A Sting Exclusive: “The Chinese economy is steady and moving in the right direction”, Ambassador Yang of the Chinese Mission to EU underscores from Brussels

Last summer stock markets in Europe and around the world suffered significant losses due to major turbulences in the Chinese markets. The European Sting following the matter very closely invited Mrs Yang Yanyi, Ambassador and Head of Mission of People’s Republic of China to the European Union, to provide her insights about the stock market plunge in China and also about the prospects of the Chinese economy. The following revealing excerpts of this exclusive interview that Ambassador Yang gave to Panos Katsampanis, Co-Founder of the European Sting, provide a number of stimulating answers not only about the recent Chinese financial crisis but also about the future evolutions in the China-EU relations. Q: In the past few months, analysts have been arguing that Chinese economy is remarkably slowing down. On the other hand, in Davos last January, I listened to the Chinese Premier Li Keqiang making a vibrant speech at the World Economic Forum 2015 where he stressed that “there will not be a financial crisis in China.” How do you read on China’s economic growth? Ambassador Yang: As the world’s second largest economy, China’s economic performance and prospects have been closely followed and heatedly debated. As pointed out by some commentators, every year since the late 1990s, there have been warnings that China’s success is unsustainable, that China’s economy is built on sand and will end in tears. At the time of obvious difficulty, these voices could be more strident and China disaster books would proliferate. While these concerns and worries could be appreciated, they do not reflect and some may even distort the real picture. What then are the real situation and prospects of China? On the whole, the Chinese economy is steady and moving in the right direction. We have ensured continuity and improvement of macroeconomic policies and the economy is performing within an appropriate range. China’s GDP grew by 7% in the first half of the year. With our economy standing at US$ 10 trillion, the 7% growth is actually larger in absolute terms than the previous years. CPI growth is moderate. Employment remains robust, and 8.4 million new urban jobs are created in the first half of the year. Key economic data of the second quarter such as industrial output, investment, consumption and export were stabilized and rallied, and market confidence was strengthened. Though trade, investment and industry dropped in July, consumption, real estate and services remained stable. Economic restructuring adjustment and innovation-driven development have picked up speed – the service sector now accounts for more than half of the economy, and new products, sectors and business models have emerged in great numbers. In the first five months of this year, online retail sales rose by 38.5%, and output of new-energy cars and industrial robots increased by 2.8 times and 1.3 times respectively. All these point to the fact that China’s industrial development is upgrading and the Chinese economy is being driven by new growth drivers. There is no denying, however, that China still faces downward pressure and some deep-seated problems. But these are “growing pains”. We have both the confidence and the capabilities to meet the target set for this year, and we will strive to sustain medium-high rate of growth and move the Chinese economy toward medium-high level of development. Our confidence is based on the following: China has a very strong, powerful, strategically-minded, far-sighted, extremely committed and determined, and highly intelligent, capable and action-oriented leadership. China enjoys unity of mind and purpose, a well-functioning socialist system and good tradition of swift and effective implementation. China is pushing forward reforms. Nobel Prize laureate Michael Spence once remarked: “Reform, not growth, is key to China’s future”. As the last three decades have shown, reform is the biggest dividend for China. Given the fact that our economic growth model remains insufficient and that the dividends of past rounds of reforms are waning, China is pressing ahead with a comprehensive package of reforms to secure more balanced, coordinated and sustainable development. China has a huge market, tremendous resilience and great potential to leverage. The Chinese people are the most hardworking and intelligent and with our turning out every year some 7 million university graduates, we enjoy a huge reservoir of talents. China boasts to having established the most comprehensive industrial structure in the world and we are moving from a big industrial nation to a strong one, from being at the lower end of the global value chain to the high end. China has accumulated sufficient capital and technology to sustain sound and sustainable development. The unbalanced development between regions and between the urban and the rural areas are both a challenge and an opportunity. By 2020, we will move 100 million people from the rural areas to the urban areas, lift another 100 million people out of poverty and provide decent housing to 100 million people and all these will generate new investment and growth. Furthermore, China has the strong capability to manage and resist all kinds of risks and challenges. In short, our fundamentals are strong and we have every reason to maintain a mid-to-high speed of growth and to move towards the mid-to-high end of development in the long run. Q: The recent reform in the RMB exchange rate by the Chinese government is expected to boost exports, restore confidence and put the market back on track. But some are also