On the eve of the meeting between Chinese and American leaders, on September 19th, the sixth Tsinghua University Wudaokou Chief Economist Forum was held. The meeting focused on "global rebalancing and the reconstruction of the international monetary system." Nearly twenty renowned economists, including Lin Yifu, Yu Yongding, Ju Jiandong, Liu Yuanchun, and Yao Yang, shared their views on global rebalancing and the phenomenon where China's $1.2 trillion goods trade surplus has drawn criticism overseas. The discussion was lively.
Some scholars believe that the term "rebalancing" is a trap used by Western politicians and scholars to accuse the Chinese economy of having overcapacity. They exaggerate the issue of overcapacity in China and recommend measures such as increasing domestic demand, reducing exports, and cutting deficits, all with the intention of freeing up space for Western manufacturing industries. However, many other scholars argue that there is indeed a need to address imbalances in various sectors within the Chinese economy. These imbalances include imbalances between domestic and foreign demand, financial imbalances between central and local governments, and uneven development between urban and rural areas. These issues require serious consideration.
Professor Ju Jiandong from Tsinghua University pointed out in his latest research that global economic imbalances are not the result of deliberate manipulation, but rather a product of spontaneous market division of labor. However, this extreme pattern of 'China doing manufacturing and the United States doing finance' inherently possesses instability. This is the root cause of the competition between the two major powers, China and the US.
In order to prevent the global imbalance from worsening further, Ju Jindong has proposed a bold policy concept called 'one stone killing four birds'. He suggests relying on China's trade surplus of over $1.2 trillion to issue 10 trillion yuan in sovereign bonds overseas. This would not only stabilize the trade surplus and accelerate the internationalization of the RMB, but also allow these funds to be used to stimulate domestic demand, alleviate local debt issues, and cover the gap in pensions for urban and rural residents.
September 19th, Ju Jiandong discussed with Observer Network how to understand the current global imbalances.
After the forum ended, Observer Network consulted Professor Ju Jiandong regarding 'rebalancing', the competition between China and the United States, and the aforementioned controversial issues.
A simple framework can be used to understand the current competition among major nations, including the global imbalances and global rebalancing we discuss today, as well as the future of world order.
Firstly, the world situation is actually undergoing a paradigm shift under several major trends. I have mentioned this many times in my book and research titled "Great Power Competition and the Reconstruction of World Order". Since it is a paradigm shift, it is difficult to apply historical events directly.
What are the paradigm shifts? The first is the paradigm shift in the world order. The previous world order was one of hegemony and iteration. Do people think that the United States led the world, and now China will lead it? I believe this view is incorrect. In reality, the world order is shifting from hegemony and iteration to competitive coexistence.
What's interesting about this? The term "hegemonic iteration" actually implies a zero-sum game. For example, we often discuss security and resilience. Between China and the United States, both economies and finance are highly dependent on each other. Is high dependence a good thing or a bad thing? Why does the United States want to "de-Sinicize" itself and reduce its dependence on China? This has been a focal point of policy discussions in the West over the past period.
Because we rely heavily on China, or on the US dollar, this dependence has become a weapon to attack others. For example, the US and Canada believe that Canada relies heavily on the US, which gives the US the ability to put pressure on Canada. Due to our heavy reliance on each other, using this dependency to attack others is a practice that embodies the mindset of a zero-sum game.
What about the future? If the future world is a world that relies heavily on certain aspects, then the ultimate state of stability will not be hegemony and iteration, but coexistence. Although everyone depends on each other, it is possible to achieve a limited balance. In situations where everyone is dependent on each other, coexistence is the only option. This is the first shift in paradigm.
The world will move from an era of hegemony to a stage of competitive coexistence. Photo: The exterior of the Federal Reserve Building in Washington, the capital of the United States, taken by Hu Yousong.
The transition to the second paradigm is a paradigm shift in the human era. The so-called transition from carbon-based humans to "carbon-silicon-based humans" is primarily due to the impact of AI. It also includes the shift from fossil fuels to non-fossil fuels in new energy sources. This is a paradigm shift that affects the entire human era and human society. The impact of this paradigm shift is greater than any change we have seen before. For example, the transition from nomadic societies to agricultural societies lasted for thousands of years; the transition from agricultural societies to industrialization also took 500 years; even the information revolution took decades. But now, AI has truly entered our lives only a few years ago, yet the impact of this paradigm shift is enormous.
