“I think the two previous speakers talked about what to pay attention to in the relationship between China and the Czech Republic. For example, the Czech Republic has a trade surplus with the rest of the world except for China, but the Czech Republic has a huge trade deficit with China.  And there is a perception that China produces labour-intensive products and the Czech government said that we do not like to import labour-intensive products. What we want to do is to collaborate in the area of our high tech industries.

Also, when it comes to regulations or when it comes to the financial market, Czech government officials said that China has an issue of lack of transparency. What does that mean? It means not enough understanding between the two sides. So today [I hope the information I] share with you [will] enhance understanding between the two sides.

I think for Chinese people who are above 40 years old, people like me, we are actually quite familiar with the Central and Eastern European countries.

But I have to ask you, do you really have a lot of knowledge about these countries? Do you know about their economies? Do you know their developmental level? Do you know if there are any potential areas for future collaboration? Let’s take a look at the economic development of these countries.

If we want to judge the economic development of a country, we can look at some indicators, for example GDP denominated in US dollars. And the World Bank has put countries into different categories, so if it’s a high-income country it means that your income has to be over 12,000 US dollars. The Czech Republic is number two here, and it is greater than Estonia.

According to GDP, the Czech Republic is actually viewed as a developed country. So 40 years ago when China just started to reform or open up, our per capita GDP was just 200 US dollars. Of course, after 40 years’ development, the per capita GDP of China hit over 8,000 US dollars. So that is to say China is a middle-income country.

So for Albania, which is our old friend, it’s at the bottom spot, only 4,000 US dollars. When I was a child, Albania was actually more developed than China. But now we are doubling the GDP of Albania.

Of course, GDP is very important, but GDP growth is more important. So if you develop really fast, you can catch up with countries that were ahead of you in the past. So this is the GDP growth rate of CEE 16 countries. Actually, they are growing very fast relative to other countries.

As you know, if you have already become a developed country, to grow at 2.5% is already something remarkable. These countries have accomplished a GDP growth rate of over 3%. The Czech Republic’s number was 4.3 in 2017, so a booming world economy. China’s economic growth rate decelerated a bit, but still it was 6.3%. So China and the CEE countries are all among the faster growing economies in the world.

So among the CEE countries, which countries are big? Which countries are small? The largest one is Poland, accounting for 34.1% and the Czech Republic accounting for 14%. So in CEE 16 countries, there are big ones and smaller ones.

So if we look at the absolute size of the 16 countries of the CEE and China, you can see big discrepancies here. Now China is the second largest economy in the world. The total size is 12 trillion US dollars. Putting CEE 16 countries altogether, the size is just 1.5 trillion US dollars, so CEE 16 countries only account for 12% of China’s GDP, and also the CEE population is 10% of China’s population. So the CEE, as a whole, is one tenth of China. So that is to say we are still relatively bigger than CEE countries as a whole.

So let’s do a deep dive into China’s GDP growth. I think a lot of Czech participants do view China as a big manufacturing country. You may see China as still lagging behind, or you think while Shanghai and Beijing are very good, many other places in China are lagging way behind.

So let’s take a look at the allocation of industries in China and then compare that to the Czech Republic. Actually there are a lot of similarities. If you look at the two economies, you will see that both have service industries accounting for over 50% [of GDP]. You may be amazed or surprised to see that the service industry is already the dominant industry. Agriculture only accounts for 8% of China’s GDP, and in the Czech Republic it’s just 2%. Both countries have strong industries, China 40%, Czech 36%, but the service industry is even larger. If we look at employment allocation, it’s the same story.  

The Czech economy is doing very well with very low unemployment rate. China’s economy is also good with low employment rate. Why? Because the service industry can absorb a lot of employment.

So if you look at the value of a service industry or number of jobs created by a service industry, they are all accounting for over 50% of GDP total. Of course, this is just some rudimentary comparison or analysis. I believe that the Czech Republic’s service industry is more about… insurance, tourism, banking. For China, maybe our service industry is mid- to low-end, like delivery, etc. But it doesn’t matter when it comes to the fundamental analysis. The Czech Republic is a high-income country and China is a mid-income country, but both countries focus a lot on the service industry.

So what are the driving forces of the economy? According to economics, there are just two driving forces. First is investment and the second is about technological advancement. China is known for its high savings, high investment. But if you looked at the Czech Republic’s numbers without knowing they were for that country, you might think it’s an East Asian country. The Czech national savings rate is 34%; investment, 25%. This is not low. The Czech Republic has a very high savings rate and also investment, so these two forces are driving the country’s economic development.

