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China’s in transition, but I’m an optimist: Koivu

It’s not every Finn that happens to be an expert on China. But Nordea’s newly-appointed chief economist for Finland, Tuuli Koivu, is precisely that and more.
Banner photo: TopPhotoImages/gettyimages

There’s any number of ways you can while away a half-hour commute to work. In the smart phone era, it’s the perfect time to catch up on social media, listen to music or perhaps just get some much-needed sleep stolen away by one brandy too many or the demands of a restless infant. Twenty years ago, it might have been much the same. Sub in the latest blockbuster novel for the phone perhaps or just a read of the morning newspaper alongside a hastily-snatched breakfast, and you’re more or less there.

But not Tuuli Koivu. When Koivu started out at the Bank of Finland after graduation, she used to spend her commute buried in mandarin. While others snoozed, read or stared vacantly, Nordea’s newly-appointed chief economist for Finland would be writing out her characters in endless repetitions as part of a reinforcement strategy that had served her well as a student at university.

It was in fact while she was a student in the mid-1990s that she first threw herself into China. When the opportunity to take evening classes in mandarin came along, Koivu took it as a challenge and, while the majority of the class found ‘better’ ways of spending their evening within a month, she was still going strong two years later.

The ‘accidental’ China specialist

Such perseverance says much about Koivu’s character. She may refer to her career path towards China specialist as “something of an accident”, (and she’s not Nordea’s only China expert) but the reality is far removed.

She initially had responsibility for the Baltic States while working at the Bank of Finland Institute for Economies in Transition and when they joined the European Union in 2004 thereby elevating their status beyond the unit’s framework, it was a natural transition for Koivu to take over the China brief.

“It was very lucky really and when I moved into this area, I had no idea China would progress in the way it has now,” says Koivu. “You have to have a curiosity about the world and I had a passion to understand developing economies.

“China just happened to be the biggest of them all.”

With the US-China trade war raging, that has inevitably made Koivu a chief economist in demand among local media. And, while clearly China-positive, she does have serious concerns for the direction the globe’s second largest economy is taking.

“When I started studying China properly in the early 2000s, there was a general consensus among economists that it was moving step-by-step towards a market economy,” says Koivu. “But the further they’ve gone on the path, the more difficult it has come to continue on the reform process.”

You have to have a curiosity about the world and I had a passion to understand developing economies. China just happened to be the biggest of them all

Podcast Nordea Markets

The hot seat: Tuuli Koivu has taken over the chief economist role in Finland this year. Photo: Nordea Markets

Waiting on fresh reforms

Koivu points towards China’s entry into the World Trade Organisation in 2001 as the most recent catalyst in the country’s reform programme and a free-spirited entrepreneurial drive in the regions that allowed business to flourish hand-in-hand with an influx of foreign direct investment encouraged by those early reforms. And what reforms they were. It’s estimated some 500 million Chinese moved to the big cities from the country seeking their fortune, a dream that for many was dashed by the harsh reality of trying to adapt to much higher living costs, long working hours and difficult housing conditions.

But, says Koivu, “it is worrying” that the pace of reform, perhaps as a consequence of the massive inequalities that China’s breakneck race towards economic success has fostered, has ground almost to a halt in the last few years and, for now, shows little sign of picking up the slack again.

“When I first started traveling to China and wanted to know what was really going on, I would go to Shanghai or Guangzhou, rather than Beijing,” says Helsinki-based Koivu. “But everything has become centralised now and that means it is all policy driven from Beijing and it is definitely a step back.

“The big reform really hasn’t happened yet.”

Centralisation has of course also seen power concentrate in the hands of the president Xi Jinping who has already circumvented communist party rules on term limits and has overseen an anti-corruption drive that many observers consider a front for destroying opposition and keeping society firmly in the grip of Beijing and the party. A glance at this week’s demonstrations in Hong Kong (editor’s note: this interview took place before the demonstrations began) only serves to illustrate the divisions on the edges of Chinese society.

But it’s more nuanced than it seems, says Koivu. “There’s been a regression, for sure, but Xi is actually facing a lot of opposition in Beijing. There is probably a competition going on inside the top circles and while there has been a consensus that a strong leader is necessary, there are real concerns over the direction that he is taking.”

Koivu is likewise somewhat sceptical of Beijing’s pivot towards Moscow in recent years which has seen the two huge neighbours conclude major gas deals, engage in military cooperation, and XI meet his counterpart Vladimir Putin with such regularity, you might be fooled into thinking this was a bromance on a par with the tango enjoyed by Ronald Reagan and Margaret Thatcher in the 1980s.

“It may look fruitful on the surface but it is actually a really difficult relationship,” says Koivu. “It’s a very complex relationship and neither wants to take direction from the other. Russia is really afraid of China.”

Koivu’s point is clear. While China may be going through a transitional phase, she is by no means convinced that the turn towards Russia or the halt in the reform process are indicative of a permanent change of direction. Where she is less equivocal is the trade war which she sees as likely to continue in one form or another for many years.

