Zhiguo He is a Chinese economist and James Irvin Miller Professor of Finance at the Stanford Graduate School of Business. Before joining the Stanford faculty, he was a professor at the Chicago Booth School of Business. Aside from teaching, He also serves as a faculty research associate at the National Bureau of Economic Research and the executive editor of the Review of Asset Pricing Studies.
This transcript has been edited for length and clarity.
Sarah Jeddy: Thank you for taking the time to speak with me. I was wondering if we could start with a brief introduction?
Zhiguo He: I am an economist from China, and I came to the United States in 2001. At that time, China was definitely a developing country, although the economy started opening up a little bit, everybody would agree that China was still lagging behind the US or other countries quite a bit. And when I arrived in 2001, 9/11 happened, and to a lot of people, that’s a game changer. Another event happened at the end of 2001, was the WTO. So China got accessed, entered the WTO in December of that year, and that was definitely a game changer for China’s economy, just that the entire labor force found a way to fuel the economy. It’s also that I wanted to mention a lot is that just Chinese are fundamentally, at least for two generations, they want to work. They work very hard. They are extremely diligent. And they just feel like, if they are working to earn money, it’s part of their consumption. That’s very, very weird. Weird kind of attitudes towards usual people, and hard to understand, to be honest, from outside, but that’s how hard working. And also, you know, just save for the future family to feel the growth of China, I guess, in the past 20 years, in the first part of the 20 years, which is 2001 to 2020 basically.
Sarah Jeddy: Yeah that makes sense. So then what do you think is, like, the cause of, or the relevant history, of the financial relationships between the United States and China?
Zhiguo He: The United States saw bigger investment opportunities in China in the beginning of 2000 when the WTO started opening up China. VCPs got into China in the early 2000. This is where the kind of textbook kind of financial connection started to be established. Before it was like DFI, most direct foreign investment, right? Those examples, including, let’s say, GM invests in Shanghai automobiles. Basically, foreign companies have both the technology as well as intellectual property. They know how to do stuff. China knows nothing. Only have labor, and then they start to collaborate. Beijing, from the very beginning, very clear that, you know, it’s okay, we give you the market, but you need to teach us. How do you do these things? This is now the debate — whether China is stealing technology or not. I just feel like this crazy debate, even this is from the very beginning, very clear. If you can come here, we will learn from you, you know, and oftentimes, we will say that this so-called technology transfer is a premise for you to open up, and it’s all agreed at that time. China is learning super fast. That’s a problem.
One interesting example — when GM started to open up in Shanghai to produce cars, they chose the cars to be made. It was basically in the 70s, already out, and nobody doing this anymore in the U.S. That was a response to this. They knew it. That’s the important part of this, direct foreign investment. Then, finance — true finance investment. Think about jd.com, think about these early internet-based companies. You see very big foreign venture capital names everywhere. Another layer is mutual funds — foreign investors like professional funds start to invest in China, in stocks. That’s the secondary market. The VC is the primary market. FDI is kind of zero level. The third party is also big, through so-called stock connect — where, say, Fidelity or Vanguard can use access in Hong Kong to directly invest in A-shares. Starting from 2016 that was a big exposure. When COVID happened and China’s growth slowed down, a lot of foreign money stayed at first, thinking maybe they’ll have to come back. Eventually, they decided to get out because after two or three years, they kept losing money. I think the lowest point is 2024 — most of them are completely out. Now Beijing is doing something to convince them to go back, and that is gonna take a long time. I think they should come back, but it’s beyond my pay grade to really change anything.
Sarah Jeddy: So then, what role do you think that the tariffs imposed by President Trump play in these relations?
Zhiguo He: It will hit the Chinese export industry. I would guess that the GDP will be affected by at least 1%. I’m more on the optimist side. It’s only 1% if Trump indeed launched a blanket tariff. What happened in the past was there’s a lot of exemptions that you can apply for. So a lot of impact can be shielded in the median one. What we already saw last time was that there’s a lot of shifts in the supply chain from China to other countries, and the impact won’t be that large. So in short, tariffs hurt China’s GDP growth. Will that completely change the way people think about China? No, because China is not doing well, just from the very beginning.
