Chinese Economist Says China Helps Korea’s Economy

The Dong-A Ilbo met with prominent Chinese economist Justin Yifu Lin (Age 55) from Peking University, the most prominent economist and fervent promoter of the market economy in China, for a 90-minute interview at his office, just a couple of days ahead of Chinese Premier Wen Jiabao visit to Korea. Professor Lin was unreserved and answered our questions without hesitation. His demeanor reflected his influence on the economic policies of China.

How do you think the Korean economy will fare in the next five years?-

“The future looks very optimistic for the Korean economy. China’s fast growth will give the Korean economy a big boost.”

Trade between Korea and China has increased 26-fold during the last 15 years since the two countries formed diplomatic relations. The leaders of Korea and China have set the goal of raising the total trade amount to 200 billion dollars. Do you think this goal is realistic?-

“I think this goal is reachable. If you look at the recent statistics, the goal set by the two nations has been all reached. I think by 2012, the total trade amount could exceed 200 billion dollars and reach 250 billion dollars.”

Many economists worry that the Korean economy is trailing behind Japan’s, while being chased after by China’s. In other words, that it is being “sandwiched” by its competitors.

“Korea’s gross income has recently reached nine times that of China. This is because many labor-intensive industries have moved to China and because the Korean economy is more capital-intensive. China gives Korea a good opportunity to transform into a capital-intensive economy. Labor-intensive Korean companies move to China, earn money here, and invest the returns in capital-intensive businesses in Korea. The Korean economy also needs a foreign market. That foreign market is China. The economies of Korea and China benefit each other more than they compete with each other.”

China’s economy grew at a rate of more than 10 percent in the last four years. It recorded a growth of 11 percent in the first quarter of this year. This is even higher than last year’s 10.7 percent. How long do you think such phenomenal growth will continue?-

“The Chinese economy will continue to grow nine to 10 percent for the time being. If the duration is short, it will be from five to 10 years. It could also continue for the next 20 years. China is still in the developing phase and is undergoing rapid urbanization. The savings rate is also very high, while foreign investment is also stable.”

China’s stock market has also been rising at a fast pace. Some think that Shanghai’s stock index will reach 4,000, while others say that the bubble will burst soon. What is your opinion?-

“In the long-run, Shanghai’s stock index will pass 10,000. I do not know when this will be. It is very difficult to predict how the stock prices will behave this year. There are many elements that affect the stock market.”

Professor Lin added that he himself has never invested directly in the stock market.

Tension is growing over trade between China and the U.S. The U.S. is demanding that China reduce the trade surplus. China alleges that the U.S. caused the trade surplus by outlawing the export of high-tech products produced in the U.S.

“The budget deficit and low saving rate are the two attributes of the U.S. trade deficit. This leads to the demand exceeding supply, which in turn leads to a trade deficit. The two economies of China and the U.S. benefit each other. Americans import labor-intensive products such as clothes and living goods. They import because Chinese products are cheap. If the yuan appreciates and the U.S. has to import from another country, the trade deficit will only grow.”

How do you view the U.S.’s mounting pressure on China to appreciate its currency? How much do you think the yuan will appreciate by?-

“I think the yuan should be appreciated by three to four percent this year. If the appreciation takes place at a steeper pace, the U.S. as well as China will also be hurt. The trade deficit with China could even grow.”

How do you view China’s real estate boom?-

“Real estate is an industry that supports other industries and one that has to grow. The problem is that the prices are too high and that the market mechanism is not working to connect supply and demand. New houses are usually big. But the majority does not want big houses. That is where the discrepancy between supply and demand arises. Many people speculate on housing, and do not actually buy houses to live in them. The bigger the houses are, the bigger the price growth. This is why they invest in big houses.”

Some think that foreign investment to China will decrease because of the new corporate tax law.

“In the past, China desperately needed foreign investment, but did not have the appropriate legislation in place. Special favors to foreign investors were a type of reward. China no longer needs to give foreign investors a reward. This is what is fair. The new corporate tax law will not have much of an effect on foreign investment to China. China offers cheap labor and the industrial infrastructure is superb. China’s economy is still growing rapidly, and is attractive to foreign companies.”

The “New Farm Movement” is in full force China. It is our understanding that you were the one who initiated it.

“In the 90s, the gap in living standards between the city and the rural areas started getting wider in China. This is when I suggested the “New Farm Movement.” The construction of the “New Farm” movement has many desired effects. If the living standards in the rural areas improve and the demand in these regions increases, the problem of excess supply will be solved. China learned from Korea’s New Village Movement, but we did not copy Korea.”

orionha@donga.com