SFC Markets and Finance | Zheng Yongnian: How can Guangdong navigate economic cycles？

Editor's note:

Guangdong has long been recognized as a key pillar of China’s economy, accounting for about one-tenth of the country's GDP. Meanwhile, Guangdong is ramping up efforts to construct an end-to-end innovation chain, aiming to become a globally influential innovation base. However, Guangdong’s economy is facing some challenges as global economic growth stagnated. Going forward, how can Guangdong remain resilient and sustainable growth? SFC Markets and Finance's special coverage "Navigating Economic Cycle" will try to find answers.

Looking back at 2024, geopolitical tensions and the rise of trade protectionism continued to cast shadows over the global economy. With globalization facing mounting challenges and uncertainty clouding the future, how can China navigate these turbulent times? More specifically, how can Guangdong, the economic powerhouse of China, seize opportunities to innovate and adapt?

To delve into these pressing questions, SFC reporter interviewed Zheng Yongnian, Dean of the Qianhai Institute of International Affairs and the School of Public Policy at the Chinese University of Hong Kong (Shenzhen). Zheng shared his insights on China’s resilience, emphasizing the strategic importance of “unilateral openness” in reshaping globalization and fostering growth.

"China’s economy has always relied on dual circulation—the interplay between external and internal economies," Zheng explained. While external challenges, such as rising tariffs and protectionism in the U.S. and Europe, create headwinds, Zheng noted that the internal circulation, driven by policy reform and innovation, remains a critical pillar. Guangdong, with its robust foundation in technology, finance, and openness, holds vast potential to lead the way.

Looking ahead, Zheng expressed that Guangdong can achieve progress while ensuring stability, “Guangdong has the resources and potential to lead, but realizing this potential depends on translating central policies into actionable regional strategies. With the right systemic adjustments, the province can thrive even amid global uncertainties,” he concluded.

SFC Markets and Finance: In 2024, with a complex international environment marked by geopolitical conflicts and a "super-election year," how do you assess China's economic performance last year, and what is your outlook for the year ahead?

Zheng Yongnian: China's economy can be divided into two perspectives: One is the external circulation, the other is the internal circulation. One part is the international economy, the other part is the domestic economy.  

China's economy, especially in the Yangtze River Delta and the Pearl River Delta, has grown from a state focused on external circulation solutions. Therefore, China's economy is affected by changes in the external environment, mainly in terms of foreign trade and foreign investment, which is what is referred to as globalization.

The external environment in this regard is indeed not optimistic. Firstly, there are factors from the United States. Most of the uncertainties stem from the U.S. Now, with Trump's second return, tariffs may increase. There are a few relatively certain aspects: he may suppress us in the high-tech field, effectively "strangling" us.  

There is a possibility of moving from the previous "small yard with high walls" to a "large yard with high walls." There is an intention to re-industrialize in medium-tech areas and to decouple and break away from China. He believes that in areas where the U.S. is relatively lagging, such as the "new three" sector, protectionism is implemented, using tariffs to shield its market. These aspects are relatively certain.  

Under such circumstances, China's exports, especially to the U.S., will definitely be affected. Europe is not immune either. Many of Europe's policies align with those of the U.S. Additionally, if there could be a bit more balance,  China's investment and trade with the Global South, especially with developing countries, is increasing, particularly with ASEAN.

We have done our best to contribute to the international community's economy. So far, our contribution to the world economy is around 30%, and it will continue. However, the main approach is through tapping into the internal circulation and leveraging internal momentum.  

First, we need to address some of the current issues, such as involution. The central government has also taken note of this aspect. Involution is not an inevitable phenomenon in China's economy, nor is it an unsolvable one. It can be addressed through policy measures. Therefore, the original industrial upgrading needs to be accelerated,  

What I think needs more consideration is that involution is a competition over existing economic resources. To break out of involution, you need to create new growth, and reduce the regulation. Regulation is necessary, such as for environmental protection and labor rights, which are all in need. But excessive regulation in technology sectors like bio-medicine, the internet, and artificial intelligence, prevents many new types of productive forces from taking root.

