Our lives have been impacted by the tremendous growth of China over the past 50 years. The question is: what do we have ahead of us?
Daniel H. Rosen, Jack Wadsworth Fellow, Asia Society Policy Institute, addressed these questions today at the Asia Society Policy Institute Australian launch of the Institute’s first report: “Avoiding the Blind Alley: China’s Economic Overhaul and its Global Implications”.
China’s growth from 2000 to 2012 has been unprecedented. This growth was championed by Deng Xiaoping, who opened up China to the world from 1992.
The sheer number of people in China moving into the urbanised workforce made a tremendous contribution. However the impact of the one child policy means China’s labour force is destined to shrink — at least for the foreseeable future. Education can make up for this shortfall to a point; however it will not fill the deficit.
Interestingly, the 2000s are referred to as a lost decade for China, in regards to lost productivity. Reform here is key. President Xi Jinping will not weather the next ten years without a crisis unless he does something drastic to change the road China is on. That is, he must take bold steps to institute a new model if the nation is to avoid crisis.
Mr Rosen evaluated China’s GDP outlook and concluded that in the best-case scenario – a soft landing through 2020 – reforms permit the redeployment of capital from wasteful uses to high-return sectors, so capital stock growth and TFP improvements deliver a combined GDP growth rate of 6%. If reforms stall, the productivity gains from adjustment will be lost, and increasingly private capital may or may not continue to invest, leaving China with at most 3% growth in a hard landing scenario or 1% at best in a crisis.
This is why China must open to the world. Yet there is scepticism in China that the country can change its ways. A stark change will be a profound shock to China.
Mr Rosen took apart the 60 decisions made in President Xi Jinping’s economic reform program (announced at the Third Plenum in November 2013) to see if there was a coherent plan. Mr Rosen then looked for evidence that the program has begun implementation.
He found there has been a revised mission statement, which is:
- Maintain macroeconomic stability
- Strengthen and improve public services
- Safeguard fair competition
- Strengthen oversight in the market
- Maintain market order
- Promote sustainable development
- Promote common prosperity
- Intervene is situation where market failure occurs
He concluded the Chinese Government is not taking a ‘big bang’ approach. It has instead developed nine principals:
- Centre local reform
- Competition policy
- Financial system
- Trade and investment
- State enterprises
- Labour and welfare
Evaluating this, Mr Rosen came to the conclusion that China is moving ahead much more than anyone expected; however not equally in all areas.
Given these findings, Mr Rosen concluded a GDP outlook of 6 per cent growth.
His report conclusions were:
- A game-changing reform program
- A convergent economic picture – with idiosyncrasies
- Plenty of exceptions and counter-indications
- A notably fast start, and a move to transparency
- A real prospect for political adjustment?
- His recommendations were:
- Gauge incremental progress
- Demonstrate support for the reform
- Focus on a domestic response
- Include a multilateral element
- Stop negotiating for what Beijing is already doing
The discussion then moved into a panel with:
- Professor Kerry Brown, Executive Director, China Studies Centre, University of Sydney
- Andrew Low, Chief Executive Officer, Redbridge Grant Samuel
- Dr Geoff Raby, Co-Chair, China Practice Group, Corrs Chambers Westgarth & Vice Chairman, Macquarie Group China
- Doug Ferguson, Partner in Charge, Asia Business Group, KPMG (Moderator)
The report – background:
In November 2013, Chinese President Xi Jinping and other leaders announced a bold and comprehensive program of economic modernisation, backed up by political reforms. The degree of boldness indicates that after 35 years of world-beating economic performance, China’s development model is obsolete and in need of urgent, not gradual, replacement. To justify the risks, President Xi quoted an impassioned plea for policy modernisation by his predecessor Deng Xiaoping: the only way to avoid a dead end — a blind alley — is to deepen reform and opening both at home and with the world.
Despite this clarion call, observers in China and abroad have found several reasons to wonder what shape the reforms will take and whether the reform program will set China’s economy on a new path to sustained growth, and bolster its trade and investment relationships, which have great importance for the global economy and for governments and businesses around the world. With its report Avoiding the Blind Alley: China’s Economic Overhaul and Its Global Implications, the Asia Society Policy Institute offers new and crucial insights on the changing profile and prospects of what will soon be the world’s largest economy. The report, produced in collaboration with the Rhodium Group and written by Daniel H. Rosen, clarifies the ambitions of China’s economic reform program, assesses the progress China has made in implementing reforms, and forecasts the impacts the program will have on China’s economy and the world economy.
This article was originally published on the Asia Society Australia website.