Now let’s take a look at outward trade. The Czech Republic has a smaller economy [compared to global standards]. Of course it relies more on outward trade, if you use import plus export divided by GDP. So the Czech Republic is like 152% of GDP in terms of trade dependency. Actually, China used to have more than 60% of GDP as its trade dependency. But now this figure has been reduced to 30%. That is to say China’s economic structure has changed.  China is now relying more on domestic consumption.

We know that President Trump of the U.S.A. is now imposing tariffs on China's exported goods. But I have written an article to say that this will not have a very big impact on China. If Donald Trump had imposed these tariffs back in 2006, China would have suffered more. Now China suffers, but not as much as it would have suffered back then.

So we can see that both China and the Czech Republic have been very much outward oriented. China, as a very large country, still has a trade dependency of around 40%, which is not small.

Then if we look at the exports, both countries are very strong at manufacturing, but maybe in different categories.

For the Czech, they are a very strong manufacturer of high-end products like automotive. China is also a very large manufacturer.  Eighty-four percent of Czech imports is internal trade, while for China it is 68%. This is the trade between the industries or between the sectors.  We can see that in terms of outward exports, the Czech number is very, very high so that means it is a very large exporter.

What about the attractiveness of FDI? Both countries, I would say, are very attractive to FDI investors even though the numbers look small on this chart. FDI is the annual [inflow of investments from abroad] as a percentage of GDP. China has a 1.4% inflow and the Czech Republic has 4.3%; this is a very large FDI inflow. China is one of the most or at least the top three attractive destinations for FDI – sometimes only after the U.K. or U.S.A. FDI outflows is 0.8%, which is also quite high. So if we don't look at the outflow for the moment, and we only look at FDI inflows, I would say both China and the Czech Republic are very attractive to FDI investors.

Now, let's take a look at the economic growth of the two countries. As I said, capital and technology are the two drivers for the countries’ economic growth. Capital has a cap, it's not unlimited. However, technology can be a very strong boost for the economy. In the past, China's R&D expenditure was very, very low but now China has increased its R&D expenditure a lot. It's not only Huawei doing R&D; a lot of Chinese companies are also making great investments into R&D, taking the country from a low-income to a mid-income one.   So those are some macroeconomic similarities between China and the Czech Republic.

We have two very high-quality countries, so next I will give you six points about how China can learn from the Czech Republic.

First, China can learn how to do urbanisation. If you look at the Czech Republic's urbanisation rate, it is 73% which is a normal level for a developed country. China is growing really fast, now the urbanisation rate is almost 60% but still, we are lagging behind the Czech Republic by 13 percentage points.

Prague is very impressive and it is a historical city with the trams on the street. So I think China can learn from the Czech Republic how to be both modernised, urbanised and at the same time preserving its historical heritage. Second, China can learn from the Czech Republic about trading in services. If you talk about high tech like Baidu, Alibaba, and Tencent maybe there are some things their Czech counterparts can learn from them. But the trading in services, even though China is a very large trade country, our trade service is in deficit while the Czech Republic’s is in surplus, especially its tourism industry.

Another area in which we should learn from the Czech is health insurance. China is an ageing society.  Healthcare is more important than ever. If we look at the general government health expenditure the Czech number is 6% and China’s is 3.2% of GDP. Of course, it is already double the numbers from the past. If anyone in this room is working in the health industry, you should learn from your Czech counterparts.

This is a very popular topic in China right now, especially among private entrepreneurs; they feel that the tax burden is too high. All of the figures I showed you are original data from the World Bank with just a small modification I made to one number.

The tax on income, profits, and capital gains is also something else we can compare between the two countries. For example, the real estate market in China is booming so the capital gains from your real estate properties is taxed. In China, this tax revenue accounts for 20% and in the Czech Republic 14%. What is more important is the structure, right. We should levy more tax from the high-income people, while less for the lower income people.

You know, today in the morning, when I got up, it was quite chilly, however, the air quality was super good. I guess all of the friends here from China enjoy the air quality in the Czech Republic. In China the average is PM 2.5 air pollution, which is quite high. It's not even [the number for] Beijing, it's the average level.

And also, as Mr. Rusnok, the Governor of the Czech National Bank, just said, in the Czech Republic the information is very transparent. If you go online, you can find some of the speeches he gave last year at the Central Bank Conference in Turkey. I am a scholar of global finance and macroeconomics so I am very interested in the Czech Republic. The country is not using the Euro and it was used to having a floating exchange rate system. But later it liberalised, and then it got fixed again, and then floating once more.

So how can the Central Bank of China and financial practitioners learn from their Czech counterparts? This is, again, a very important topic.

We used to only talk about the bright side but now we are very honest. Let's face the challenges as well as the opportunities together. I hope my presentation today can provide some insights to our Czech friends, explain a bit about China, what's going on here, and what we can learn. So now at least you know a bit about the CEIBS faculty and what are we doing. Thank you very much.”