So we need to reduce regulation. "Deregulation" does not mean no regulation at all. Regulation is still necessary where it is needed. For instance, in some technological innovations, new capacities must be regulated. However, for innovative technologies that meet the requirements of new types of productive forces, regulation should be reduced.  

What we also need to consider is that, many policy aspects still need consideration, especially internally. Can we establish a unified national market? This is more important.  

Our eastern region has comparative advantages, such as capital, technology, openness, and management experience. The western region also has comparative advantages, such as low labor costs, low land costs, and abundant resources, both above and below ground. How can the production factors between the east and west flow across provinces through cross-regional institutional reforms to form a unified market? This is something we should do.

If we do this well, we can combine comparative advantages, and the marine economy can be further developed. The concept of a maritime power has been proposed, but our marine economy is still at the level of traditional industries, such as fish and shrimp farming and marine ranching. Can we develop the private boat industry in the future? We have such a long coastline. Singapore, Hong Kong (China), the United States, and Mediterranean civilizations all have private boat industries. Thirty percent of China's middle class currently has nowhere and nothing to consume; the private boat industry can be developed.  

The aerial economy, now often referred to as the low-altitude economy, also has more potential to be tapped, such as “flying taxi”. So, there is much potential to be discovered on land, at sea, and in the air, which requires institutional and policy guidance.

SFC Markets and Finance: You just mentioned that the Pearl River Delta is a representative of an outward-oriented economy. In the cycle of deglobalization, what development opportunities do they still have?

Zheng Yongnian: I think there are many development opportunities. 

As I mentioned earlier, the Pearl River Delta and the Yangtze River Delta have many unicorn companies. Now, American capital is reaping China's technology. Excessive regulation leads to insufficient development.  

Take innovative drugs as an example: First, the approval time is too long. Second, the pricing is really too low because it has to be linked with the medical insurance system. Therefore, it is necessary to reform and innovate drugs. For example, the approval time can be accelerated by the government to improve efficiency. Even if the drugs reach the United States and we sell them to Americans, we will still have to import them in the end. So, could we base it on the distribution of national income, with 70% being the price set by the government, and 30% or 20% being market-oriented?

So, our technological path is actually not much different from that of early Japan and South Korea. After 20 to 30 years of applied technology, we are now shifting towards original creation. However, original creation still requires reform of the production relations. If we want to achieve high-quality development, technology is the core. The main goal in recent years is to overcome the middle-income technology trap, and this is also the case in the Yangtze River Delta.

SFC Markets and Finance: Can you elaborate on specifically for Guangdong, what measures can we take to enhance original innovation capabilities? 

Zheng Yongnian: Original innovation capabilities are already in place, so it's not about enhancement. Regarding the internet and artificial intelligence, the U.S. has two regions: one is California, from Silicon Valley to the narrow belt towards Texas, and the other is Boston. We also have two regions: the Yangtze River Delta and the Pearl River Delta. The Pearl River Delta has three major central cities: Guangzhou, Shenzhen, and Hong Kong. We already have a lot of productive forces, so it's not that we can't do it. 

The issue is excessive regulation, which prevents many unicorn companies from taking root. These are the areas where we need institutional and systemic reforms. It's not that we are incapable; there is room for improvement. We have already explored the basics of scientific research, the transformation of applied technology into finance.  

If we combine these three aspects: Hong Kong's finance with our technological application and transformation, plus the basic scientific research of our three major cities, we would have everything, and it wouldn't be much inferior to California's Silicon Valley in the U.S..

So, how can we land these technologies through systemic and institutional reforms? How can we create new technologies through these reforms? This is a significant issue.

SFC Markets and Finance: How do you evaluate Guangdong's economy in 2024?

