Victor Shih on the Two Sessions: Economy

Young China Watchers

On May 30, we invited Dr Victor Shih, UC San Diego professor and expert on China’s political economy, to discuss the outcome of the Two Sessions of the 2020 National People's Congress (NPC). Dr Shih shared three takeaways.

In part I of this double episode, Dr Shih covers the decision by the Central Government to focus on supply-side stimulus and subsidies targeted at new economy and technology sectors, as opposed to demand-side stimulus seen in the U.S. and some European countries. With a drop-off in global consumption due to locked-down economies, many Chinese factories will struggle to find markets for their goods — even with increased production capacity. Additionally, the collapse of fiscal revenues at the local level result in inadequate government action. With potential blind spots in current government measures, some kind of demand-side relief is inevitable if the recession persists.

Against the backdrop of growing U.S.-China tensions, Dr Shih addressed a question on the potential impact of financial sections on Hong Kong. He touched on the strength of the Hong Kong Monetary Authority (HKMA) U.S. dollar facility and what he considers more at stake to be China’s large-scale borrowing through interbank channels. He stressed that what matters more are international financial institutions’ exposure to China. He continued onto China’s debt issues and the reluctance of China’s central bank to introduce more quantitative easing for fear of capital outflows. The episode ends here and moves onto the National Security Legislation in Hong Kong in the next episode.

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Victor Shih is an associate professor of political economy and has published widely on the politics of Chinese banking policies, fiscal policies and exchange rates. He was the first analyst to identify the risk of massive local government debt, and is the author of “Factions and Finance in China: Elite Conflict and Inflation.” Prior to joining UC San Diego, Shih was a professor of political science at Northwestern University and former principal for The Carlyle Group. Shih is currently engaged in a study of how the coalition-formation strategies of founding leaders had a profound impact on the evolution of the Chinese Communist Party. He is also constructing a large database on biographical information of elites in China.

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The YCW Podcast is a monthly podcast series by Young China Watchers. We’re a global community of young professionals, providing a platform to discuss the most pressing issues emerging from China today. We organize events with China experts in our 10 chapters across Asia, Europe and the U.S., fostering the next generation of China thought leaders.

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