concerned about the spillover effect of the reform. Could China’s RMB devaluation spark a new financial crisis? Ambassador Yang:  Recently China’s reform of RMB central parity rate has drawn extensive attention and concerns and become the focus of debates. I believe it is groundless to consider this reform as the main cause of the world’s recent financial turmoil. First, the current move is a step toward a more market-oriented exchange rate mechanism and it is a self correction of the market rather than the result of government regulation. China has been under the pressure of excessive appreciation of RMB against a basket of currencies. Lately, the central parity of RMB has deviated from the market rate to a large extent and for a long time. Given this it is in due course that the quotation of the RMB central parity be improved. And it was a one-off move to improve the exchange rate fixing system, and make it more reflective of the market. Strictly speaking, the latest move was the fluctuation in RMB exchange rate vis-a-vis the US dollar. Further more, it is quite normal that the markets see “two-way volatility” and not the one-way traffic of the RMB. There is broad understanding and acceptance in China that the market should play a bigger part in setting the value of the RMB. Second, the RMB exchange rate will remain basically stable at a fair and balanced level and there is no basis for continued depreciation of the RMB. China enjoys a stable and relatively rapid economic growth, large foreign exchange reserves and a number of options and tools pertaining to macroeconomic regulation. The main engine that drives China’s economic growth is domestic demand and this is being unleashed in an effective way. There is no need for China to simulate exports and prop up the economy by depreciating the RMB. Besides, China has never resorted to quantitative easing to induce RMB depreciation. Third, China is a responsible member of the international community. China has taken into full account the concerns of others. We believe and it is a true fact that the biggest contribution that China can make to regional and global economy is its sustainable economic growth. China’s deepening reform and its adaptation to new normal and financial stability will generate sound and balanced growth as well as more investment opportunities which bode well for global growth and prosperity. Fourth, China is a big manufacturing country but not a big financial power. The Chinese Yuan is not yet a global reserve currency. There is no denying that the biggest uncertainty for the world financial market so far remains the possible interest hike by the US Federal Reserve, and also the prospects of debt and growth of Europe and Japan. The spillover effect of RMB exchange rate fluctuation is not on a par with the US dollar. Given this the United States shoulders primary responsibility in maintaining a stable international financial market. Q: Obviously 2015 is a very important year in EU-China relations, as the two celebrate the 40th anniversary of the establishment of their diplomatic ties. Could you outline what the two sides have achieved under the China-EU Partnership and where it will go in the years to come? Ambassador Yang:  China’s strong economic performance as well as the changes in Europe and across the global landscape has contributed to closer cooperative ties between China and the EU. Trade between China and the EU witnessed tremendous expansion from US$2.4 billion in 1975 to US$615 billion in 2014, a remarkable increase of 250 times. EU has been China’s largest trading partner over the past ten consecutive years, and China is the EU’s second largest trading partner. Every single day China and Europe trade off more than one billion Euros of goods. Last year investment stock of EU enterprises to China stood at over US$ 95 billion, and China’s investment stock to the EU registered US$ 49 billion. During the 17^th China-EU Summit in Brussels held one month ago, Chinese Premier Li Keqiang and President Tusk and President Juncker exchanged views on ways to deepen China-EU cooperation to advance global cooperation on production capacity and contributing to strong, sustainable and balanced growth of the world economy. Accordingly, China and the EU will endeavor to achieve breakthroughs in the following five areas. First, we will support and participate in each other’s initiatives. China is ready to be engaged in the EU’s Investment Plan or Juncker Investment Plan which enjoy a certain degree of synergy with China’s development agenda. We will work closely with the EU side to explore ways and means of co-financing and initiating projects which are of mutual interest and mutual benefits. Second, we need to promote connectivity. We will align the One Belt One Road initiative short for Silk Road Economic Belt and 21^st Century Maritime Silk Road with EU’s development agenda. Such an alignment will boost jobs and growth in Europe and create opportunities for China to invest in the EU, in particular in equipment manufacturing, infrastructure and innovation sectors. China is in the position to provide high quality and good price technology, products and equipment which are in strong need especially in some central eastern countries in Europe. Third, we will strengthen dialogue and cooperation in the digital area. We will reinforce cooperation in innovative projects relating to high-tech innovation, 5G, Internet, e-commerce, advanced digital services, cyber security, big data and smart cities and smart energy, and harness our comparative advantages in innovation policy, mobility and training of personnel, commercialization of R&D results and technology transfer. Fourth, we will enhance dialogue