarantees aren’t enough. Russia’s public needs a BRICS guarantee, including China, India, Brazil, and South Africa. This would help create a more balanced approach.

Also, when we talk about the G20, half of its members are BRICS countries. This balance is crucial for global economic development. I think BRICS will play an important role in balancing the global landscape in the future. When we talk about a multipolar world, the BRICS countries are certainly a major pole. If you categorise the world into developed and developing countries, BRICS clearly represents a vast section of the developing world. I believe this grouping will be around for a long time, with much to learn from each other.

Moreover, BRICS is a non-aligned political force that can resist some Western pressures collectively. However, there are also several parallel groups emerging. We talk about G3, G4, and if those go well, maybe the terms BRICS and Global North/South will eventually disappear. But before all of that, I still think the big players have important roles to play. Behind those big players, there are countries with different preferences, so we have the G7, G20, and now BRICS. It’s another platform for airing concerns, showing solidarity, and voicing opinions for global development. I think that phenomenon and solidarity will continue, even with the differences.

The fundamental issue remains the need for trust among the big players, particularly in the UN Security Council. I wrote an article in Foreign Policy recently about how to reform the UN Security Council. I believe the G20 should be fully represented there, even though other members may have different levels of status. That’s the way forward because 80-85% of global GDP is produced by the G20 countries. So, we need to continue pushing for UN reform, and I believe BRICS countries can play an important role in that. Thank you.

Gaurav Ganguly

It’s been absolutely fabulous having you on our podcast. I feel this is such a rich conversation. Obviously, we could keep talking about these issues for a lot longer, but our time is up. Thank you, Stefan Ungrik and Denise Chuck, for joining me, and a huge, huge thank you to Henry Wang, Principal Founder and Head of the China Center for Globalization. It’s been an absolute pleasure.

You’ve been listening to The Global Economy Unwrapped.

Henry Huiyao Wang

Thank you.