Thursday, August 19, 2010

After China becomes 'second' largest economy

16:51, August 16, 2010

By Li Hong

Now it is official that China's economy has surpassed Japan as the world's second-largest, as Japanese government figures released today showed its economy grew only 0.4 percent in the April-June quarter, lower than China's 10.3 percent expansion or $1.34 trillion in GDP for the same period. It is by all counts a great feat achieved by China, and a milestone made by 1.3 billion people.

While we could drink beers to mark our jubilation, but this country has no reason to be complacent. It isn't time for us to pat on each other's shoulders and settle down for a rest. We have passed Britain, France, Germany, and now Japan, but our ultimate goal is, naturally, to reach the pinnacle by surpassing the United States and, once again, becoming the largest economy.

It is certainly no easy job. The difficulties lying before us will look like the mountains, which block our road and scuttle our confidence. This country not only needs to continue working hard, as in the past 30 years, but also to work clever, competing with the United States and other economies in innovation, management and government steering art.

First, we should maintain our tradition, be humble and not thump chests to unnerve others. America's GDP of $14 trillion is three times of China's, and its per-capita GDP leaves China's far behind. Despite China's spectacular ascendance since 1980, it will have to take another 15-25 years of painstaking efforts for this country to re-emerge as the world's economic superpower.

The path of climbing the mountain won't be smooth. It will put on test our physique and our endurance. The role of the cheer-leader is indispensable. China's present economic policies, centering on practicality and maneuverability, should not alter. The systematic economic reform scenarios – begun with the Chief Architect Deng Xiaoping, should not change course.

To expand China's economy, the cheer-leaders in Beijing shall continue to focus on rigorous investment in infrastructure and technology, increase home consumption, and improve exports. In the next 10 years, urbanization will take the fast lane, and high-speed trains facilitating mobility and new urban housing projects are to take the center stage of explosive growth. Social security safeguards of all Chinese will be enhanced to support domestic consumption. Also, preferential tax treatment and fiscal incentives will be used to inspire innovations, no matter they are new energy strains or environment-protecting technologies.

The government has a due role to play here. Its major responsibility is to ensure a healthy and sustainable development of the economy. When bubbles in asset or whatever markets are arising, it should detect them and curb them in an appropriate manner. When economy shows obvious slowing patterns, it should intervene with a stimulus, and stop it from a free fall. And, always remember, the procedure taken by some Western economies in the past few years to dilute government's regulation and oversight has been proved to be backfiring.

As the world is increasingly knitted together, China's mushrooming businesses must have the vision to go global. If the developed economies throw barricades to Chinese investments, our firms need to concentrate on new and rising economies in Asia, South America and Africa. China's investments will continue to bring jobs and wealth to the locals, with no strings attached.

With regards to China's currency policy, it is correct to keep the yuan flexible, but incrementally gaining in value against all major currencies, in order to avoid unintended or even destructive ripple effects on China's and others' economies. China's set policy of putting the yuan to the market, and ultimately becoming a global reserve currency, should not change.

However, well-choreographed economic policies are not enough to ensure China's reaching the top. Its success needs prudent political policies and active diplomacy as safeguards.

Domestic political and social stability is all the more crucial. Currently, the government must launch a relentless war on official corruption, especially, clamping hard on those willing to trade the power in their hands with money. And, it must increase the income of low-tier residents, and avoiding the gap between the rich and the poor. If not solved, the income divide could become a serious destabilizing factor.

With regard to active diplomacy, China needs to forge friendly ties with all its neighbors, and never pose its nose to or bully any country, big or small, despite its rising economic clout. We have been telling the world: China will be a different world power.

The articles in this column represent the author's views only. They do not represent opinions of People's Daily or People's Daily Online.

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