HKUST Business Review

Costs and Consequences China, in turn, has benefited from surging export earnings, but there are significant costs. These can be measured in various ways, including the consequences for the rural population, environmental impacts, and an uneven distribution of prosperity. Unlike the US, the Chinese government has retained a sizable share of wealth to reinvest in industry, bolster foreign exchange reserves, or lend to other countries. “At the root of the problem is how the wealth accumulated on both sides should be distributed. In the US, the globalization of manufacturing has weakened the domestic industrial base, undermining the government’s ability to generate tax revenue and redistribute wealth through social programs. On the other hand, after decades of rapid industrialization, China must now address structural imbalances left over from earlier stages of development, like environmental degradation and low wages for migrant workers,” Li said. “That issue has caught up with us and caused the previous ‘musical chairs’ to stop. People argue that the US is a market economy and China is a planned economy, but that is a superficial look at the two outcomes. Regardless of the system, we all know the elite possess a much greater share of national wealth than ordinary people and have a much greater chance of success.” The Path Forward He noted that when the US talks about bringing manufacturing back home, the underlying issue is really about restoring a tax base, enabling state and federal governments to escape their debt trap. This plan may or may not succeed. However, as the global economy resets, China’s priority must be to increase domestic consumption to compensate for declining exports. It must also be prepared to redistribute its accumulated wealth more broadly, ensuring that rural populations gain access to better education, healthcare, and social services, while addressing environmental debts. Overall, Li emphasized that countries must brace for a period of restructuring and a somewhat lower level of economic activity. Yet there remains an underlying confidence that capital holders will find ways to adapt. Financial Solutions for Small Businesses “China has the ability to start another ‘train’ because it has money to distribute to the lower half of the population,” Li said. “Financial services play a vital role in assisting manufacturing, consumption and investment.” Through the work of Micro Connect, Li is already helping to advance these developments. The company was established to facilitate revenue- based financing to small businesses, even at the grassroots level in rural China, to meet the practical needs as they seek growth. The digitalization of finance has made this possible. The services offered are more inclusive, featuring efficient payment systems, risk management controls, and easy access for users of online platforms. Li likened these services to vessels carrying blood through the human body, suggesting that capital is now reaching the most remote areas to enable local expansion and support new enterprises. The revenue-based financing, often short-term and typically no more than three years, encourage businesses to grow “a vegetable not a tree”. This initiative is proving transformative for small communities and creating new avenues for larger institutions with spare capital to invest in such schemes. At the root of the problem is how the wealth accumulated on both sides should be distributed. Charles Li Founder of Micro Connect HKUST Business Review 24