Q+A: Economist Rodney Jones interviewed by Corin Dann
Q+A: Economist Rodney Jones interviewed by Corin Dann
Beijing based, NZ economist Rodney
Jones – urges a ‘careful’ approach to China’s ‘One
Belt, One Road’ strategy
‘Well, I think we have to be a little bit careful here. How will we gain. We— The world needs China to do the next step of reforms, to open up. And the conversations are kind of happening on China's terms right now. We— The world has to think about what does it need’
CORIN Well, but I
guess the thing with Australia and the 'One Belt, One Road'
is that if Trump is cut off— cut us off with the TPP, why
wouldn't we move towards China and it's new geopolitical
strategy?
RODNEY
Because we have to be patient. Healthcare failed on
Friday in the US. There's— Trump does not dominate
everything in the US. There are checks and balances, and so
we have to be patient. The sense I got from the minister was
a sense of overreaction. TPP's important. TPP's the best
thing that we have to get China to open up, and somehow we
have to keep it on life support for the next four years. But
we just have to be careful not to overreact.’
Rodney Jones told Q+A, ‘the world needs to start thinking about services in China, and that's what we need to start pushing on. Just like 20 years ago, we thought about goods. Today we have to think about services, and you think about the New Zealand economy. We are constrained in how many goods we can produce. We're not constrained in services.’
Mr Jones also said a tightening of China’s capital controls will be having an impact on the property market.
‘China has had very rapid growth
in money supply in China over the last five years, and that
money has been flowing out and been going abroad. As China's
opened up, they also opened up the capital account. Well, in
the last 12 months, they've realised they went too far, and
they're now tightening those controls, and in January this
year we had another round of tightening, so now it's very
difficult to get money out. And we are starting to see an
impact of that — the anecdotal in Auckland, the anecdotal
in Sydney, we— Melbourne. We're seeing a drying up of
Chinese flow into property markets.’
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Q + A
Episode
03
RODNEY
JONES
Interviewed by CORIN
DANN
CORIN And watching that
interview was New Zealand economist Rodney Jones, the
principal of Wigram Capital an economic advisory firm based
in Beiging. He is back in New Zealand and joins me from
Dunedin. Good morning, Rodney. Nice to have you on the show
again. What did you make of that interview and, I guess, New
Zealand's enthusiasm for the 'One Belt, One Road', because
Australia, it seems, has been a bit more
reluctant?
RODNEY Yes,
good morning, Corin. Good to be here. The— I think we need
to respect Australia's concerns. We need to understand it.
New Zealand's done well from being an early mover, and, you
know, the minister talked about FTA. He talked— He didn't
talk about AIIB that we joined,
when—
CORIN That's
the development
bank.
RODNEY The
development bank that we joined early when everyone else was
staying out of it, so we've done well moving early. This may
be something, though, that we have to really understand
deeply, because 'One Belt, One Road' is an essential part of
China's geopolitical strategy, so it combines— Some people
now use the term 'geo-economics.' It combines politics and
economics, so it's different from what's gone
before.
CORIN Do
we stand to gain hugely from
it?
RODNEY Well,
I think we have to be a little bit careful here. How will we
gain. We— The world needs China to do the next step of
reforms, to open up. And the conversations are kind of
happening on China's terms right now. We— The world has to
think about what does it need, and China's an amazingly
dynamic economy. It's resumed growth. It's had a difficult
period in 2014 to 16. It's coming out of that. It's resuming
relatively fast growth. And how's the world going to
benefit? How do we engage? Do we just export commodities or
can we have access to services? The minister talked about
the digital economy, but that's closed off in China. Can our
firms— service firms go to China and compete? Right now
they
can't.
CORIN Well,
but I guess the thing with Australia and the 'One Belt, One
Road' is that if Trump is cut off— cut us off with the
TPP, why wouldn't we move towards China and it's new
geopolitical
strategy?
RODNEY Because
we have to be patient. Healthcare failed on Friday in the
US. There's— Trump does not dominate everything in the US.
There are checks and balances, and so we have to be patient.
The sense I got from the minister was a sense of
overreaction. TPP's important. TPP's the best thing that we
have to get China to open up, and somehow we have to keep it
on life support for the next four years. But we just have to
be careful not to
overreact.
CORIN So
if we overreacted, are you worried that we would upset the
United
States?
RODNEY Well,
we will swing too far, and we will support things that are
not necessarily in our long-term interest. We have to keep
our eye, as the minister said, firmly on 2030. Now, Trump
will not be around in
2030.
