05-11-2013, 10:13 AM
China’s economic reform: It is for real this time?
BEIJING — The message from Beijing could not be clearer: China needs to shift to a more balanced economy that is socially and environmentally sustainable.
That was the conclusion of a key Communist Party meeting a decade ago, yet what followed was more of the same: Rapid investment-led expansion, which turned China into the world’s No 2 economy, but left it laden with debt, environmental damage and excess capacity.
Fast forward to 2013 and China’s new leadership is again promising more harmonious development. The question is how to tell whether, this time, it is for real.
One encouraging sign suggesting that President Xi Jinping, Premier Li Keqiang and their team mean business is their greater tolerance for slower economic growth while they carry out reforms. After three decades of double-digit rises in gross domestic product each year, the leaders have pencilled in 7.5 per cent for this year — the weakest pace since the late 1990s.
“Since the reforms of the late 1970s, leaders have always, without exception, said the growth rate is the first priority,” said Professor Zhao Xijun, deputy head of the Finance and Securities Institute at Renmin University in Beijing. “The new leaders don’t say they don’t pay attention to growth, but the new priority is the stability of growth rather than a high growth rate.”
Chinese leaders have repeatedly said China needs to wean itself off a reliance on investment and exports, which in parts of the country has led to industrial overcapacity and pollution, and rely more on services and consumption, more akin to the developed economies of the West.
To do that means encouraging tens of millions of Chinese to move to cities to live, while creating a social safety net and laws, particularly on land ownership, that will give them the confidence to do so.
The ultimate test of the new team’s appetite for reform will be its actions, but the four-day Third Plenary Session of the Communist Party’s leadership starting on Saturday will offer some early clues.
By nature, the pronouncements are broad and often deliberately cryptic, but China watchers believe the tone and level of detail can reveal where the policy focus will be.
“For example, the state-owned enterprises’ reform will be touched on, but it will probably be in very general language and similar to one used before,” said Mr Haibin Zhu, Chief China Economist with JPMorgan in Hong Kong. “But in some key areas, like fiscal or land reform, they will be using more detailed language.”
In the end, what will matter more is what the authorities do in the next six to 12 months. The consensus view in Beijing is that the authorities are not ready to take on state-owned giants that dominate sectors such as finance or energy, or to let the struggling ones fail.
The focus therefore will be on the rest of the agenda: Financial, fiscal, land and government administration reforms, pricing of resources, changes to social security and opening protected sectors to private and foreign competition. All are seen contributing in one form or another to China’s push towards more private investment, consumption, services and high-value manufacturing, so any progress there would be welcome by investors and economists.
“Many of these things hang together and you can’t really go the full length on one without another, so any significant step on any of these will be welcome,” said Mr Markus Rodlauer, deputy head of the International Monetary Fund’s Asia-Pacific Division in Washington.
What few seem to be advocating is for Beijing to break with its gradual, cautious approach.
“In a way, a gradual move on all of those (reforms) is what will in the end deliver,” said Mr Rodlauer, who heads the fund’s China mission. “China has been well served by its strategy of gradual, careful reforms and does not need nor should it venture suddenly to implement Big Bang reforms.”
Economists say some caution is understandable, given many of the reforms mean handing over controls to market forces. The coming months will show how quickly the authorities want to go.
But given no one knows how much time China has before its debt piles up and industrial overcapacity, environmental degradation and social tensions prove hard to control, erring too much on the safe side may be risky too.
“We don’t know how much time Beijing has and whether the incremental approach they’ve used in the past is still possible,” said Dr Gudrun Wacker, a China policy specialist at the German Institute for International and Security Affairs, a Berlin-based think-tank. “I believe they will spend the next five years trying to manage the problems and not do anything drastic, but it’s like reading from tea leaves.” REUTERS
http://www.todayonline.com/chinaindia/ch...-real-time
BEIJING — The message from Beijing could not be clearer: China needs to shift to a more balanced economy that is socially and environmentally sustainable.
That was the conclusion of a key Communist Party meeting a decade ago, yet what followed was more of the same: Rapid investment-led expansion, which turned China into the world’s No 2 economy, but left it laden with debt, environmental damage and excess capacity.
Fast forward to 2013 and China’s new leadership is again promising more harmonious development. The question is how to tell whether, this time, it is for real.
One encouraging sign suggesting that President Xi Jinping, Premier Li Keqiang and their team mean business is their greater tolerance for slower economic growth while they carry out reforms. After three decades of double-digit rises in gross domestic product each year, the leaders have pencilled in 7.5 per cent for this year — the weakest pace since the late 1990s.
“Since the reforms of the late 1970s, leaders have always, without exception, said the growth rate is the first priority,” said Professor Zhao Xijun, deputy head of the Finance and Securities Institute at Renmin University in Beijing. “The new leaders don’t say they don’t pay attention to growth, but the new priority is the stability of growth rather than a high growth rate.”
Chinese leaders have repeatedly said China needs to wean itself off a reliance on investment and exports, which in parts of the country has led to industrial overcapacity and pollution, and rely more on services and consumption, more akin to the developed economies of the West.
To do that means encouraging tens of millions of Chinese to move to cities to live, while creating a social safety net and laws, particularly on land ownership, that will give them the confidence to do so.
The ultimate test of the new team’s appetite for reform will be its actions, but the four-day Third Plenary Session of the Communist Party’s leadership starting on Saturday will offer some early clues.
By nature, the pronouncements are broad and often deliberately cryptic, but China watchers believe the tone and level of detail can reveal where the policy focus will be.
“For example, the state-owned enterprises’ reform will be touched on, but it will probably be in very general language and similar to one used before,” said Mr Haibin Zhu, Chief China Economist with JPMorgan in Hong Kong. “But in some key areas, like fiscal or land reform, they will be using more detailed language.”
In the end, what will matter more is what the authorities do in the next six to 12 months. The consensus view in Beijing is that the authorities are not ready to take on state-owned giants that dominate sectors such as finance or energy, or to let the struggling ones fail.
The focus therefore will be on the rest of the agenda: Financial, fiscal, land and government administration reforms, pricing of resources, changes to social security and opening protected sectors to private and foreign competition. All are seen contributing in one form or another to China’s push towards more private investment, consumption, services and high-value manufacturing, so any progress there would be welcome by investors and economists.
“Many of these things hang together and you can’t really go the full length on one without another, so any significant step on any of these will be welcome,” said Mr Markus Rodlauer, deputy head of the International Monetary Fund’s Asia-Pacific Division in Washington.
What few seem to be advocating is for Beijing to break with its gradual, cautious approach.
“In a way, a gradual move on all of those (reforms) is what will in the end deliver,” said Mr Rodlauer, who heads the fund’s China mission. “China has been well served by its strategy of gradual, careful reforms and does not need nor should it venture suddenly to implement Big Bang reforms.”
Economists say some caution is understandable, given many of the reforms mean handing over controls to market forces. The coming months will show how quickly the authorities want to go.
But given no one knows how much time China has before its debt piles up and industrial overcapacity, environmental degradation and social tensions prove hard to control, erring too much on the safe side may be risky too.
“We don’t know how much time Beijing has and whether the incremental approach they’ve used in the past is still possible,” said Dr Gudrun Wacker, a China policy specialist at the German Institute for International and Security Affairs, a Berlin-based think-tank. “I believe they will spend the next five years trying to manage the problems and not do anything drastic, but it’s like reading from tea leaves.” REUTERS
http://www.todayonline.com/chinaindia/ch...-real-time