and communication on legal affairs. Both China and the EU are of the view that to promote sound development of their cooperation and enabling environment for business, it is highly necessary to deepen understanding of each other’s legal systems. In this connection, China and the EU reached consensus on establishing a consultation mechanism on justice and law enforcement cooperation. Fifth, we will expand people-to-people exchanges. To build solid foundations for cooperation and promote inter-civilization communication, China and the EU need to expand and facilitate people-to-people exchanges. As a concrete step in this direction, the EU member states could establish some 15 visa application centers in authorized Chinese cities where there is no Embassy or Consulate. China and the EU will in due course sign an agreement on China-EU reciprocal visa waiver for holders of diplomatic passports. Apart from these newly emerging key areas of cooperation, being firmly committed to boosting two-way investment and improving market access on a reciprocal basis, we will intensify efforts for the expeditious conclusion of an ambitious and Comprehensive China-EU Investment Agreement. We also hope that China and the EU will look into a deep and comprehensive China-EU FTA. Though this might be a longer term perspective, it is our belief that such an arrangement will be a win-win deal for both China and the EU. We will also deepen financial cooperation. China and the EU are satisfied with progress made in their Economic and Financial Dialogue and the Working Group between the Presidents of the People’s Bank of China and the European Central Bank and they agreed to expand exchanges on macro economic policy, and maintain close communication on international economic and financial issues and expand practical cooperation in economic and financial fields. There shall be no doubt that combined, China’s deepening of comprehensive reform and opening-up and the EU’s relaunch of the process of structural reforms to build the medium-term growth potential will create broader converging interest and generate greater market, investment and cooperation opportunities between China and the EU. Q: How would you describe the global impact of the important EU-China relations? Ambassador Yang: As key global players sharing responsibility for promoting global peace and stability, China and the EU stressed that the commemoration of the 70^th anniversary of the victory of the World Anti-Fascist War is to draw lessons from history and usher in a better future. Being strongly committed to keeping up their high-level exchanges and strategic dialogue to build up trust and confidence and work together to uphold the purposes and principles of the UN Charter, China and the EU will continue to promote multilateralism to ensure effective, coordinated and coherent responses to global challenges, make the international order and system more just and equitable and build a new type of international relations based on win-win cooperation. As agreed by the two sides, China and the EU will work constructively together, and with other countries, to adopt a protocol, another legal instrument or an agreed outcome with binding force under the Convention applicable to all Parties at the United Nations Climate Conference in Paris in 2015, and reach an ambitious 2015 agreement that reflects the principle of common but differentiated responsibilities and respective capabilities, in light of different national circumstances. We will also work together for a fair, inclusive and sustainable post-2015 development agenda, intensify coordination on global economic governance and communication on macro-financial policy under the G20 framework and strengthen communication and coordination on issues concerning countering terrorism in all forms, promoting non-proliferation, securing safety of navigation in Somalia and the Gulf of Aden and promoting peace and security in Africa. About the interviewee Ambassador YANG was born in June 1955. After university graduation, she embarked on her career as a staff in Head Office of China International Travel Service in the year of 1975. This six year working experience enriched her knowledge and views towards foreign affairs, which laid a solid foundation for her following diplomatic career. Ambassador YANG started as a career diplomat back in 1980’s in the Embassy of the People’s Republic of China to the United Republic of Tanzania (1981-1983). During her long diplomatic career, she has tremendous experiences in both bilateral and multilateral arenas. Since 1983, she has held different positions in the Ministry of Foreign Affairs, including Deputy Director of the Department of African Affairs (1983-1989), Deputy Director, First Secretary of the Department of International Organizations and Conferences (1989-1992), Counselor in the Permanent Mission of the PRC to the United Nations (1992-1996), Counselor, Deputy Director General of the Asian Affairs Department (1996-2001), Deputy Director General of the Policy Planning Department (2001-2004), and Director General of the Asian Affairs Department (2007-2010). From 2010 to 2013, she served as Assistant Minister of the International Department of the Central Committee of the Communist Party of China. Ambassador YANG’s first ambassadorial appointment was to Brunei Darussalam (2004-2007). Ambassador YANG was appointed as Head of Mission of the PRC to the European Union in January 2014. Ambassador YANG married to Mr. Wang Weiguo, a career diplomat and former Ambassador of the PRC to the Republic of Seychelles. They have one son. Ambassador YANG has various interests, including reading, yoga, tai chi, calligraphy, photography and travelling.