The first series of broadcasts is dedicated to China. Alexey Kalinin, Vice-Rector for Research at the SKOLKOVO School of Management, Academic Director of the Executive MBA, Professor of Business Practice, answered a variety of questions about the nature of China's economic development, its place in the global economy and the prospects for the development of foreign economic relations with Russia.

China's Unique Development Path
The phenomenon of China is, first of all, the historical continuity of time in this country. Once China's economy accounted for 30% of the global economy, it was the richest country along with India. However, subsequently, much has changed, and China has become almost invisible. One might even say that China was synonymous with poverty, backwardness, and dependence. But now we see China as completely different, dynamic, economically significant, now it occupies about 20% of the world economy. Thus, on the one hand, the antiquity of civilization, a serious civilizational foundation, on the other hand, the relevance and significance in the world economy - this is precisely what gives that special, unique view of China.

Now China, as they say, has several faces. One face that we see as the main one presented to everyone is the face of communist China. And at the same time, we see China as a very successful capitalist economy in fact with the whole spectrum of economic relations characteristic of capitalism, with large private companies that compete around the world, and so on.

And the fact that they put on different masks – the mask of communism, the mask of capitalism – should not be disorienting. China cannot be understood without taking into account the third and main perspective, Confucianism, which is the true foundation of Chinese society. This is a holistic cultural tradition, which, indeed, at some moments acquires certain features. And in many ways, researchers now note that when we see China as capitalist, it is to a certain extent the country's willingness to play by Western rules in a particular historical period. This does not mean that China itself has changed, it is simply adapting to the external environment, which in this case is determined by certain rules.

Many note that Chinese partners do not play by the rules, for example, they revise the terms of the agreements reached if they consider it beneficial. But what is important here is the question of what we call a contract. In the classics, we can talk about an explicit contract, that is, about a document on which there are signatures and seals, or we can talk about an implicit contract - this is what we mean, what is the nature of our relationship, and what are the obligations of the parties.

And in this sense, for working with China, rather, it is important to have an implicit contract, which presupposes the existence of mutual trust, understanding of each other's interests, readiness to respect them, and observe the long-term horizon of building these relations. They don't appear out of nowhere and last indefinitely. And this is the contract that the Chinese abide by regardless of what is written on paper. We are inclined not only to ensure that the contract is the letter of the law for us, but sometimes we adhere to very fast transactional relations: we have a merchant, you have a commodity.

Two Periods of the Modern Chinese Economy
It can be said that modern China from an economic point of view begins conditionally in 1979, when the country opens or begins to open up to the Western economy. At that time, China relied on becoming the world's factory, and this for several decades really created the prerequisites for significant economic growth. During this period, China really produced (and continues to produce) a significant part of the world's goods in a number of positions - electronics, equipment, clothing, and so on. China has been learning all these years, first through imitation and copying, then timid experiments related to its own decisions, and in the end now we see a completely different China.

It is difficult to pinpoint the exact date when the country began to change, but it happened around 2008, after the global economic crisis. China gradually began to change the direction of its economic development.

What are these changes? China has begun to enter the stage of post-industrial transition. And this is primarily due to the focus on innovative, creative industries, high-tech, and domestic demand. The country began to gradually reconsider its role as the world's factory. It is important to understand that, in general, China's competitiveness in this capacity is also declining, because the cost of labor is growing - for a long time labor in China has been more expensive than in Russia, and in this sense it has ceased to be so attractive. There are a number of other restrictions that do not encourage people to seek to locate production there. Rather, on the contrary, it is now being withdrawn from the country, and this is done by both Western and Chinese companies. They tend to locate production in other countries of Southeast Asia, for example, in Vietnam.

And this is due not so much to the price factor, but to the factor of China's rather sharp reaction to the pandemic: the closure of many enterprises, strict quarantine, and so on. Such conditions spurred the process.

At the same time, it is important to understand that a significant post-industrial transition is underway. And, of course, it is accompanied by a shift in focus, including state support, to advanced sectors. It should be noted here that two significant periods, which can be called, relatively speaking, the "world factory" and the "post-industrial transition", were equally supported by the demographic process. Indeed, in China, until recently, the population was growing, the last couple of years the indicators have been declining, and China has already lost primacy to India as the country with the largest population. China already has an adult population, the average age is about 40 years, as in Russia.