Everything has become centralised now and that means it is all policy driven from Beijing and it is definitely a step back

China rising

“The reasons for the trade war are very obvious,” she says. “China ultimately is challenging the US as a bigger economy and from a US perspective, it is much more scary to see this kind of China rising.”

She also has a warning for China that, regardless of the seemingly random tangents in president Donald Trump’s tweets, there is a powerful consensus in Washington that the trade war is a necessary tool to bring China to heel.

“Washington may see Trump’s tweets as a bit too loose, but it is very united that something has to be done,” says Koivu. “The way to defuse this ultimately would be for China moving back to a reform track.

“If you have a free market economy, then the likelihood is more economic cooperation and an impetus towards peaceful developments.”

That’s not to say Koivu doesn’t have some sympathy for the path China has chosen to take in recent years. She can see, at least in economic terms, why the problems that have dominated the developed world since the great financial crisis might have fostered some concern in Beijing.

“When the financial crisis hit, they noted how weak developed economies were,” she says. “So many vulnerabilities came to the surface and they are thinking twice now before going further down that path.”

Europe’s current travails with the rise of the Far Right, the Brexit fallout and the somewhat vague but nevertheless pernicious challenge to democracy has also infiltrated the Chinese psyche too. “In all my time visiting China, I’m yet to meet anyone who actually wants to have democracy,” she says. “They’re probably happier to put their trust in the central government than the 1.4 billion people around them.”

Nevertheless, despite the many problems China faces on both a global and local level, she remains positive on its future.

“The Chinese at the micro level still have that huge grassroot drive to work hard, and to get rich,” she says. “That will continue as long as the government doesn’t make the kind of political mistakes that kill that.

“I really am at heart a China optimist.”

Looking ahead: Despite its many problems, there are good reasons to be optimistic on China's future. Photo: TangMingTung/gettyimages

The Finnish perspective

Koivu is of course not just an expert on China. She happens to know her own country very well too. And she’s more than willing to accept that the country’s post-war history has been very much shaped by its proximity to two giant if vastly different blocs on its border – the Soviet Union until 1991 and the European Union ever since.

“We always had a very pragmatic attitude towards the Soviet Union,” she says. “Our post-war view was to benefit as much as we could from the big neighbour on the border.”

While the Soviet Union exacted reparations from Finland post-1945, Helsinki looked inwards and embarked on a journey towards industrialisation that has enabled the country to enjoy some of the highest living standards in the world while co-existing with the union, and since 1991, the new Russia. It’s a new Russia of course that has been viewed with some concern in Helsinki, given the nasty war between the two countries in 1940 when Stalin used the country as a testing ground for an inevitable confrontation with Hitler’s Germany.

“We’ve noticed that Russia has changed in a direction that we don’t really like,” says Koivu. “It’s a shame because we’ve lost some possibilities here. Look at St Petersburg, for example, and the kind of trading relationship we could have developed there.”

But, while that’s been a missed opportunity, that’s been more than compensated by Finland’s growth within the EU after it gained membership in 1995. It has since gone on to become more ‘fully-fledged’ than any of its Scandinavian neighbours as the only euro adopter even if the financial crisis exposed vulnerabilities that are still playing out today.

“It was very much a political decision and there are many opinions for and against us being part of it,” says Koivu. “The economic fundamentals were left behind and unfortunately, the financial crisis showed we weren’t really ready for monetary union.”

Koivu says Finland is now better insulated against future economic catastrophe having taken some steps to address competitiveness in, for example, new wage clause agreements, but she’s not sure they “are yet flexible enough.”

Still, a city-life culture in the major urban centres is thriving, she says, the economy is stable and, while Nokia’s plunge into virtual oblivion undoubtedly dragged on the economy, Finland has also been able to steer clear of the classic western economy blights of housing bubbles and the propensity for a crash.

Indeed, she says that when it comes to understanding the world, Finland has to sometimes remind itself that it is “one of the outliers” in a global sense where it resides, for example, “at one extreme of the equality debate,” she says. “This sometimes creates a problem in how we interpret the world.”

Nevertheless, it is her optimism that continues to shine through, whether she’s addressing her home economy, the EU, China or other parts of the world.

“As an economist, I’ve been trained to always see the dark clouds but you can’t only see the darkness,” she says. “The question is what risks out there are worth taking.”

“Clients still want to know where to put their money,” she adds. “It’s up to us to help them see the opportunities.”

It’s a neat summary of the chief economist’s mantra. It’s also apt given those commutes in the dim and distant past when she ploughed through her mandarin. What started out as a hobby, became an opportunity and then a career. It was a risk. But a risk that’s paid off handsomely.

Cool Helsinki: Finland's capital has earned a well-deserved reputation as one of Europe's most livable cities. Photo: MarkoMastosaari/gettyimages

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