Li Xunlei: Can the profit model of a hundred years ago continue for another hundred years?

Hundreds of years ago, China obtained trade surplus by exporting silk, porcelain, etc. to Europe. Today, we still maintain such a profit model of obtaining trade surplus by relying on human capital advantages. At the same time, Western countries have obtained high profits by relying on their technological advantages and transnational business strategies. While the cost of human resources in China remains low, it seems impossible to change the existing trade profit model.

To completely change this model, the cost of existing production factor prices must be increased, and population control is particularly necessary. At the same time, human resource costs can be increased by increasing investment in education.

Trade surplus - China's profit model that has lasted for hundreds of years

A country's economic growth is driven by the "troika" of consumption, investment and net exports (i.e. trade surplus). In 2005, despite a slight decline in domestic consumption and investment, China's foreign trade grew rapidly, with total import and export accounting for 64% of GDP, becoming the number one driver of economic growth. In the past 10 years, foreign trade has played an increasingly important role in China's economic growth (Table 1), and trade surplus has undoubtedly become an important profit model supporting the Chinese economy.

In fact, as early as hundreds of years ago, China chose such a profit model to obtain trade surplus by relying on its human capital advantages. Before the Opium War, China's GDP had always ranked first in the world (generally estimated to account for more than 20% of the world's GDP). In 1689, Britain and China officially opened trade in Guangzhou, becoming China's largest trading nation. China exports silk, porcelain, etc. to European countries such as the United Kingdom, France, and Spain, and has maintained a trade surplus status for more than 100 years (Table 2). As a result, global silver continues to flow into China, while Europe has a shortage of precious metal currencies. .

In addition to European and American trade, China also maintains a surplus position in trade with Southeast Asian countries, especially Japan, and obtains most of the silver produced in the country from Japan. It is estimated that during the approximately 250 years from 1550 to 1800, the Chinese Communist Party obtained approximately 1.2 billion taels of silver, accounting for about half of the world's total silver production during this period (Barrett, Ward. 1990), while other scholars are more conservative Estimates also believe that China accounted for at least 1/4-1/3 of global silver production during that period. In short, such a large trade imbalance will definitely lead the imperialist powers to do whatever it takes to seize silver. The direct cause of the Opium War in 1840 was the British East India Company's smuggling of opium to obtain silver.

The path of relying on trade surplus to drive economic growth is getting narrower and narrower

In 2005, China’s trade surplus with the United States reached 114.2 billion U.S. dollars (approximately 170 billion U.S. dollars according to U.S. statistics) ), higher than China’s total global trade surplus, and 1/4 of the total U.S. trade deficit comes from China. As of the end of 2005, China's foreign exchange reserve balance reached 818.9 billion U.S. dollars. If Hong Kong's 124.3 billion U.S. dollars were added, China would surpass Japan and become the country with the highest foreign exchange reserves. China's current trade status and foreign exchange reserves do have some similarities with those 200 years ago.

So, will the United States, which replaced the United Kingdom as the global hegemon after the end of World War II, launch a "war" against China like the United Kingdom did back then? I think, after all, human civilization has advanced another hundred years. In the coming year, as the speed and symmetry of information transmission have greatly improved, the ability to avoid war has also improved accordingly. But the question is, can the model of continuously achieving trade surplus through the advantage of low labor costs continue?

In fact, as China’s dependence on foreign trade continues to increase, the trade between China and Europe and the United States Friction is also escalating. 2005 can be called the year of trade disputes. The dispute between Europe and the United States on special textile guarantees against China has been the trade dispute with the greatest international repercussions since the founding of the People's Republic of China. It has affected so many people in China and involved huge amounts of exports that have never been seen before in China's foreign trade disputes. At the beginning of the new year of 2006, Europe and the United States once again proposed anti-dumping against the Chinese shoe industry. It is said that more than 4,000 kinds of commodities in my country have been investigated by importing countries. In addition to exports of goods being hindered by non-trade barriers such as anti-dumping, countervailing and special safeguard measures, Western countries have increasingly criticized China's exchange rate policy and intellectual property protection. Against this background, it will become increasingly difficult for China to rely on this model to promote economic growth.