And China understands that it is impossible to increase economic growth on the same grounds. But a different quality of growth came. For example, the middle class, which now makes up about a quarter of China's population, is growing at a rate of 15% per year. This is a colossal pace. The shift to the innovation sector, to the service sector, the very rapid growth of the middle class forms a new quality of this economy. During these two periods, a different nature of growth was observed, but at the same time this growth is quite high. Previously, it was in the range of 8-10% on an average annual basis for a couple of decades, and now the expected growth rates are somewhere around 5-6%, which is lower than before, but these are quite high rates. If we take 5-7% per year of the entire Chinese economy, we get figures, as if another Switzerland in terms of economic scale appeared on the map every year. China will provide up to 20% of all global growth by 2030.

In general, the current situation in the Chinese economy can be called a slowdown in growth. It's just that the nature of growth is different. If you look at the economies in the literal sense of the word developing, then there are really high rates. As a rule, they are associated with what is called volume growth - more goods are produced, more jobs are created. As a rule, these places are low-productivity, goods are at the level of lower processing, and so on. Nevertheless, in terms of volume, this provides an opportunity for growth.

When we talk about qualitative growth, if it occurs at the expense of labor productivity, at the expense of innovations, services of the creative economy or the knowledge economy, as it is called, which is characteristic of the post-industrial transition, there are lower growth rates, but their quality is completely different. It's a different type of economy. Therefore, when we look at Western countries, we are just in the range of 1-3-4%, these are very good indicators. Thus, China simply ceases to be a developing economy, and on the horizon until 2030-2050 it will become exactly the same economy in structure as the Western countries or Japan that have previously passed this path.

Modern challenges and ways to overcome them
Of course, the Chinese economy faces certain challenges. Geo-economic factors also influence, that is, there are external constraints. And above all, the fact that China remains highly dependent on foreign trade both in terms of supplying its products to the most important markets of the United States and Europe, and in terms of providing resources from Africa, from Southeast Asia, including Australia.

At the same time, 90% of this trade is carried out by sea, and specifically in the East Coast area. The geopolitical situation, let's say, is not always favorable, and China is very sober about its dependence on shipping. And China responds to this challenge by implementing a megaproject since 2013 ― this has not happened on a civilizational, historical scale, this is probably the largest, probably, in the history of mankind, coordinated infrastructure initiative, which is aimed at forming new trade routes or well-forgotten old ones, since these are routes across the continent that pass from China through Central, South Asia and go to the Indian Ocean, and most importantly to Europe.

And this is the so-called "Belt and Road" initiative, it includes the construction of transport infrastructure, roads, railways, ports, air hubs. And a number of supporting infrastructures, including information and telecommunications. Ultimately, the financial system also applies here, since it should allow China to finance such projects. These are colossal figures, there are over a trillion dollars, thousands of projects, 120 countries involved in this initiative. And, by and large, this is generally one of the ways to support economic growth in China.

China is also facing a demographic decline – a maturing, even gradually aging population. And this is a significant change in the structure compared to the previous period.

China also has an unresolved set of environmental problems, a legacy of intensive industrialization and urbanization. There are still a lot of industries in China that do not meet modern environmental requirements, and a significant part of the energy complex too. And all this affects the way in which the government, among other things, determines development priorities.

These are the challenges that are recognized and reflected in various aspects of economic policy. Therefore, the bet on post-industrial transition, on innovative development, on the service economy through this prism also seems justified, because there is no longer an opportunity to grow at the expense of cheap young labor. It is necessary to grow at the expense of the adult economy, which creates high added value.

For example, China is now the largest emitter of greenhouse gases, but the government has a program that aims to make China a carbon-neutral economy by 2060. This, in turn, implies a significant transformation in a number of sectors. And China is already one of the leaders in the supply of cars on electric motors. In terms of green energy, China is also the world leader in the supply of equipment and in the volume of commissioning in its country. And this is also a response to the challenges that have accumulated inside.

China's key partners at the moment

Oddly enough, the United States can be attributed to China's partners. Despite the fact that Donald Trump's initiatives, which he carried out as president of the United States, led to trade wars, since these measures were mirrored by China. And this seems strange, given the colossal interconnection of the two economies. Indeed, it is the U.S. that is the largest market for Chinese goods, and China is a fairly significant buyer of U.S. goods.

The second most important is the European Union, followed by some nearby countries of Southeast Asia. From the point of view of the countries from which China receives significant resources for its economy, we can mention Russia, as well as countries in Africa, the Middle East and, to some extent, Southeast Asia, Malaysia, Indonesia and Australia.