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As the second largest economy in the world, China has seen immense growth over the last 40 years, a result of more open markets and an innovative approach to advancing financial technologies. The Macro Finance Research Program at the University of Chicago’s Becker Friedman Institute for Economics and Tsinghua University School of Economics and Management co-hosted a two-day academic conference to explore the interplay between finance and macroeconomics in China. The conference ignited an important conversation on the inner workings of the Chinese economy, the key players in economic policy and challenges for future research related to the Chinese financial market. During the conference, sessions dug deeper into the history of China’s financial markets, Chinese state-owned enterprise reform, and the productive role of finance in supporting economic growth in the future.

In his opening remarks, Lars Peter Hansen, Nobel Prize recipient, David Rockefeller Distinguished Service Professor in Economics, University of Chicago, stressed why this was an ideal time to host this conference in China, “Given the economic interconnections around the world and the increasing importance of China in the world economy, it incumbent for academic economists understand better first, what is unique about the Chinese economy and its challenges in future and second, what lessons can learned from the experiences of other economies on their paths towards economic advancement.  By bringing together top scholars with knowledge and expertise about finance and the macroeconomy in China, we hope to nurture future research in this area.”

Chong-En Bai, Mansfield Freeman Chair Professor, Department of Economics; Dean, Tsinghua School of Economics and Management echoed this sentiment: “After launching the Tsinghua-Chicago University Joint Research Center for Economics and Finance in last September 2018, this conference is the first joint event organized by two institutions. The Joint Research Center aims to encourage the research on the Chinese economy and just sent out the call for proposals to people who is doing the study on the economy and research. This conference will feature several experts study findings and share the insights of economic development from different perspectives.”

Professor Hansen mentioned during the interview, as a scholar, he hopes to hear more from outside of the academic community and conduct multi-level and comprehensive exchanges with professionals from the government, private sector and other fields, so to better frame future research on the economy of China and to extract insights pertinent to economics more generally. “I should say at the outset, I only know about these reforms in the broadest of terms and I haven’t studied all the specific details of it. But the basic aim I understand, is to open up the financial markets in the Chinese economy, to foreign investors in the capital and financial markets, which I view as overall a good aim and a good policy, and I really hope that it can play out in these terms.”

“I don’t see this as necessarily destabilizing because in many respects. By allowing these foreign investors you might well be broadening the reach of risk-sharing possibilities of coping with uncertainty as well as bringing in new financial resources in the Chinese economy to help support new ventures.” So, Professor Hansen thought it can actually nurture growth and help to provide a buffer for some of the Chinese economy’s own turbulence but China does hold the door to some other source of uncertainty that comes from foreign markets. But overall, he thinks it’s very productive and is pleased to see the Chinese government pursuing such reforms.

Over the past years, new finance including fintech, internet finance and blockchain have seen rapid growth, but also many challenges too. Thomas Sargent, Nobel Prize recipient and professor of economics at New York University, expressed, China’s really been a worldwide leader in applying artificial intelligence to internet funding and microfinance. It is important in terms of lowering costs of doing transactions. China is indeed at the forefront of the world in the field of fintech and has developed very rapidly. “There will be huge benefits to getting very poor people access to loans which they didn’t have. For example, in very poor villages, people who had ideas to start a business, but they couldn’t get the money need to get money from others. It is important to set up things in these villages where people could get a reputation for repaying even small loans. Because if they had a reputation for repaying, they could get the loans.” Mr. Sargent mentioned. “Ant Financial is doing this. It is with millions of people. China is the leader in this.”

Artificial intelligence and machine learning could help to create this social credit system. But Professor Sargent reminded us to notice that using artificial intelligence to figure out who is creditworthy, and the like, is important to support financial transactions but at some point, it also raises problems about privacy. This isn’t special to China, it’s a problem worldwide. How do we on the one hand encourage this type of information sharing that’s critical to financial transactions while at the same time figure out ways to protect privacy? This is a tremendously challenging problem going forward.