Chandran Nair: What is this thing called involution, neijuan, and as Chinese call it, this overcapacity and overproduction discussion? Why has it become a geopolitical issue? And then, is it baked into the sort of neoliberal free-market capitalist economy? And has China essentially become so good at it that, in a perverse way, it’s created a problem both for itself and in the world, and there’s sort of a race to the bottom which even the Chinese accept is a challenge? And finally, what is China going to do about it? So maybe I can hand it over to you to perhaps give us all a basic understanding of what is this involution thing? What’s the overcapacity thing? What is your take on where it is, and why has it become a geopolitical issue? Over to you.

Jeffrey Sachs: Great, thank you, and apologies for being a couple of minutes or a few minutes late, because I’m juggling events in Shanghai just now, so it’s a pleasure to be with you. Let me take up this overcapacity discussion. There is no overcapacity in China, and the term is somewhat meaningless and tendentious term. In fact, I don’t think we heard much about it in the past before recent years, and it became a target by US politicians and policymakers against China. So what does it purportedly mean? Purportedly means that China has too much capacity to build industrial products, and that somehow hurts the world. It hurts the world by flooding the markets of the US and Europe, and presumably developing countries, with Chinese products. That’s overcapacity, and the capacity should be cut so that this flood of low-cost products stops doing damage to the rest of the world.

This is all a bunch of nonsense. What China is producing right now are things that the world needs, and things that the world actually will buy as well. Let me take one example of the supposed overcapacity: China’s production of photovoltaics, that is, solar modules, solar power. It’s estimated that China’s capacity—not overcapacity, capacity—is about 1,300 gigawatts of solar module capacity production per year. And the current installation of solar capacity in the world is roughly half that, something like 600 gigawatts per year. You could conclude that there’s a lot of excess capacity right now in Chinese factories that produce PV. That is factually the case; these factories could produce more than they are producing.

Now, is that overcapacity? It depends on what one means by that. What should the world be installing now? That may sound like an odd question, like, what should the market demand be? But it’s not quite like that, because a “should” is involved with solar power. We are on a trajectory in this world to replace fossil fuels with zero-carbon energy. We need to do that. In fact, we need to have policies that encourage that. The reason is that the world has warmed by about 1.5℃ compared to the pre-industrial Earth average temperature, and that’s creating great dangers around the world. It’s creating heat waves, extreme storms, typhoons and hurricanes, and other storms. It’s creating mega droughts. It is creating the kind of glacier outbursts that was so tragically seen in Nepal. We know this. In fact, the world’s governments got together already 34 years ago, in 1992, to sign the UN Convention, the UN Framework Convention on Climate Change, and they agreed 11 years ago on the Paris Climate Agreement. And those agreements explicitly endeavor to shift the world from fossil fuels to non-CO2-emitting energy sources. China’s in the lead on that, but we’re not going fast enough to head off disaster.

In fact, we’re reaching not only temperatures that we promised to avoid, but we’re reaching tipping points in the Earth’s physical climate system that could be extraordinarily dangerous, including the breakup of the West Antarctic Ice Sheet, which would raise ocean levels by several meters, or the shut off of the so-called ocean circulation system, the thermohaline circulation system, or the drying of the great rainforests, or the melting of the permafrost. I won’t go into details, except to say we have an urgent need to boost the annual installation of solar power. If you look at the trajectory that we need in this world, it is to use all of China’s capacity, and more, each year between now and mid-century, so that we can have a chance of safety by decarbonizing the world’s energy system.

So what’s the problem? The problem isn’t that China has too much capacity in producing photovoltaics. The problem is that we have had a coordination failure at the global level to help finance developing countries to be able to install solar energy at the rate that is needed worldwide. And we have a complete political failure in the United States, in the name of Donald Trump, who is a corrupt politician rejected by the American voters on Tuesday, who is funded by the oil industry, and therefore has tried to turn off investments in green energy. What’s the conclusion of all of this? Not that our problem is China’s overcapacity, but that we need to do better in a globally coordinated manner to accelerate the transformation to green energy. I think that will happen, by the way. China itself is developing programs like the Belt and Road program, which is well known over the last dozen years, like new development banks and expanded financing coming from China to enable more of the emerging and developing countries to accelerate the energy transformation.

