1. Finance, Development and the Role of State: The “Entrepreneur in Chief” and China’s Entrepreneurial State as the Mirror Image of Austerity A Keynes- Schumpeter – Minsky Approach Leonardo Burlamaqui and Rainer Kattel Prepared for the BU Panel on Financial Instability, Austerity and Economic Progress: China as the Mirror Image of the Eurocrisis Boston,April, 2016

2. Key Propositions: In the present debate about the Eurozone ongoing crisis, China offers a very useful lesson on how to use Keynes-Minsky inspired policies in order to avoid a financial crisis ( and keep growing). “Keynesian China” provides a mirror image of “Austerian Europe”. The Eurozone has something to learn here.

3. Austerian World vs. Keynesian China GDP GROWTH SINCE 1980. Source: International Financial Statistics/IMF, 2013

4. Austerian Europe GDP PER CAPITA SINCE 2007, SELECTED EUROPEAN REGIONS (AVERAGES IN US$. 2007=100 ) Source: The Conference Board Total Economy Database™, January 2014.

5. Uncompetitive Southern Europe vs. Northern? REAL LABOUR PRODUCTIVITY PER HOUR WORKED, SELECTED EUROPEAN ECONOMIES, 2013. Source: Eurostat

6. Where the problem seems to reside?. GOVERNMENT EXPENDITURES 2007-2013 (PERCENTAGES). Source: Eurostat Austerity is the killing element for the South

7. Keynesian- Schumpeterian China

8. THE ENTREPRENEURIAL STATE IN ACTION: GROWTH AND SOCIALIZATION OF INVESTMENT

9. Long-Term Growth

10. The Crisis ( What Crisis?)

11. Exports

12. Reserves 1980-2013: U$ Trillion Hedging Against External Vulnerability

13. SWFs : Foreign Public Investment Capacity (2013- US$ ~800 Billion)

14. At Work...

15. THE ENTREPRENEURIAL STATE IN ACTION: THE SCHUMPETERIAN STATE

16. Long Term Vision :

17. “magic seven” industries: (1) energy saving and environmental protection, (2) next- generation information technology, (3) biotechnology, (4) high-end manufacturing, (5) new energy, (6) new materials and (7) clean-energy vehicles. (1) Energy saving and environmental protection, (2) Next-generation information technology, (3) Biotechnology, (4) High-end manufacturing, (5) New energy, (6) New materials and (7) Clean-energy vehicles. 7 Strategic Industries :

18. R&D Spending (1)

19. Building Future Innovation Capabilities ( 1)

20. Long – Term Finance & Global Strategy THE ENTREPRENEURIAL STATE IN ACTION:

21. The Big Four : (Main activity: Development Banks) Industrial and Comercial Bank of China- (World#1). China Construction Bank - ~ (World #2). Agricultural Bank of China - (World #3) Bank of China - (World #4) Source: http://www.relbanks.com/worlds-top-banks/assets And the most strategic ……CDB (1.3 Trillion)

22. Some “Prominent Clients” Huawei Lenovo Haier ZTE (Telecom) Yingli (Solar panels) Sky Solar National Development Zones for High and New Technology Industries ( part of China 2030 strategy) Some “Prominent Clients” Huawei Lenovo Haier ZTE (Telecom) Yingli (Solar panels) Sky Solar National Development Zones for High and New Technology Industries ( part of China 2030 strategy) Tech: A Competitiveness Strategy

23. Global Infrastructure: The new Silk Road

24. CHINA, FINANCIAL BUBLLES AND MINSKY ”Stability is destabilizing” ”Over periods of prolonged prosperity, the economy transits from stable to unstable financial relations” (1992)

25. Minsky : stable growth creates fragile financial structures. China : Super growth certainly compounds that hypothesis.

26. Furthermore: Super growth creates ample opportunities for financial innovation (Eg: Shadow banking) and financial volatility. In addition: dropping from 10-12% GDP growth to 6.5-7.0% obviously reinforces financial fragility :

27. From a balance sheet perspective: ASSETS CAN PLUNGE, CASH FLOWS DECLINE WHILE DEBT STAYS… The KEY difference in China (so far): The (Big)Government has a very good grip on the (Big) banks: They are all public !…

28. … And there are no political (or theoretical) restrictions in case financial turmoil imposes a major banking recapitalization cum financial reestructing by the PBOC. It has happened before.... 1997-98 and 2007-09 “ Reform was strengthened as a result of the lessons learned from the Asian Financial Crisis in late 1997. Zhu Rongji, then premier, seized the moment to push a thorough recapitalization and repositioning of banks that the world at the time rightly viewed as more than technically bankrupt” (Walter and Howie, 2011).

29. Summing-up: the current “bubble” and shadow banking activities should be seen trough those lenses…. and not, mostly, as a big policy mistake. The big mistake would be opening up China’s capital account.

30. There seems to be a host of lessons for the Eurozone here…

31. THANK YOU