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On Sep 6, Prof. Lawrence Lau, Former President of The Chinese University of Hong Kong, Member of the 11thand 12thNational Committee of the Chinese People’s Political Consultative Conference (CPPCC) and Vice Chairman of the Subcommittee of Economy, gave the first class to new students, namely “Impact of Trade War and COVID-19 on Sino-U.S. Economic Relations”. He expressed that US-China trade war and coronavirus outbreak have made the decoupling of the two more possible, and the investment in basic researches needs to be added for technology-oriented competition.

Lawrence Lau

Chairman of the Board of Shenzhen Finance Institute

Former President and Ralph and Claire Landau Professor of Economics, The Chinese University of Hong Kong

Ralph and Claire Landau Professor of Economics, The Chinese University of Hong Kong.

Kwoh-Ting Li Professor of Economic Development, Emeritus, Stanford University

Member of the 11th and 12th National Committee of the Chinese People’s Political Consultative Conference and a Vice-Chairman of the Subcommittee of Economy

The decoupling of the supply chain is at risk, an alternative back-up supply of goods is significant.

The overlapped impact of the US-China trade war and pandemic outbreak has brought up the topic of the economic "decoupling" of the two countries repeatedly. The economic decoupling includes the decoupling of the supply chain, the capital market, education, and the international clearing and settlement system. Prof. Lawrence Lau pointed out that in the short term, the cost of decoupling the supply chain may be higher for China's high-tech industry, but "decoupling" will bring losses to both parties, resulting in a "lose-lose" situation. However, "decoupling" may be a "Sputnik Moment" for China. China needs to improve R&D in key technology areas and be independent of other countries in terms of raw materials, components, parts or technologies. But decoupling does not mean that you must be self-sufficient, an alternative back-up supply of goods or a large reserve of resources can be considered.  “Decoupling is a problem that can be solved."

Regarding the decoupling of the capital market, Prof. Lawrence Lau believed that “it would not have a great impact on the Chinese economy”. China’s domestic capital market has become the most important source of funds for Chinese companies.

The decoupling of education will make the U.S. face a potential shortage of postgraduate talents, and Chinese students will also lose the opportunities to receive the systematic American research training.

In view of the decoupling of the international clearing and settlement system, the Renminbi has a lot of room for expansion in China's international trade settlement. From a mid to long term perspective, China should encourage its trading partners to settle in their own currencies instead of using U.S. dollars.

China’s GDP is expected to overtake the U.S. in a decade.

In the short term, the US economy hit by the pandemic outbreak will experience a recession, while there is still room for growth in the China economy. In the long run, China's total GDP is expected to overtake that of the U.S. in 2030.

However, China's population is about four times that of the U.S., and the U.S. has much more natural resources per capita than that of China, Prof. Lawrence Lau predicted that China's actual per capita GDP will lag behind the U.S. at least by the end of the 21st century.

Investment in basic research needs to be increased in response to technology-oriented competition.

"In fact, the most important thing in scientific and technological competition lies in basic research. The atomic bomb is also the result of basic research conducted many years ago." Currently, China only spends 5% of its R&D expenditure on basic research, compared with 12% in Japan and around 17-18% in the U.S.

Prof. Lawrence Lau suggested that in order to make breakthrough discoveries and inventions, it is necessary to increase the investment in basic research.

Translation: Fiona

Proofreading: Ella