Where else is there overcapacity? You could say there’s overcapacity in battery supply chains. You could say there’s overcapacity in electric vehicles. None of this is substantively meaningful from an economic point of view. And what’s going to happen, just to finish, is China will be the key world supplier of these technologies for the next 20 years, and it will drive some Americans crazy that China supplanted the United States at the center of a major part of the world economy. That is a success of China. It is a failure of the United States, but it has nothing to do with a concept of overcapacity; “overcapacity” is not the right concept to describe this situation.

Chandran Nair: Professor Sachs, wonderful. And particularly in relation to, as you said, solar energy, EVs, etc. I originally come from Southeast Asia, and I’ve been doing a lot of work in Southeast Asia, and even in my own country, Malaysia. So I just want to switch and get your feel for this, because I think your clarification will get people—policymakers particularly—to think about these things.                      

You know, there is a feeling in Southeast Asia, even in Malaysia, where there is now—I don’t like to use the word “flood” because it seems almost derogatory to say that it’s a negative term—but there is an influx of Chinese white goods, for instance, to some things that are fabricated in Malaysia. A lot of Malaysian SMEs—interestingly, owned by ethnic Malaysian Chinese—are feeling the pressure, right? So when I’m asked, “What do you do?” I say, “Well, you go and talk to the Chinese about this.” And you know, there are trade negotiations and then ways that you can do this. But what do you think about the pain that these countries feel? Because China excels at manufacturing these on a scale, and within the free-market economy, you know, is pushing export-driven, pushing all of these things. And these small countries are also sort of squealing and saying, “Hey, we can’t compete with these guys.” And what’s the policy? And I take your point; it’s a really valid one. But what should these countries do in terms of—if we just left to who can do better—we know the Chinese can do better at this, both in terms of efficiency, supply chains, costs, and all of those. So I thought I’d just like your take on how do we deal with that dilemma as well.

Jeffrey Sachs: There’s a broad issue, Chandran, that is a general issue of how to do better in development challenges, because not all of it is China. Malaysia and others will do better if certain kinds of policies are affected. And I want to say a word about that, but then there are some specific things about China as well.

First, China earned its current capacity. It did not come out of nowhere, and it didn’t exist 30 or 40 years ago. China made a concerted set of policy actions to build human skills, to improve the quality of education, to build the physical infrastructure, and to promote innovation. And one can label the plans—the Five-Year Plans, the Made in China 2025 plan, and other parts of China’s policy—which have been enormously successful.

So one thing I would say to countries is: learn what China did right. Don’t just worry about it, but learn what China did right. One of the things that I find the most important of all is that if you look at the PISA scores—which is the Programme for International Student Assessment—the number one score in the world is a region of China, which includes Beijing, Shanghai, Zhejiang, Jiangsu. This time it was four major regions of China. That’s number one in the world in the performance of 15-year-olds in secondary school science, math, and reading. If you look at the top six, it’s all East Asian countries. Something’s going right in China, in Hong Kong, Taiwan (which are listed separately in the PISA rankings), in Japan, in Singapore. This is a phenomenon that is broadly an East Asian phenomenon of excellence in mathematics, in science, and in reading across the public schools. And I was thrilled to see Hong Kong came out with—I think it’s six of the top ten Asian-ranked universities in the recent ranking—which is also an astounding success. Education is the most important ticket to economic development, far and away.

And so this is one thing I would say to all ASEAN countries: Your rankings are not high enough. And you look at the PISA rankings—they are much lower in Indonesia, they’re better in Malaysia, but they could be higher. This is something to take to heart, because this is where ultimately success comes from.

Second, China had an advantage but used the advantage of a large market. Of course, it’s 1.4 billion people. But ASEAN is 700 million people. And I love ASEAN. I want ASEAN countries to get together to really make the common market—which is now RCEP, the Regional Comprehensive Economic Partnership—work. I’m working with ASEAN this year on something that’s been around for 25 years: the ASEAN Power Grid (APG). It’s a correct idea that ASEAN should be an interconnected power grid. China has one, but China’s one country. ASEAN is now 11 countries. It doesn’t have an integrated grid. It’s a major feat to get two countries connected—it’s incredible because of nationalism, because of national institutions. But being divided in that way is to everybody’s detriment. Being unified in an integrated market of 700 million… ah, now you’re talking. That’s twice the population of the United States. That’s a big market. So I’m encouraging truly to invest in the systems to make an ASEAN-wide zero-carbon energy system. And I’m working with the ASEAN Centre for Energy and the ASEAN Secretariat and the member states—including when Malaysia was President of ASEAN last year, this year it’s the Philippines, next year Singapore—to get this right. So this is a second element.