Zheng Yongnian: Guangdong’s economy is relatively strong, but don’t be complacent. I believe we can do even better in many areas. For example, in the marine economy, while we’ve made some progress developing marine ranching, could we explore the potential of private boats, given our extensive coastline? The key lies in reforms to our systems and mechanisms. Have we truly achieved the “high-level institutional opening-up”? This is something we need to reflect on. What we still require is a policy framework that emphasizes integration. At least, the government must create conditions that facilitate market integration.

SFC Markets and Finance: How can Guangdong make efforts to navigate through the current economic cycle?

Preventing excessive internal competition is the top priority. There are many ways to prevent such competition. First, can the government stop disorderly competition in the market? However, this does not mean returning to the planned economy era. Instead, it involves learning from the experiences of developed economies.

Second, how can the upgrading of traditional industries be promoted? There is still potential in the real estate sector. Can regulatory restrictions be relaxed? For example, in areas like innovative drugs and the internet. In the Pearl River Delta, can artificial intelligence be widely implemented? These are all achievable efforts.

SFC Markets and Finance: Last year, China proposed unilateral openness. Can this help Guangdong emerge from this cycle?

Zheng Yongnian: Unilateral openness is excellent and extremely important.

In areas like pharmaceuticals and healthcare, foreign investors are now allowed to establish wholly foreign-owned hospitals in Shenzhen and Guangzhou. However, people will not invest in hospitals that are unprofitable. 

The business environment remains critical. When discussing reasons to attract foreign investment, visa-free policies are just one aspect. The key is how to attract external capital and technology. It ultimately depends on profitability. If there's no profit to be made, there’s no reason for them to come. So while unilateral openness is beneficial, we must clarify the goal, is to attract foreign capital and external technologies. It ultimately depends on profitability. If there's no profit to be made, investors will withdraw, instead of coming.

SFC Markets and Finance: How do you view the significance of China's unilateral openness for globalization?

Zheng Yongnian: I have discussed globalization extensively before. China's unilateral openness is reshaping globalization. Globalization, at its core, is about the flow of capital. China's unilateral openness can drive global capital flows on the one hand. On the other hand, alongside unilateral openness, we also have enterprises going global. This is a two-way process.

Thus, China's capital and China's openness policies, our opening up is two-way. We are both going out, such as through enterprises going global, and bringing in. This is reshaping the global economy. However, I hope attention is paid to the issue of excessive competition. If this competition spreads across the country and then the rest of the world, it may provoke discontent from others. This is something we need to be cautious about.

SFC Markets and Finance: Please share your outlook on Guangdong's economy in 2025.

Zheng Yongnian: Guangdong's economic potential is undeniable. When it comes to potential, the resources and advantages are all there. However, it is still necessary to realize this potential through systemic and institutional reforms.

In Guangdong, particularly in the Pearl River Delta and Yangtze River Delta, in terms of scientific innovation, I believe the Pearl River Delta stands out with the new quality productive forces. 

Our foundational research, Hong Kong's universities and other universities in the Greater Bay Area, is incredibly strong. Hong Kong, in particular, excels in basic research. Applied technologies, the Pearl River Delta is also a global leader. Even Beijing's applied technologies often flow to this region.

On the financial front, Hong Kong is a global financial center. Many unicorn companies struggle to grow due to a lack of capital. How can we better leverage Hong Kong's platform? This is a question worth considering.

SFC Markets and Finance: Do you think Guangdong can achieve progress while ensuring stability this year?

Zheng Yongnian: Pursuing progress while ensuring stability, I think it is achievable. The key lies in implementing sufficient reforms. Guangdong should focus on the central government's macroeconomic policies and translating those policies into concrete economic activities specific to the region, turning these policies into tangible benefits for Guangdong, that is very crucial.

At present, many regions still interpret central policies in a mechanical way. However, since central policies are more about overarching principles, their effective implementation in Guangdong requires greater effort and transformation. 

Chief Producer: Yu Xiaona

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Editor: Shi Shi

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Produced by: Southern Finance Omnimedia Group