Author: CHUNG Yoon Ngan
Date: 03-04-12 22:32
http://www.chinadailyapac.com/article/learning-experience
Learning from experience
By Liu Shijin
January 4, 2012 - 8:55am http://www.chinadailyapac.com
China's economy has enjoyed an annual growth of 10 percent over the past
30 years, but how long can such high-speed growth last?
According to studies by the Development Research Center of the State Council,
China's growth pattern is similar to that of Germany, which experienced
a slow down in the late 1960s, Japan, which experienced a slow down in the
early 1970s, and South Korea, which experienced a slow down in the late
1990s. There are already signs emerging that China's growth rate will slow
in the next few years.
First, infrastructure investment, the most important engine of growth, is
declining as a proportion of total investment. In 2006, it was more than
30 percent, while it dropped to around 22 percent in 2011. As China's high
growth rate is mainly driven by its huge investment in infrastructure, if
infrastructure investment drops the growth rate will slow.
Second, in the last three years, the growth rate of the provinces and municipalities
with good economic performance along the southeast coast, whose total GDP
accounts for more than half of the national GDP, has lagged behind other
regions.
Third, people are worried about potential risks in local governments' financing
platforms and in the real estate market. To be more specific, people are
concerned whether their investments in these areas will pay off. According
to our research, the potential gains in these areas are not particularly
great.
Taking all these signs into consideration, it seems the transition from
high-speed growth to intermediate-speed growth may have already begun.
Although some may have a pessimistic view of this slow down, it is actually
a normal pattern of economic growth.
However, some officials, especially those from local governments, believe
the slowing down is a result of government policies, and that if we need
to, we can introduce stimulus policies to speed up the growth rate. But
this belief is incorrect. As the growth rate is already slowing, if we apply
administrative means to speed up the growth rate, it may work for a short
period but it will not last for long, and may even have severe unwanted
consequences. For example, the government in Japan tried to stimulate its
economy in the 1980s, but this led to asset bubbles and long-term economic
recession. It is a lesson we should heed.
Our estimate for China's economic growth in the intermediate-speed period
is around 6 to 7 percent, which the country has the potential to maintain
for 10, 15 or even 20 years. During the transition period over the next
two to three years we hope to see a stable annual growth rate of 8 to 9
percent.
How can China improve its industrial competitiveness during this transition
period? Several issues should be highlighted. Compared to anytime in the
past 30 years, there are more uncertainties now and therefore a greater
likelihood that the government or corporations will make wrong decisions.
China's infrastructure construction and many important industries, such
as cement and other building materials, are entering their historical peaks
of demand and capacity. If we over-invest, it may cause problems. Meanwhile,
some small and medium-sized enterprises in southeast China have experienced
financing difficulties and great pressure from shrinking orders and a rapid
rise in the costs of production, reflecting the decline in market space
available when the growth rate slows.
We should prepare for this, as on entering a period of slower growth there
will be a new industry pattern featuring a few large enterprises with substantial
advantages in economies of scale, together with a horde of small and medium-sized
enterprises with specialized advantages. The government should introduce
policies during the process of adjustment that are in accord with market
rules rather than arbitrarily arranging the enterprises.
The most important lesson that we have learned from the international financial
crisis is the development of the virtual economy and the real economy may
not be mutually beneficial.
The main reason why Western countries have not emerged from the crisis is
that the real economy, including manufacturing, has no new growth point.
China should learn from this lesson since manufacturing will still be the
country's most competitive advantage in the global industrial system in
future.
Although there is a great deal of emphasis on the service industry, we should
also note that the segment of the service industry with the greatest potential
is the producer service industry, such as research and development, logistics,
finance, and information services. They are all aimed at improving the
efficiency of manufacturers. Therefore, whether the producer service industry
can develop well or not, will to a large degree depend on whether they can
contribute to the development of manufacturing.
The article is based on a speech by the vice-president of the Development
Research Center of the State Council at the Third China Economic Prospects
Forum on Dec 25.
Posted to asiawind.com
By CHUNG Yoon-Ngan (鄭永元)
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