Moreover, this export-oriented economic model that relies on the advantage of cheap human capital has also had a long-term negative impact on China's own living environment. During the Qing Dynasty, the high demand for silk exports led to large-scale deforestation in southeastern provinces to plant mulberry trees. The increase in food demand due to population expansion also led to the destruction of forests to create farmland. Therefore, the reduction of forest area in China is not something that happened in recent decades, but can actually be traced back to the 17th century. Today, traditional export varieties have been replaced by textiles, clothing, shoes, hats, toys, etc., but they are still labor-intensive products in nature, and they are still continuing the comparative advantages they had two to three hundred years ago. Of course, what is different from the past is that the processing export trade and pure export trade operated by overseas companies in China are almost equally divided. China has become the world's processing factory (rather than the world's factory in the true sense). The reason behind this is that there is no shortage of resources. Exhaust cheap human capital.

It can be seen that my country's comparative advantages in foreign trade have not changed essentially for hundreds of years. Coastal areas such as Lingnan, Jiangsu and Zhejiang, which became economically prosperous due to active foreign trade more than 200 years ago, are now also the most economically developed areas in China.

However, while we have obtained a considerable amount of silver or US dollars, after we have basically solved the problem of food and clothing, what have we lost? It is the living environment. After China became the world's processing plant, it also caused environmental pollution and the consumption of a large amount of resources. As the largest supplier of cheap labor, it will inevitably have the problem of excessive population density. Although we are currently the third largest trading country in the world, compared with before the Opium War, Compared with China, I am afraid that its trade status is not as good as that of that time (China's trade surplus with all countries was at that time); the more than 800 billion U.S. dollars of foreign exchange reserves accumulated over many years are only equivalent to 6% of the U.S. GDP last year. This is different from China's global dominance 200 years ago. The greatest wealth of silver is incomparable. Moreover, reserves in the form of paper currency are often controlled by others and reduce the country's space to control monetary policy. Obtaining small benefits at huge cost is China's current trade profit model.

The profit model of Western countries over the past hundreds of years

Let’s take a look at the profit model of Western countries over the past several hundred years. Europe was originally poorer than China, so groups of adventurers had the urge to sail to the East in search of gold. After Columbus discovered the American continent, European countries immigrated to the area in large numbers and mined silver there to exchange goods with Asian countries. European merchants also learned that the currency in many parts of Africa was shells, so they transported the shells purchased in the Maldives to Africa in exchange for slaves, bringing cheap labor to Europe. Of course, it was the Industrial Revolution in the 18th century that ultimately made Europe rich. As a result, the great powers achieved technological leadership in the world and used this technology to plunder the resources of other countries. For example, the United Kingdom owned many colonies in the 19th century. The "empire on which the sun never sets".

Nowadays, although the rules of the game have become much more civilized, Western countries are undoubtedly still in a favorable position in global trade. With their technological advantages and transnational business strategies, they can always dominate various production factors at the lowest cost. Then they sell so-called high value-added products with patented technology or well-known brands around the world (for example, the high price of LV bags only reflects their brand rather than their use value).

Transforming the economic growth model requires the efforts of several generations

Now everyone has realized the unsustainability of relying on foreign trade to drive economic growth, and hopes to change the economy by expanding domestic demand and other methods. way of growth, but the problem is there is always a gap between ideal and reality. For example, it is difficult for a Chinese shoe-making enterprise that exports more than 5 billion pairs of shoes annually to absorb its production capacity by expanding domestic demand. Another example is that we proposed the goal of "transforming from extensive economic growth to intensive economic growth" as early as the "Eighth Five-Year Plan", but it has not yet been achieved. This shows that people always tend to take the smallest cost or easily available things in exchange for the largest returns. Some people say that the reason why China did not have an industrial revolution like the United Kingdom in the 18th century was because the cost of human resources in China was lower than that in the United Kingdom; the British textile industry used chlorine bleaching technology to invent and promote it because the United Kingdom lacked sunlight (exposure bleaching). It seems to make sense. Therefore, it seems impossible to change China's trade profit model while the cost of existing human resources is still low. To change the way of economic growth, we cannot just stop at planning and slogans. We must increase the cost of existing production factor prices, such as land costs, energy costs and environmental costs, and especially population control. The author believes that although China has implemented population control for many years and has achieved remarkable results, just as we have underestimated the value created by the service industry in GDP, China's actual population, especially the population with non-urban registered permanent residence, is likely to be underestimated, and additional assessments of the agricultural population are needed. and investment in birth control for the rural-to-urban immigrant population. In addition, human resource costs can also be increased by increasing investment in education.

In short, China’s current trade-driven profit model will continue, but it will become increasingly difficult. It will take at least several generations of efforts to completely change this model, but if effective measures are not taken now, I am afraid that our descendants will suffer the most.