CORIN You
can imagine, though, that Li Keqiang when he talks to
government ministers tomorrow is going to want that
commitment to the 'One Belt, One Road'
proposal.
RODNEY Well,
'One Belt, One Road' is changing. The proposal has been
there since 2010. They've been doing things in Sri Lanka and
Cambodia and Myanmar. It's been around for a long time.
What's changed is the expansion. They're trying to expand it
to Oceania, which judicially has been New Zealand and
Australia's area of
influence.
CORIN What—
When you talk about China and opening up, I mean, what can
we get out of China with an enhanced free-trade deal? Do you
think that it's more important, rather than just getting the
dairy tariffs down, to get some more access to those
services?
RODNEY I
think we need to start. The world needs to start thinking
about services in China, and that's what we need to start
pushing on. Just like 20 years ago, we thought about goods.
Today we have to think about services, and you think about
the New Zealand economy. We are constrained in how many
goods we can produce. We're not constrained in services, and
we've got to have agreements that open up that service
market, and that was the beauty of TPP. It was a carrot to
get China to open up. We need to encourage the reformers in
China. Reform has gone nowhere in the last five years. It's
been a discouraging time if you wanted to see China take the
next step. We need to see
reform.
CORIN Well,
that's interesting because I know in the past we've talked
about capital controls, the housing market in New Zealand,
Chinese capital flooding into, you know, Auckland housing
market. We— The politicians tell us that there isn't the
evidence to back it up, but what are you seeing and what's
happening with China's capital
controls?
RODNEY OK,
see, this is the— this is the change since we last spoke,
when you were in Beijing. That China has had very rapid
growth in money supply in China over the last five years,
and that money has been flowing out and been going abroad.
As China's opened up, they also opened up the capital
account. Well, in the last 12 months, they've realised they
went too far, and they're now tightening those controls, and
in January this year we had another round of tightening, so
now it's very difficult to get money out. And we are
starting to see an impact of that — the anecdotal in
Auckland, the anecdotal in Sydney, we— Melbourne. We're
seeing a drying up of Chinese flow into property
markets.
CORIN Should
we be concerned about it? I suspect there will be some
people who'll be quite happy about
that.
RODNEY It's
a good thing. That's why I argued for a stamp duty. We
should be more concerned when it was coming. It will take
the edge off Auckland property. It will give us some
breathing
space.
CORIN What
else do you think will be on that agenda in these talks with
Li Keqiang? I mean, there's obviously— there's often
issues around extradition treaties. I mean, just trying to
get a sense for what China wants. I mean, I know they like
to think of us as a model trade partner, but surely it's
more than
that.
RODNEY Well,
I think this— this— overall this 'One Belt, One Road'
discussion kind of shows us China never sits still, and
Trump has provided China with an opportunity, created a
space that they can move into, and they're moving into
that— that space. And so the discussion really will be, as
we saw in Australia, really about joining China's
initiatives, and that's going to be the challenging part for
New
Zealand.
CORIN Just
finally before you go, what's your sense, being in Beijing,
about Trump, about the mood in China, the fears of Trump
whacking on a 10% tariff or— you know. What's the feeling?
How worried are
they?
RODNEY I
think they're reasonably confident. You know, China—
Trump's bluster doesn't carry so much weight there, and
they're preparing, and I think they feel they're in quite a
strong position, and you don't get the sense of anxiety that
you get
elsewhere.
CORIN And
president Xi, do we see the same power around him? Because
there's often questions about, you know, his
role.
RODNEY Well,
you know, they now use the term, the title 'Core' to
describe him, and he is core. He's really centralised power.
We're moving towards an important political transition. This
his second term this October in the party and March next
year. And so he's really consolidated power, and he's, you
know, a very strong
leader.
CORIN Do
you have confidence that he can actually do the reforms that
are required in
China?
RODNEY Well,
we haven't seen evidence of that in the first five years,
and that's something we should really be watching closely
and encouraging. The message to China should be we need
China to take the next step. We need more reform. We need
more opening up. It's worked for 30 years. We need it to
work for the next
30.
CORIN Of
course, there are plenty of those who worry about China, in
particular its debt mountain. Where do you sit on that
particular
debate?
RODNEY Well,
I'm one of those worriers. I've used the term 'financial
Star Trek' to describe China — that we're going— we've
left the solar system behind, so we're going beyond where
we've been. We haven't seen this before. The debt numbers
are enormous, but they're holding it together, so we've been
worrying, but they've got through it so
far.
CORIN Rodney
Jones, thank you so much for your time. We always appreciate
it.
RODNEY Okay,
thank
you.
Transcript
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