Riding the wind of rebirth

The bigwigs in the front row were engrossed in listening to the explanations and writing furiously, while Zhou Zhi sat in the last row of the conference room, unable to see anyone's expressions. However, judging from the somewhat oppressive atmosphere in the conference room, he guessed that they probably weren't looking too good.

"The second lesson is that we must be cautious about current account deficits, debt, and non-performing loans. The Salinas government mistakenly believed that as long as Mexico was able to attract foreign capital, no matter how large the current account deficit was, it would not pose a risk. They even believed that if foreign investment inflows decreased, domestic investment would shrink accordingly, imports would decrease, and the current account deficit would naturally decrease. Therefore, the Salinas government adopted a laissez-faire attitude towards the current account deficit."

"This is the 'essence' of liberalism, but bloody facts prove to us that this line of thinking is very wrong."

"Through post-mortem analysis, we found that this mistake was caused by ignoring several basic facts."

"First, the inflow of a large amount of foreign capital may cause local shortages of local currency, as demand in local markets leads to an increase in the value of the local currency."

"Secondly, only when the foreign investment is used for productive purposes can the reduction in capital inflows affect the scale of domestic investment, thereby reducing imports and improving the current account situation."

"Third, and this is a very prominent problem in Mexico, a large amount of foreign investment is used to import consumer goods, including luxury goods. The nature of consumption determines a difficult-to-reverse trend—that is, although the amount of foreign investment used for importing consumer goods has decreased, other forms of capital will take its place. Therefore, the reduction in foreign investment inflows cannot control the reduction of the current account deficit indefinitely."

"Fourth, even if foreign investment is used for productive purposes, a decrease in its inflow will have a significant side effect on the invested projects. Investors may have to raise other forms of funding at a higher cost or postpone the completion date of the projects. According to estimates by S. Edwards, chief economist of the World Bank, a country's current account deficit should not exceed 3% of GDP for an extended period, and after our adjustments to the data for developing countries, this figure should not exceed 4.5%."

"Before the financial crisis, Mexico's current account deficit had reached $290 billion, equivalent to 8% of its GDP."

"Such figures are tolerable when the global economy is doing well, but once the momentum stalls or even reverses, these figures are often the root cause of a crisis."

“The case of Mexico is the first major crisis since the emergence of the ‘Emerging Markets Era’. The so-called emerging markets are markets that are different from the traditional European and American capital bases, such as Latin America, Southeast Asia, Eastern Europe, etc. I believe that the most important emerging market in the world in the next thirty years is China.”

"These markets are late-developing markets, blue oceans for international capital, and low-lying areas for economic development. They are ideal regions for developed countries to transfer labor-intensive and low- to medium-value-added industries. With the support of policies to stimulate economic development and relying on foreign investment and technology, the economies of these countries and regions have achieved very encouraging development."

"Just like Mexico ten years ago."

Li Laosan finally couldn't hold back any longer. He picked up his cup, took a sip of tea, cleared his throat, and said again, "Is everyone thinking about this question? If, under certain circumstances, a similar situation of foreign capital leaving and a currency defense battle were to occur in China, is it possible? If so, how should we respond?"

Is it possible? Among the conditions that Li Laosan just gave, the financial system is fragile, the pace of opening up is too fast, the political and social situation is unstable, and the adverse effects of the external environment seem to have hit all the spots that make the big shots very uncomfortable.

Not to mention the fragility of the financial system, several major banks have not even completed modernization reforms, and some banks have not even achieved computerization. The amount of non-performing loans is so large that it is about to affect normal operations.

The securities market is even worse; it's a disaster zone where strict control leads to stagnation, and lax control leads to chaos. Is the pace of opening up too fast? The blind rollout of local policies and investment attraction across the country, leading to signs of economic overheating, clearly demonstrates this. While everyone is focused on the immediate task, few are looking ahead.

The instability of the social environment and the influence of the external environment are even more prominent. In the next few years, Hong Kong and Macau will return to China, and imperialism will really "stand its last post." Various propaganda and instigation will emerge one after another. The 3.5 million middle-class people in Hong Kong Island are eager to obtain BNO certificates. The streets in front of the consulate are always crowded with people. The sharp declines in the stock market and the housing market in the past two years are all objective reflections of the severe situation.

The only advantage they have is that the RMB environment is relatively closed, and the bigwigs, out of caution, have only opened it up to a very limited extent.

However, two unavoidable problems have now been presented to everyone: First, how to ensure the healthy and stable economic environment of Hong Kong after its return to China? Second, how to prevent Hong Kong, which is known as a free port and a fully open and highly transparent financial window, from being vulnerable to storms?
The second hurdle is the WTO. The negotiations have been going on for ten years and have gone through two major phases. The re-entry into WTO and the review of the system have been completed. The negotiations have now entered the most painful tug-of-war phase of "multi-country and bilateral" negotiations.

But this is inevitable, and from a comprehensive perspective, it is better to do it sooner rather than later. In other words, the countdown has already begun, and many things need to be completed before the countdown ends, otherwise there will be great risks.

There are many hard conditions and hard indicators for joining the WTO, among which the gradual opening of the financial market is a very risky one, known as a "minefield".

Once the agreement is signed, unless there are drastic changes, it needs to be completed step by step according to the timetable.

If we don't prepare for the eventual reopening, Mexico's fate today could very well be Hong Kong's tomorrow, or China's the day after.

"Comrade Li, stop keeping us in suspense." A bigwig whose voice could often be heard on the news put down his pen. "We invited you here today to give us a lesson. You are in Hong Kong, the window to the outside world. You are far more familiar with the international financial situation than our old guys in the mainland. Because you have been fighting in the international financial market for many years, you have much more experience in dealing with all kinds of tricks than our comrades in the mainland."

"I heard you've also developed an analysis system that achieved a 67% accuracy rate in analyzing the Mexican financial crisis? We all work in finance, and we know that achieving that level of accuracy in predicting financial situations is a remarkable achievement. Did the person who developed the system come today?"

“This system was completed in China,” Li Laosan said. “It uses the Clover Group’s Xiaozhi nonlinear supercomputing matrix. The linear model was completed overseas, while the nonlinearization and optimization were done by Clover Group’s chief nonlinear computing expert, Mai Xiaomiao. Today, Group CEO Zhou Zhi and Mai Xiaomiao are also here; they are in the last row.”

Several elderly people in the front row turned around. They were all faces that frequently appeared in the first few minutes of the news broadcast. Zhou Zhi's heart pounded, and he quickly pulled Mai Xiaomiao to stand up: "Hello, everyone... uh, grandpas and grandmas."

Calling this leader "leader" is too grand and inappropriate, so Zhou Zhi couldn't think of a better way to address him and resorted to being humble.

"Hahaha..." The old people couldn't help but laugh; it was truly the first time they'd ever been addressed like that in such a setting. (End of Chapter)