Sarah Jeddy: That makes sense. So then I guess, kind of in the same vein we’ve seen efforts from like, both China and the US to decouple financially. So how do you think that would affect global financial stability, if at all?
Zhiguo He: I think decoupling is really happening at the heart of technology. There’s another area where decoupling is heavy — science. I worry about it. I don’t think there’s any solution to that. A lot of researchers would like to travel to both sides, but both governments are influenced by certain interest groups. In China, there are groups that try to convince Beijing that we need to prepare for the worst — potential U.S. military actions. I can imagine the other side does too. So all the sensitive exchanges, including financial, will be cautioned to an extreme extent. On that side, I am pessimistic. I think in the time of Trump, as well as Xi, it’s harder to get any progress. One thing I do see is that Singapore benefits. Most of these kinds of meetings happen in Singapore now.
Sarah Jeddy: So do you think that Singapore is going to play an increasingly large role?
Zhiguo He: They already play a role. They enjoy their position very, very well.
Sarah Jeddy: Do you think they would try to leverage that for more? Do you think they will succeed?
Zhiguo He: They already succeeded. It’s an extremely small country. For a while, there were a lot of Hong Kong businessmen going to Singapore because they were worried that Hong Kong is not politically stable. I always went to Hong Kong, and there’s always a group of very lefty people versus extremely right. People who want a Hong Kong with no attachment to Beijing. Others believe Hong Kong can survive only because of Beijing and are very grateful. I wouldn’t say that I agree with everything, but Beijing just wants political stability. It’s not trying to discourage economic diversity. For instance, cryptocurrencies — in the mainland it’s all banned, but in Hong Kong, it flourished. Hong Kong even tried to compete against Singapore as another center for cryptocurrencies. And Beijing is very happy about this outcome.
Sarah Jeddy: Okay, so kind of pivoting, I guess. What role do you think China will play in shaping global financial markets in the coming years?
Zhiguo He: Little.
Sarah Jeddy: Little? Do you think it’s going to shift towards Singapore then?
Zhiguo He: In the old times, China got people’s attention not because of its financial market — it was booming. People went there to make money. But the power you felt was from the real business: jd.com, Alibaba, Tencent, Ant Financial. Now Deep Seek. Financially? It’s little. What people might sense is that because of its economic growth, because its trade was growing so fast, its currency became popular. The RMB, Chinese yuan, became a hard currency in Pakistan, East Asia. Beijing is excited about seeing that. They want to make the currency more influential. Replacing the dollar? Almost impossible. But becoming important locally — Southeast Asia — yes. That’s standard.
Hong Kong helped foreign investors get access to the onshore market where they can do hedging and other instruments. In that sense, it affects global financial markets. But China has closed capital accounts, which means money cannot move freely. So the impact China has on the world is through the real economy — not through financial markets.
Sarah Jeddy: So then, what do you think the real impacts will be in the coming years?
Zhiguo He: Manufacturing. China has impacted the world through this extremely complete, sophisticated value chain. Everything — China can produce. They’re moving away from extremely low-end work. Some things are moving to Vietnam or India. But when it comes to iPhone-level production — high-end parts — other countries cannot do it. Think about where chips reside — not the chips themselves, but the circuit boards. You need sophisticated manufacturing to do those things.
Sarah Jeddy: So those were all my questions. If you have any more comments.
Zhiguo He: I actually wanted to say something about what Neil was talking about this morning — entrepreneurs and private business in Beijing. Also related to industrial policy. I’m very neutral, slightly positive, towards industrial policy — China trying to promote hardcore technology over, say, food delivery apps. Beijing thinks that kind of thing is less useful than chips, for example. I think that’s fine. They’re slowly figuring out the best way is not to pick winners themselves. What’s good about the recent EV car industry is they subsidized consumers. First, they built out charging stations — only the government can do that. Second, they subsidized purchases. Not always 100% useful, but the best any government can do. The U.S. does it too. The issue is when governments subsidize the firms directly. The better way is to subsidize the consumers — let the market pick the winners. Customers still want the best product. Whoever wins the market gets the money. That explains the fast growth of EV cars in China in the past three years.
Sarah Jeddy: Yeah, that makes sense. Perfect, thank you so much for taking the time to talk to me. I really enjoyed this!
Zhiguo He: Thank you!
Image courtesy of Zhiguo He