A third element is integration with China itself. Coming to China several times a year, I can tell you unequivocally, without question: Chinese high-tech businesses want to make foreign direct investments in ASEAN countries. That brings technology, it brings capital, it brings jobs, especially it brings the ability to climb the technology ladder for ASEAN. ASEAN should be key producers of electric vehicles. Who’s gonna have the lead in electric vehicles for the next 10 to 20 years? It will be China. But where will the production be? It could be all over the ASEAN countries. And that’s a lot of economic lift. So that’s also a policy decision. By the way, the United States—my own country, which absented itself from the green technologies—tells countries, “Oh, don’t join with China.” But that’s really the geopolitical propaganda. That’s not good sense. Of course, ASEAN neighbors China physically. It’s the natural trading partner, it’s the natural investment partner. Of course, there should be very close relations between ASEAN and China: physical links, Belt-and-Road-type links, technology links, exchange of students and university linkages. Of course, they exist, but they should even be stronger. I wish the United States were a more responsible country. American voters just told you their view of our government, which is thumbs down. And I could not concur more with what the American voters just said about the American government—that it’s a failure. So I think that this means that there’s a very good opportunity for the countries of ASEAN to be lifted by FDI and closer technology and value-chain production linkage and JV opportunities with China. And I would certainly take that opportunity. I think that that’s extremely important.

So all of this is to say that there really is… there is a challenge, no doubt, to be more competitive. But that challenge is one that is not a mysterious challenge. It is to build the physical infrastructure and the human skills and the technology partnerships and the regional scale so that ASEAN is a very good partner with China and one that is mutually benefited by that relationship.

Chandran Nair: Wonderful. That—I mean, it’s very much aligned with what I try and say when people want to listen. We’ve got a few five minutes more, Professor Sachs. I got one more question. And before you came, I was emphasizing that the key—one of the key reasons for China’s rise was the emphasis on strategic intense tech research, and with that, obviously starting with education. And I think your message to ASEAN is loud and clear: let’s try and learn from all of this and let’s cooperate. So my final question to you, and I want to particularly cite your book Commonwealth, which you wrote I think 15 years ago, maybe?

Jeffrey Sachs: 2008 now, so it’s 18 years ago. If I remember correctly—I may have the date wrong—but I think it’s 2008.

Chandran Nair: And it was named Commonwealth: Economics for a Crowded Planet. So I’d like to finish on the issue which you and I are familiar with—and you’re more familiar with, you’ve written a lot—and link it back to the issue of a crowded planet, 10 billion people, consumption-driven growth, the issue of how do we live within not just climate constraints but resource constraints, etc. Put this involution, China’s rise, China’s ability to produce so much—at the same time, we need to address the issue of a crowded world and how do we live within resource constraints? Because on one hand, we’re talking about how we produce things, but at the same time, we’re gonna have to produce things much more intelligently and stop producing useless things, if I can be very flippant. So if you could try and just give us a sense of that as well. And particularly, as you say, ASEAN’s got 750 million people, it might reach 900 million people. That’s a large block of people. Most of them are still in the margins of consumption. How does this thing play out? It’s a big topic, but I think you’re the person to perhaps give us…

Jeffrey Sachs: Let me try—let me have a go at it very quickly. And first to say that two and a quarter centuries ago, around 1800, the world population was around 1 billion, slightly below 1 billion people. Today it is over 8 billion people. So we’ve had an eightfold increase of population during this period, which was the period of a cascade of technology revolutions. That’s a huge impact on the planet to be feeding and supporting 8 billion rather than 1 billion people. But there’s one basic fact that’s important, which is that we’re not going to have that phenomenon of an eightfold increase again. In fact, we’ll not have a doubling again. We’re reaching the peak population of the world somewhere between 9 and 10 billion people, most likely, and then the population will decline. China’s own population will decline from 1.4 billion people today to well below 1 billion people by the end of the century, and on some forecasts to around 700 million people—so half of today’s population. We are not therefore in the age of explosive population growth. There’s only one region still with rapid population growth, and that’s Africa. But even in Africa, fertility rates are coming down now rapidly. India will have an increase of maybe 200–250 million people before it peaks. But basically, we’ve reached the end of population peaking, though we’ll add 1 to 2 billion people more, maybe up to 2.5 billion people more than we have today, but not the kind of soaring population that makes all the challenges that you raised, Chandran, easier. We kind of know where we are, who we are. Now, how do we get our economy to live within what are called the safe planetary boundaries, the safe operating space?

