20180530-NATIXIS-Flash_Economics_Can_China_have_lessons_for_Europe__9页_949kb

Flash Economics Summary

Core Content

This document discusses the potential lessons that the European Union (EU) can learn from China's recent economic policies, despite concerns about certain imbalances in the Chinese economy. It outlines four key areas where China's approach may serve as a model for Europe, focusing on proactive and effective strategies in technology development, monetary policy, environmental sustainability, and innovation and education.

Main Points

1. Protection for the Expansion of Major Internet Firms

• Core Idea: China initially protected its major internet firms to allow them to grow to a critical size before opening them to competition and globalisation.
• Impact: This strategy led to the rise of large companies such as Alibaba, Tencent, and Baidu.
• Comparison with Europe: Europe lacks large domestic internet firms, indicating a gap in policy support for such industries.

2. Monetary and Macroprudential Policies

• Objective: To prevent excessive debt and real estate bubbles.
• Tools Used: Short-term interest rate hikes and macroprudential policies, including adjustments to banks' required reserves and loan-to-value ratios.
• Effectiveness: These policies have successfully slowed credit and construction growth without significantly increasing long-term interest rates or the cost of capital.

3. Renewable Energy and Urban Pollution Mitigation

• Investment in Renewable Energy: China has made substantial investments in renewable energy, contributing to a reduction in carbon intensity.
• Pollution Control Measures: The country has implemented strategies such as promoting electric vehicles and shutting down coal-burning plants.
• Data Highlights: New electric vehicle registrations and stock have increased significantly, showing a clear trend towards cleaner transportation.

4. Public Support for Innovation and Education

• R&D Spending: China has increased its R&D spending as a percentage of GDP, reflecting a commitment to technological advancement.
• University Education: There has been a notable rise in the percentage of young people with university diplomas, indicating a strong foundation for a skilled workforce.
• Patent Growth: The number of triadic patents filed has risen steadily, showing progress in innovation.

Key Information

• Debt Concerns: While China has seen a rise in total credit (Chart 1), it has managed to control asset price bubbles and excessive debt through proactive policy measures.
• Construction Investment: High levels of real construction investment have been curbed by macroprudential policies (Chart 2).
• Old Industries: The dominance of traditional industries like steel and coal has been a concern, but China has been working to move up the value chain.
• Charts and Tables: The document includes various charts and tables to illustrate the effectiveness of these policies, such as:
  • Chart 1: Total credit in China
  • Chart 2: Real construction investment and total nonconstruction investment
  • Chart 3: Share of old industries
  • Chart 4: Real estate prices
  • Chart 5: Short-term interest rates
  • Chart 6: Required reserves changes
  • Chart 7: Construction-completed housing
  • Chart 8: Interest rates on loans and government bonds
  • Chart 9: Carbon intensity
  • Chart 10: Coal-burning plant shutdowns
  • Chart 11: Investment in new technologies

Conclusion

• Recommendation: Europe should consider adopting similar proactive policies in the areas of internet development, monetary and macroprudential regulation, environmental sustainability, and innovation and education.
• Proactive Approach: China's policies have been effective in managing economic growth and addressing imbalances, offering a viable model for Europe.

Disclaimer

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