The third is the rise of China. What does the rise of China mean? It starts from a small prosperous society, moves towards Chinese modernization, and then leads to the revival of Chinese civilization. This represents a significant change for China. At the same time, as China moves from Chinese modernization to the revival of civilization, it will have a huge impact on the world. I believe that this includes three major shifts in paradigms, which help us understand this era better.
Secondly, it is necessary to understand this issue comprehensively. There are various analytical frameworks and disciplines involved. The disciplinary approach we adopt, known as rationalist analysis, starts from the interests of national states. When looking at the conflicts of interest between nations during such major changes, one can consider it as a redistribution or reallocation of power. But what determines this reallocation of power? For example, the United States has a strong desire for global hegemony. However, why does Trump advocate for a reduction in this influence? His assumption is simple: the benefits of maintaining world hegemony by the United States are now less than its costs; it isn’t worth it. So why should we continue to protect the security of other nations? Looking at his understanding of power, it ultimately comes down to a consideration of interests.
This kind of national interest conflict can be simply broken down into overall interests, long-term interests, short-term interests, and local interests. By using this matrix framework of short-term interests, long-term interests, local interests, and overall interests to analyze the conflicts of interests between countries around the world, it becomes more convenient to understand what exactly is happening in our current world.
Once again, how do we establish this analytical framework? Science itself is a process of continuous accumulation. From Newtonian mechanics to Einstein's theory of relativity, everything is based on continuous accumulation and refinement—this is the power of science. The same applies to economics. Past theories cannot fully explain current phenomena. In such cases, we simply need to add some variables, but this still relies on past logical frameworks. Over the past century or two, one important framework used for explaining international division of labor has been the “comparative advantage” theory, or when discussing global market competition, the “perfect competition” theory.
In perfect competition, we talk about the “invisible hand”. I need to understand the current competitive situation among major countries. What should I add to the model? The fewer assumptions I use, the better. I will only add one assumption: assume that each industry has economies of scale. I call this “industry economies of scale”, meaning that the scale of the industry is increasing in efficiency. What does it mean for an industry’s scale of return to be increasing? It means that the larger the industry, the higher the efficiency of the enterprises. We have a wealth of data to support this idea. For example, the new energy electric vehicle industry in China, or the large model industry in the United States – both show that the larger the scale, the higher the efficiency. That’s what we have added as an assumption.
This assumption is different from the economies of scale at the enterprise level that were discussed in the 1980s. What we emphasize is economies of scale at the industry level. Not only the manufacturing industry has economies of scale, but the financial industry also does. Why? Because the most important characteristic of the financial industry is network externalities. The more people use the US dollar, the higher the benefits that everyone gains from the dollar system. This is why it’s difficult to change the international monetary system. Once everyone starts using the US dollar, they are reluctant to switch to other currencies. Therefore, the financial industry also has network externalities.
With the assumption that the industry exhibits increasing returns to scale, we can arrive at a series of conclusions. In the book, we consider an economy in a country, simplifying it to two main industries: one is manufacturing, and the other is finance (or more accurately, one is manufacturing, and the other is service industry). Since manufacturing itself exhibits increasing returns to scale, and finance also exhibits increasing returns to scale, a strong comparative advantage effect arises: as long as I expand my manufacturing sector, it will become stronger and stronger.
As a country becomes stronger, its comparative advantage over other nations increases. In the case of the United States, the more strong its financial industry becomes, the more domestic resources will be inclined towards the financial sector, resulting in the manufacturing industry becoming weaker compared to the financial sector. This is a matter of resource allocation: out of a total of 10 million workers, if 8 million are engaged in the financial services industry, only 2 million will remain for manufacturing. Therefore, the allocation of resources in every country will inevitably concentrate in industries where they have comparative advantages, and this trend will continue to strengthen. Eventually, the world will have two centers: China as the center of manufacturing, and the United States as the center of the financial industry. And these two centers will be interdependent.
In December 2025, a trader was working in the trading hall of the New York Stock Exchange in the United States. The three major stock indices in New York fell that day. Photo by Liu Yanan from Xinhua News Agency.
Yes, this is a result of market division of labor. The division of labor leads to interdependence. The manifestation of this division of labor, as I said this morning, is that global manufacturing is concentrated in China, which naturally results in a trade surplus for us. Meanwhile, the United States exports finance and imports manufacturing goods, resulting in a trade deficit. Therefore, the so-called global imbalance is essentially a result of the global division of labor.