And this is not a generic point that we have a large world. It’s a rather specific point that we have specific kinds of ecological hazards, and we have to address them. One I’ve mentioned: decarbonizing the energy system, because carbon dioxide is the main greenhouse gas. A second major category is sustainable land use. And land use is dominated by agriculture, so it means sustainable farming systems. There’s a lot to say about that; it would take us hours or days to have a good discussion. But that is a set of technologies. It’s rather complex because it’s highly specific to climate, to soils, to tradition, to cultures, to endemic species. But it is a scientific process to ask: how can our agriculture move from being one that rips down forests and drains wetlands and overfishes, to one that sustains what supports us, what feeds us? And there’s voluminous scientific literature and understanding. But it does not work on free-market principles. It works on a rather technology-based regulatory environment, principally adding some market incentives in some areas, but basically on a regulatory basis that you don’t farm here, you don’t chop down the trees here, and you don’t drain the wetlands here.

So all of that is to say that we basically are peaking in population. We have a suite of technologies that need to be adopted. It’s at a global scale, this challenge. There’s no region in the world that escapes these challenges, and no region in the world that can absent itself from participating in the global solutions, such as eliminating the greenhouse gases that are driving the climate change. All of this is feasible. I’ve spent decades of my career looking at trajectories, spreadsheets. This is what the book Commonwealth was about also: that you can identify pathways to actually accomplish what needs to be accomplished. Then come along the Donald Trumps of the world, who are corrupt and ignorant and with a lot of power, and you end up getting diverted for many, many years from what should be the proper trajectory.

Where does China fit into this? In many ways. First, China has its own major ecological crisis. China is the number one producer of greenhouse gases. I just said in a speech here I gave in Shanghai that while China has a target to decarbonize by 2060, I know—because I’ve checked it out—they can do it by 2050, and they certainly should do it by 2050 to save China from grief and to save the world from grief. China has deforested in the past and it’s reforesting now. China faces major pollution and water challenges. It’s done a very good job of reversing many of the major damages, or at least ameliorating the situation, but there’s more to do. But China also will play a unique role for at least the next 10 to 20 years, and that is it will be the major low-cost provider of the technologies to address these challenges—the point I made about photovoltaics. This is a wonderful role. China should be doubling the production of PV so that we have at least 1,300 gigawatts of solar modules installed worldwide every year, so that we can get back on the track that we need to decarbonize by mid-century at the latest.

All of this is to say that this is a complex issue, and it is not one that our normal market categories solve. And maybe we should say—I’d like to pay homage to William Nordhaus, who passed away this week. He was a dear friend and a great economist. He was the first economist to write down in a serious way a dynamic intertemporal model of how the world should look at the question of ending greenhouse gas emissions. By the way, his specific quantitative conclusions I didn’t agree with and weren’t right, but he was a great scholar, perfect gentleman, wonderful man of integrity. Chandran, you knew him well, I know from Yale. And he helped us understand the issues deeply. The point that I would make is that this is what we should seriously be addressing collectively. We’re gonna have COP31 in Antalya just in a few days, but these meetings are not the kind of problem-solving meetings that we really need. This will be the 31st meeting of the signatories to the Framework Convention. They’re not very constructive, these meetings, I have to say—not out of ill will, but it’s not experts with sleeves rolled up saying, “Here’s what we can do.” It’s diplomats arguing over words. And we actually need the sleeves rolled up to say: How are we gonna decarbonize by 2050 rather than 2060? How are we gonna get that ASEAN Power Grid really working? How are we gonna protect the following fisheries or the Southeast Asian rainforest or the disaster that befell the region because of the Sumatra peat burning, which led to mega-pollution all over Southeast Asia in the last couple of months? These are specific, highly complex challenges that require sleeves rolled up and new kinds of policymaking that are a bit about markets, but a lot about the role of public investment, infrastructure, regulation, science, and so forth.

So this is really the world that we’re in. But just to come back to China, I count on China as being, in a way, quantitatively the critical player in this—in supplying low-cost technologies to address this. Not the only one. And as I said, ASEAN should be producing electric vehicles and PV and all the rest, and in partnership with China it will be doing so. But this is the real point: we need to get away from the silliness of “let’s find the market solution.” Markets can do certain things, but they can’t solve this problem. This problem is a planning problem. It’s a complex governance problem. It’s a regional cooperation problem. It’s a global cooperation problem. But it’s a solvable problem.

Editor: Zhiyu Wang